House of Commons
Session 2006 - 07|
Publications on the internet
Other Bills before Parliament
Bill Home Page
|Income Tax Bill|
These notes refer to the Income Tax Bill as introduced in the House of Commons on 7th December 2006 [Bill 14] Schedule 1: Minor and consequential amendments
Schedule 1: Minor and consequential amendments
2917. This Schedule makes consequential amendments.
2918. The commentary on this Schedule makes specific points about certain of the amendments made.
Part 1: Income and Corporation Taxes Act 1988
2919. The amendments ensure that section 9 will not operate on the provisions in this Bill to convert them into provisions of the Corporation Tax Acts. They mirror parallel amendments made by ITTOIA.
2920. Section 118 of ICTA has been substantially amended to incorporate definitions formerly included in section 117 of ICTA. Section 117 sets out the rules for the restriction of certain loss relief for individuals who carry on a trade as a limited partner while section 118 sets out similar rules for companies. Section 117 has been rewritten (see clauses 104 to 106) and repealed, so various definitions from that section need to be incorporated directly into section 118.
2921. The amendments to this section, and other provisions of Chapter 1 of Part 7 of ICTA, have the effect that entitlement to personal reliefs for individuals who, under the source legislation, were able to claim the reliefs only by virtue of meeting the condition in section 278(2)(a) of ICTA is provided for by these provisions, as amended, rather than by the provisions of Part 3 of this Bill. See the overview commentary on Part 3.
2922. Subsection (3) is repealed because that rule is now in Part 2 of this Bill.
2923. This new section corresponds to clause 58 of this Bill. The same oversight corrected there is corrected here also. See Change 8 in Annex 1.
2924. This new section corresponds to clause 43 of this Bill.
Sections 257BA, 257BB, 257C and 265
2925. One effect of these amendments is that transfers of blind person's allowances or married couple's allowances claimed under these provisions can be made only to other individuals whose entitlement to those allowances arises under these provisions, rather than under the provisions in Part 3 of this Bill. See Change 7 in Annex 1.
Bill 14EN (III) 54/2
2926. Section 266(6) and (6A) of ICTA are repealed, as they are obsolete. The Association of Friendly Societies have confirmed that no such policies have been written for many years and that all such existing policies have been converted to "paid-up". They agree that the provision is no longer needed.
2927. This section will now govern entitlement to personal reliefs for a non-UK resident individual who is a Commonwealth citizen or an EEA national and does not meet the requirements of clause 56(2). It also applies to all individuals who are entitled to mainstream life insurance relief under section 266 of ICTA.
2928. Clause 967(3) provides that the enterprise investment scheme (EIS) clauses in Part 5 of this Bill do not have effect in relation to shares issued before 6 April 2007. Since it is helpful to apply Change 56 in Annex 1 to such shares when this Bill comes into effect, there is a consequential amendment to section 312(2A) of ICTA. This applies the new interpretation of an administration reflected in clause 252(2) to shares issued before 6 April 2007. The amendment will have effect where the administration commences on or after 6 April 2007 in accordance with the commencement provision in clause 967(1).
Section 349(3A) and (4)
2929. References to qualifying deposit right in sections 349(3A) and (4) have not been rewritten as they are obsolete. See Change 126 in Annex 1.
2930. The only interest relief remaining in ICTA is for interest payments on a loan to buy a life annuity by virtue of section 365 of ICTA. The relief is given under section 353 and the amendment makes clear that relief is given as a tax reduction.
2931. Section 368 is not being retained. It is very unlikely that interest would qualify for relief by virtue both of section 365 of ICTA and of some other provision. See Change 148 in Annex 1.
Sections 459 to 461B
2932. Before the introduction of corporation tax in 1965, friendly societies were within the scope of the charge to income tax and were provided with an exemption from income tax. Since 1965 they have been within the scope of the charge to corporation tax and are not within the charge to income tax and so an exemption from income tax is not needed.
2933. Sections 459 to 466 provide exemptions for friendly societies. These provisions have their origin in FA 1966 (one year after the introduction of corporation tax) which provided for the taxation of profits of registered friendly societies above the exemption limit as if the society were a mutual insurance company (see section 463).
2934. Section 459 exempts unregistered societies from income and corporation tax if their income does not exceed £160. The low exemption for unregistered societies was maintained.
2935. Section 460(1) provides a similar exemption from income tax and corporation tax for registered friendly societies.
2936. Section 461 is concerned with exemption from profits, other than those arising from life or endowment business principally for societies registered before 1 June 1973. Accordingly, redundant references to income tax have been removed.
2937. Section 461B is concerned with exemption from profits, other than those arising from life or endowment business for qualifying societies and contains similar redundant references to income tax in subsections (1) and (5). Accordingly these have been removed.
2938. Section 467(1) provides tax exemptions for trade unions and employers' associations. It contains a reference to income tax which is redundant and which has therefore been removed.
2939. Before the introduction of corporation tax in 1965, trade unions and employers associations were within the scope of the charge to income tax and were provided with an exemption from income tax. Since 1965 they have been within the scope of the charge to corporation tax.
2940. This section's application to the trustees of an unauthorised unit trust is rewritten in this Bill. Some provisions have been retained and new provisions inserted to set out the treatment of payments to unit holders liable to corporation tax.
2941. References to a qualifying deposit right in section 477A(1A) and (10) have not been rewritten as they are obsolete. See Change 126 in Annex 1.
2942. Section 481(5A) of ICTA (deposit rights) has not been rewritten as it is obsolete. See Change 126 in Annex 1.
2943. The International Maritime Satellite Organisation (INMARSAT) have confirmed that the exemptions provided have become otiose. The opportunity has been taken to repeal the income tax and corporation tax exemptions at the same time.
2944. The references to income tax have been removed from section 519A of ICTA. These are not needed because, were it not for the exemption, all health service bodies would be subject to corporation tax, rather than income tax.
2945. Following the House of Lords decision in Agassi v Robinson, section 556 of ICTA has been amended to make clear that when a payment or transfer of the type referred to in section 555 of ICTA is made, no liability to corporation tax will arise regardless of whether there is a duty to deduct income tax under section 555 of ICTA. See Change 149 in Annex 1.
2946. New subsection (1A) ensures that the amount charged forms part of "total income" in Step 1 of clause 23.
2947. This section provides relief for an investment company which incurs an allowable loss for the purposes of corporation tax on chargeable gains on the disposal of shares in a qualifying trading company. If the conditions of the section are met, the amount of the allowable loss may be set off against income for the purposes of corporation tax. This section is supplemented by sections 575 and 576 of ICTA.
2948. Section 573(4) provides in part that, if relief for an allowable loss is obtained by a company under the section by set off against income for corporation tax purposes, no deduction is to be made for the loss for the purposes of corporation tax on chargeable gains.
2949. This amendment omits that provision. The equivalent provision in section 574(1) of ICTA has not been included in Chapter 6 of Part 4. Instead section 125A(1) of TCGA, introduced by this Schedule, contains both provisions.
2950. This amendment inserts a new subsection (4) defining "new consideration". This definition was formerly in section 576(5) of ICTA which is repealed.
2951. This section supplements sections 573 to 575 of ICTA. The provisions of section 576(1) to (1B) and (4) to (5) are included in Chapter 6 of Part 4 so far as they supplement sections 574 and 575 of ICTA, but in the case of section 575 only so far as that section applies for the purposes of section 574.
2952. Section 576(1) and (1C) continue in force with necessary amendments so far as they supplement section 573 of ICTA.
2953. This amendment inserts a new subsection (1D) defining "holding". This definition was formerly in subsection (5) which is repealed.
2954. Section 576(2) and (3) have effect for the purposes of corporation tax on chargeable gains where relief is obtained against income for corporation tax purposes under section 573 of ICTA and for the purposes of capital gains tax where share loss relief is obtained under section 574 of that Act. Those subsections have been omitted and their provisions are contained for both purposes in section 125A(2) and (3) of TCGA introduced by this Schedule.
2955. Section 576(4) defines a "qualifying trading company" in terms of its being an "eligible trading company" and having been such for a specified continuous period. Section 576(4A) defines an "eligible trading company" by applying the requirements of section 293 and other provisions of Chapter 7 of Part 3 of ICTA (enterprise investment scheme) with modifications. Clause 134 of this Bill avoids the double layer of definition in section 576(4) and omits the concept of an "eligible trading company".
2956. The same approach has been taken in making consequential amendments to section 576(4) to (4B) for corporation tax purposes. Those subsections have been omitted and replaced by new sections 576A to 576K of ICTA, which, together with sections 573, 575, 576 and 576L, form new Chapter 5A of Part 13 of ICTA.
2957. Section 576(5) has been omitted and the terms defined in it which are relevant for corporation tax purposes are to be found in sections 575(4), 576(1D), and 576L of ICTA.
2958. This new section of ICTA mirrors clause 134 of this Bill. It replaces section 576(4) of ICTA.
2959. This new section of ICTA mirrors clause 137 of this Bill, which corresponds to clause 181 with modifications.
2960. Subsection (2) corresponds to clause 181(3) and subsection (6) corresponds to clause 181(7). For the reason for the introduction of subsections (3) and (7) of clause 181 see Change 42 in Annex 1 and the commentary on clause 181.
2961. Subsection (5) corresponds to clause 181(6), including the change made in clause 181(6)(d) by Change 41 in Annex 1.
2962. The definition of "non-qualifying activities" in subsection (7) includes the change affecting the definition of that term for the purposes of clause 181(8) made by Change 43 in Annex 1.
2963. This new section of ICTA mirrors clause 138 of this Bill.
2964. This new section of ICTA mirrors clause 139 of this Bill, which corresponds to clause 185 with modifications. Change 44 in Annex 1 made to clause 185(1)(a) is replicated in subsection (1)(a).
Section 576E to 576I
2965. These new sections of ICTA mirror clauses 140, 141, 142, 143 and 144 of this Bill respectively.
2966. This new section of ICTA mirrors clause 145 of this Bill. See Change 25 in Annex 1 and the commentary on clause 145(1).
2967. It does not, however, include in subsection (3) any cross reference to section 575(2) of ICTA as it is beyond the scope of this Bill to make an amendment to section 575(2) of ICTA for corporation tax purposes corresponding to the amendment to the provisions of that subsection made for income tax purposes in clause 136(2) of this Bill. See Change 24 in Annex 1.
2968. This new section of ICTA mirrors clause 146 of this Bill.
2969. This new section of ICTA contains definitions formerly in section 576(5) of ICTA. Subsections (2) to (4) contain provisions to reflect that, in the new sections 576B to 576K of ICTA, the definition of "shares" in most cases either applies in a modified form or does not apply at all.
Sections 587B, 587BA and 587C
2970. The amendments to sections 587B and 587C of ICTA mean they will deal only with relief given to companies subject to corporation tax.
2971. The amendment to the definition of "charity" in section 587B(9) removes redundant references to the British Museum and the Natural History Museum. See Change 79 in Annex 1 and the commentary on clause 430.
2972. A new section 587BA replaces, for corporation tax, section 587C(2) and (3) of ICTA. The new section clarifies that, in cases where land is held by owners as joint tenants or as tenants in common, the fact that one or more owners may not be eligible for relief under section 587B of ICTA does not deny relief to other eligible owners. See Change 80 in Annex 1.
2973. Subsection (5) provides that income arising to trustees under the accrued income scheme is taxed at the trust rate. This is no longer necessary as such income is included in clause 482 of this Bill (see Type 2). See Change 86 in Annex 1.
2974. New subsection (5A) ensures that the amount charged forms part of "total income" in Step 1 of clause 23.
2975. Section 742(9)(c) of ICTA, which defines "benefit" for the purposes of sections 739 to 741, is redundant. It is repealed without replacement.
2976. Section 746 of ICTA (persons resident in the Republic of Ireland) is obsolete. It is repealed without replacement.
2977. New subsection (3C) ensures that the amount charged forms part of "total income" in Step 1 of clause 23.
2978. New subsection (1A) ensures that the amount charged forms part of "total income" in Step 1 of clause 23.
2979. The amendments clarify how references to surtax in old double taxation arrangements are to be treated in relation to dividend income. See Change 150 in Annex 1.
2980. This section is being amended to make it clear that relief is given in computing income from the relevant source (in the same way as relief under section 811 of ICTA) rather than as a deduction from total income.
2981. This section is amended so that the clawback of excess double taxation relief operates in terms of tax rather than by reference to an amount of income. See Change 151 in Annex 1.
2982. This section is being repealed without being rewritten, as it is unnecessary.
2983. This provision was enacted in 1927 on the introduction of surtax and was intended to meet the situation where deductions were allowed at different times and impacted on other reliefs (especially earned income relief). With today's mechanisms for tax compliance and Self Assessment procedures, this provision is unnecessary.
2984. Section 832(5) is repealed as it has been overtaken by the Adoption and Children Act 2002 (if it was not redundant before). See Change 144 in Annex 1 and the commentary on clause 923.
Sections 835 and 836
2985. Some provisions of these sections are not being rewritten.
2986. Section 835(2) and section 836 are obsolete in the context of Self Assessment.
2987. Section 835(6)(b) concerned charges on income, and has been replaced by rules providing that the relevant payments are deductions from income (if appropriate) in the year in which they are paid. See Change 131 in Annex 1.
2988. Section 835(7)(b) and (8) are unnecessary now that the structure of the tax calculation has been made more explicit.
2989. The inclusion of the European Investment Bank follows the approach in clause 925. See Change 128 in Annex 1 and the commentary on clause 925.
2990. Paragraph 8 of Schedule 16 to ICTA has not been rewritten as it is obsolete following the abolition of Advance Corporation Tax (ACT) in April 1999.
2991. Prior to April 1999, paragraph 8 of Schedule 16 applied only to payments which "should have been included in a return under Schedule 13" (ie ACT payments). Following the abolition of ACT, section 91 of FA 1999 (which amended paragraph 8 of Schedule 16), did not simply repeal paragraph 8 of Schedule 16 but instead amended it to apply whenever a payment was included when it "should not have been so included". This goes beyond the original intention of paragraph 8 and is unnecessary.
2992. Assessments made under Chapter 15 of Part 14 will always be due on the date mentioned in clause 884 of this Bill (ie either 14 days after the return period or 14 days after the date of payment, in accordance with clauses 882 and 883). So the reference in paragraph 10(2) of Schedule 16 to ICTA to payments being "due within 14 days after the issue of the notice of assessment" has not been rewritten.
2993. The background is as follows:
2994. Paragraph 10(2) had its origin in paragraph 10(2) of Schedule 20 to FA 1972. Both paragraphs were identically written as follows:
Income tax assessed on a company under this Schedule shall be due within 14 days after the issue of the notice of assessment (unless due earlier under paragraph 4(1) or 9 above).
2995. The opening words of paragraph 4(1) of Schedule 20 to FA 1972 stated that paragraph 4(1) was subject to paragraph 4(4) of that Schedule.
2996. Paragraph 4(4) stated that where a payment was erroneously included on a return under Schedule 14 to FA 1972 (advance corporation tax (ACT)) and should have been included on a return under Schedule 20 (later Schedule 16 to ICTA), the Inland Revenue would raise an assessment. Under paragraph 10(2), the due date for such a payment was 14 days after the issue of the notice of assessment, this being an assessment other than one raised under either paragraph 4(1) or 9.
2997. Since the abolition of ACT by FA 1998 and the repeal of paragraph 4(3) of Schedule 16 to ICTA (paragraph 4(4) of Schedule 20 to FA 1972) by FA 1999 it is no longer possible to raise such an assessment. So all assessments raised under the source legislation will be due at the time the return is due under either paragraph 4(1) or 9.
Part 2: Other enactments
Taxes Management Act 1970
2998. The amendments made to section 17 of TMA effectively enact regulation 12(1) of the building society regulations (SI 1990/2231) so that references to building societies are explicitly included in section 17. See Change 119 in Annex 1.
2999. The enactment of regulation 12(1) ensures that the legislation which deals with deduction of income tax in respect of building societies is split between primary and secondary legislation in the same way as for deposit-takers.
3000. The amendments made to section 37A of TMA extend it to civil partners. See Change 152 in Annex 1.
3001. Assessments made under Chapter 15 of Part 14 will always be due on the date mentioned in clause 884 (ie either 14 days after the return period or 14 days after the date of payment, in accordance with clauses 882 and 883). So the reference in section 55(1)(c) of ICTA to assessments other than those due under paragraphs 4(1) or 9 of Schedule 16 to ICTA is unnecessary since there can be no such assessments. See the commentary on paragraph 10(2) of Schedule 16 to ICTA above.
3002. Section 87 has been replaced with a new clause as part of the consequential amendments made in conjunction with Chapter 15 of Part 14 of this Bill.
3003. Under section 967(3), Part 5 of this Bill which deals with the enterprise investment scheme (EIS) does not have effect in relation to shares issued before 6 April 2007. Instead the EIS provisions in ICTA continue to have effect for these shares.
3004. The consequential amendments to the Table in section 98 include the addition of references to the applicable provisions in Part 5 of this Bill. At the end of the Table a sentence is inserted explaining that these references are to provisions that apply only in relation to shares issued after 5 April 2007.
3005. New section 99B imposes a penalty of up to £3,000 where a person fraudulently or negligently gives an incorrect non-UK resident declaration under any of clauses 791 to 794 of this Bill. It is based on section 98(2) of TMA and the reference to section 482(2) of ICTA in the second column of the Table in section 98 of TMA.
3006. The reference to section 482(2) is omitted from the second column of the Table in section 98 of TMA and is not being replaced with a reference to clauses 791 to 794 (which rewrite sections 481(5)(k), 482(2) and (2A) of ICTA and regulation 4(1)(a) to (c) of the Income Tax (Building Societies) (Dividends and Interest) Regulations 1990 (SI 1990/2231)).
3007. The reason for not replacing the reference to section 482(2) is that it will not be possible to raise a penalty under section 98(1) of TMA in respect of clauses 791 to 794. This is because Change 123 in Annex 1 means that all non-UK resident declarations will have to be in a prescribed or authorised format in order for a gross payment to be made. If the declaration is not in the prescribed or authorised format the payment will be made under deduction of tax.
3008. But this new section ensures that fraudulent or negligent non-UK resident declarations will continue to be subject to a penalty, as is currently the case under section 98(2) of TMA.
|© Parliamentary copyright 2006||Prepared: 8 December 2006|