Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 2 — Deduction by deposit-takers and building societies
434

(b)
the investment is held at a branch of the deposit-taker situated outside
the United Kingdom.
(2)
An investment with a deposit-taker is not a relevant investment if—
(a)
the deposit-taker is non-UK resident for income tax purposes or
corporation tax purposes, and
5
(b)
the investment is not held at a branch of the deposit-taker situated in
the United Kingdom.
(3)
An investment with a building society is not a relevant investment if it is held
at a branch of the building society situated outside the United Kingdom.
(4)
For the purposes of this section an investment is held at a branch of a deposit-
10
taker or building society if the investment is recorded in its books as a liability
of that branch.
869
Sale and repurchase of securities
(1)
An investment is not a relevant investment if it is a loan which is treated as
made to a building society by virtue of section 607 (treatment of price
15
differences under repos).
(2)
An investment is not a relevant investment if it is an amount of cash which is—
(a)
received by a building society in connection with a repo in
circumstances where section 607 applies, and
(b)
required as a result of a variation in the value of the securities in respect
20
of which the repo is made as security for performance by the parties to
the repo of their obligations under it.
(3)
In this section “repo” has the same meaning as in Part 11 (see section 569).
870
Other investments
(1)
An investment with a deposit-taker is not a relevant investment if—
25
(a)
it is a loan made by a deposit-taker in the ordinary course of its business
or activities,
(b)
it is a debt on a security which is listed on a recognised stock exchange,
or
(c)
it is a debt on a debenture issued by the deposit-taker (see section 1022).
30
(2)
An investment with a building society is not a relevant investment if—
(a)
it is a loan made by a bank (as defined in section 991), or
(b)
it is a security (including a share) issued by a building society which is
listed, or capable of being listed, on a recognised stock exchange.
Supplementary
35
871
Power to make regulations to give effect to Chapter
(1)
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations make provision—
(a)
about the giving of information by deposit-takers, building societies
and appropriate persons,
40

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 2 — Deduction by deposit-takers and building societies
435

(b)
about the inspection of deposit-takers’ and building societies’ books,
documents and other records by officers of Revenue and Customs, and
(c)
generally for giving effect to this Chapter.
(2)
Regulations under this section may contain incidental, supplemental,
consequential and transitional provision and savings.
5
(3)
In this section “appropriate person” means a person who, in relation to an
investment, falls within any of the following—
(a)
section 858(5),
(b)
section 859(5),
(c)
section 860(4), or
10
(d)
section 861(5).
872
Power to make orders amending Chapter
(1)
The Treasury may by order amend this Chapter for the purposes of providing
that investments of a kind specified in the order are, or are not, relevant
investments.
15
(2)
An order under this section which amends this Chapter in its application to
deposit-takers may do so—
(a)
in relation to all deposit-takers, or
(b)
in relation to such deposit-takers or classes of deposit-taker as the order
may specify.
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(3)
An order under this section may contain incidental, supplemental,
consequential and transitional provision and savings.
(4)
An order under this section may not amend section 852 (power to make
regulations disapplying section 851).
(5)
An order under this section may not amend section 870(2)(b) for the purpose
25
of providing that securities of the kind mentioned in that provision are relevant
investments.
873
Discretionary or accumulation settlements
(1)
A settlement is a discretionary or accumulation settlement for the purposes of
this Chapter if any income arising to the trustees would (unless treated as
30
income of the settlor) be to any extent income within subsection (2) for the tax
year in which it arises.
(2)
Income is within this subsection so far as it is—
(a)
accumulated or discretionary income as defined in section 480 (other
than income arising under a trust established for charitable purposes
35
only or an unauthorised unit trust in relation to which section 504
applies), or
(b)
an amount of a type set out in section 482 (unless the trust is a unit trust
scheme or the amount is income arising under a trust established for
charitable purposes only or is excluded by section 481(5)).
40
(3)
A person is a beneficiary under a discretionary or accumulation settlement for
the purposes of this Chapter if—
(a)
the person is an actual or potential beneficiary under the settlement,
and

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 3 — Deduction from certain payments of yearly interest
436

(b)
condition A or B is met in relation to the person.
(4)
Condition A is that the person is, or will or may become, entitled under the
settlement to receive some or all of any income under the settlement.
(5)
Condition B is that some or all of any income under the settlement may be paid
to or used for the benefit of the person in the exercise of a discretion conferred
5
under the settlement.
(6)
The references in subsections (4) and (5) to any income under the settlement
include a reference to any capital under the settlement so far as it represents
amounts originally received by the trustees as income.
Chapter 3
10
Deduction from certain payments of yearly interest
Duty to deduct sums representing income tax
874
Duty to deduct from certain payments of yearly interest
(1)
This section applies if a payment of yearly interest arising in the United
Kingdom is made—
15
(a)
by a company,
(b)
by a local authority,
(c)
by or on behalf of a partnership of which a company is a member, or
(d)
by any person to another person whose usual place of abode is outside
the United Kingdom.
20
(2)
The person by or through whom the payment is made must, on making the
payment, deduct from it a sum representing income tax on it at the savings rate
in force for the tax year in which it is made.
(3)
But see—
(a)
sections 875 to 888 as to circumstances in which the duty to deduct a
25
sum under this section is disapplied, and
(b)
Chapter 11 (payments between companies etc) for a further exception
from the duty to deduct under this section.
(4)
See also regulations made under section 17(3) of F(No.2)A 2005 (authorised
investment funds)—
30
(a)
for provision treating certain amounts shown in the distribution
accounts of authorised investment funds as payments of yearly
interest, and
(b)
for exceptions from the duty to deduct under this section which would
otherwise apply to such payments.
35
(5)
For the purposes of subsection (1) the following are to be treated as payments
of yearly interest—
(a)
a payment of interest made by a registered industrial and provident
society in respect of any mortgage, loan, loan stock or deposit, and
(b)
any interest, dividend, bonus or other sum payable to a shareholder of
40
such a society by reference to the amount of the shareholder’s holding
in the share capital of the society.

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 3 — Deduction from certain payments of yearly interest
437

(6)
For the purposes of subsection (1)—
(a)
a payment made by a company in a fiduciary or representative capacity
is not to be treated as a payment made by the company, and
(b)
a payment made by a local authority in a fiduciary or representative
capacity is not to be treated as a payment made by the local authority.
5
(7)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under this section—
(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
(b)
otherwise see Chapter 16.
10
Exceptions from duty to deduct
875
Interest paid by building societies
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest made by a building society.
876
Interest paid by deposit-takers
15
(1)
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest in respect of which a deposit-taker has a duty to
deduct under section 851.
(2)
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment in respect of which a deposit-taker would have a duty to
20
deduct under section 851 but for—
(a)
regulations under section 852, or
(b)
any of sections 858 to 861.
877
UK public revenue dividends
The duty to deduct a sum representing income tax under section 874 does not
25
apply to a payment of interest in respect of a UK public revenue dividend.
878
Interest paid by banks
(1)
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest made by a bank if that payment is made in the
ordinary course of its business.
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(2)
Section 991 (meaning of “bank”) applies for the purposes of this section.
879
Interest paid on advances from banks
(1)
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest on an advance from a bank if, at the time when
the payment is made, the person beneficially entitled to the interest is within
35
the charge to corporation tax as respects the interest.
(2)
Section 991 (meaning of “bank”) applies for the purposes of this section.

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 3 — Deduction from certain payments of yearly interest
438

(3)
Subsection (1) applies to the European Investment Bank as if the words from
“if” to the end were omitted.
(4)
An order under subsection (2)(e) of section 991 designating an international
organisation as a bank may provide that subsection (1) applies to the
organisation with the modification mentioned in subsection (3).
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880
Interest paid on advances from building societies
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest on an advance from a building society.
881
National Savings Bank interest
The duty to deduct a sum representing income tax under section 874 does not
10
apply to a payment of interest on deposits with the National Savings Bank.
882
Quoted Eurobond interest
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest on a quoted Eurobond (see section 987).
883
Interest on loan to buy life annuity
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The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest to which section 369 of ICTA applies (interest on
loan to buy life annuity payable under deduction of tax).
884
Relevant foreign income
(1)
The duty to deduct a sum representing income tax under section 874 does not
20
apply to a payment of interest which is chargeable to income tax as relevant
foreign income.
(2)
For the meaning of “relevant foreign income”, see section 989.
885
Authorised persons dealing in financial instruments
(1)
The duty to deduct a sum representing income tax under section 874 does not
25
apply to a payment of interest made by a person authorised for the purposes
of FISMA 2000 if—
(a)
the person’s business consists wholly or mainly of dealing in financial
instruments as principal, and
(b)
the payment is made by that person in the ordinary course of that
30
business.
(2)
For the meaning of “financial instrument”, see section 984.
886
Interest paid by recognised clearing houses etc
(1)
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest made by a recognised clearing house (“RCH”)
35
or recognised investment exchange (“RIE”) if—

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 3 — Deduction from certain payments of yearly interest
439

(a)
the RCH or RIE is carrying on business as the provider of a central
counterparty clearing service, and
(b)
the interest is paid in the ordinary course of that business, on margin or
other collateral deposited with it by users of the service.
(2)
The duty to deduct a sum representing income tax under section 874 does not
5
apply to interest treated by virtue of section 607 (treatment of price differences
under repos) as paid by an RCH or RIE in respect of contracts made by it as the
provider of a central counterparty clearing service.
(3)
In this section—
“central counterparty clearing service” means the service provided by an
10
RCH or RIE to the parties to a transaction where there are contracts
between each of the parties and the RCH or RIE (in place of, or as an
alternative to, a contract directly between the parties), and
“recognised clearing house” and “recognised investment exchange” have
the same meaning as in FISMA 2000 (see section 285 of that Act).
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887
Industrial and provident society payments
(1)
The duty to deduct a sum representing income tax under section 874 does not
apply to either of the following payments if they are payable to a person whose
usual place of abode is in the United Kingdom—
(a)
a payment of interest made by a registered industrial and provident
20
society in respect of any mortgage, loan, loan stock or deposit, or
(b)
any interest, dividend, bonus or other sum payable to a shareholder of
such a society by reference to the amount of the shareholder’s holding
in the share capital of the society.
(2)
A registered industrial and provident society must, within 3 months after the
25
end of each of its accounting periods, deliver to an officer of Revenue and
Customs a return containing the information mentioned in subsection (3).
(3)
That information is—
(a)
the name and place of residence of every person to whom the society
has, as a result of this section, made one or more payments in the period
30
amounting in total to at least £15 without deducting a sum (or sums)
representing income tax, and
(b)
the amount so paid in the period to each of those persons.
(4)
See section 486(7) of ICTA as to the consequences of not making a return as
required by subsection (2).
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(5)
In this Chapter “registered industrial and provident society” means a society
registered or treated as registered under the Industrial and Provident Societies
Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern Ireland)
1969 (c.24 (N.I.)).
(6)
For the purposes of this section crediting interest (or amounts treated as
40
interest) counts as paying it.
888
Statutory interest
The duty to deduct a sum representing income tax under section 874 does not
apply to a payment of interest made by virtue of the contractual term implied

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 5 — Deduction from payments of UK public revenue dividends
440

by section 1(1) of the Late Payment of Commercial Debts (Interest) Act 1998
(c. 20) (statutory interest).
Chapter 4
Deduction from payments in respect of building society securities
889
Payments in respect of building society securities
5
(1)
This section applies to any payment made in a tax year if—
(a)
it is a payment of a dividend or interest in respect of a security issued
by a building society, and
(b)
conditions A and B are met in relation to the security.
(2)
Condition A is that the security was listed or capable of being listed on a
10
recognised stock exchange at the time the dividend or interest became payable.
(3)
Condition B is that the security is not—
(a)
a qualifying certificate of deposit (see section 985),
(b)
a qualifying uncertificated eligible debt security unit (see section 986),
or
15
(c)
a quoted Eurobond (see section 987).
(4)
The person by or through whom the payment is made must, on making it,
deduct from it a sum representing income tax on it at the savings rate in force
for the tax year.
(5)
For provision about the collection of income tax in respect of a payment from
20
which a sum must be deducted under this section—
(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
(b)
otherwise see Chapter 16.
(6)
See also Chapter 11 (payments between companies) for an exception from the
25
duty to deduct sums representing income tax under this section.
(7)
In this section—
“dividend” includes any distribution (whether or not described as a
dividend), and
“security” includes a share (and, in particular, a permanent interest
30
bearing share as defined in section 117 of TCGA 1992).
Chapter 5
Deduction from payments of UK public revenue dividends
Introduction
890
Overview of Chapter
35
(1)
This Chapter contains provision about the deduction of sums representing
income tax from payments of UK public revenue dividends.
(2)
Section 891 defines “UK public revenue dividend”.