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 11 — Payments between companies etc: exception from duties to deduct
460

936
Recipients who are to be paid gross
(1)
A payment is an excepted payment if it is made to, or to the nominee of, a
recipient who is specified in subsection (2) as a recipient who is to be paid
gross.
(2)
The following recipients are to be paid gross—
5
(a)
a local authority,
(b)
a health service body within the meaning of section 519A(2) of ICTA,
(c)
a public office or department of the Crown other than one mentioned
in section 978(2),
(d)
a charity,
10
(e)
a body for the time being mentioned in section 507(1) of ICTA (bodies
that are allowed the same exemption from tax as charitable companies
the whole income of which is applied to charitable purposes),
(f)
an Association which complies with the conditions in section 508(1) of
ICTA (scientific research organisations),
15
(g)
the scheme administrator of a registered pension scheme,
(h)
the sub-scheme administrator of a sub-scheme which forms part of a
split scheme pursuant to the Registered Pensions (Splitting of Schemes)
Regulations 2006 (S.I. 2006/569),
(i)
the trustees of a scheme entitled to exemption under section 613(4) of
20
ICTA (Parliamentary pension funds), and
(j)
the persons entitled to receive the income of a fund entitled to
exemption under section 614(3) of ICTA (certain colonial, etc pension
funds).
(3)
The Treasury may by order amend this section so as to add to, restrict or
25
otherwise alter the persons or bodies who are to be paid gross.
937
Partnerships
(1)
A payment is an excepted payment if each of the following conditions are met.
(2)
A partnership must be beneficially entitled to the income in respect of which
the payment is made.
30
(3)
Each partner in the partnership must be—
(a)
a person or body mentioned in section 936, or
(b)
a person or body to whom one of subsections (4) to (6) applies.
(4)
This subsection applies to a UK resident company.
(5)
This subsection applies to a company that—
35
(a)
is non-UK resident,
(b)
carries on a trade in the United Kingdom through a permanent
establishment, and
(c)
is required to bring into account, in calculating its chargeable profits
(within the meaning of section 11(2) of ICTA), the whole of any share of
40
the payment that is attributable to it because of sections 114 and 115 of
ICTA.
(6)
This subsection applies to the European Investment Fund.

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 12 — Funding bonds
461

(7)
The Treasury may by order amend this section to add to, restrict or otherwise
alter the persons or bodies falling within subsection (3)(b).
Incorrect belief that payment is an excepted payment
938
Consequences of reasonable but incorrect belief
(1)
This section applies if—
5
(a)
a payment is made by a company, local authority or qualifying
partnership without a sum representing income tax on the payment
being deducted from it,
(b)
at the time the payment is made, the company, authority or partnership
reasonably believes that it is an excepted payment,
10
(c)
one of the duties to deduct sums representing income tax mentioned in
section 930(2) would apply to the payment if the company did not so
believe, and
(d)
the payment is not an excepted payment at the time it is made.
(2)
This Part has effect in relation to the payment as if section 930(1) had never
15
disapplied the duties to deduct mentioned in section 930(2).
Chapter 12
Funding bonds
939
Duty to retain bonds where issue treated as payment of interest
(1)
This section applies if—
20
(a)
there is an issue of funding bonds to a creditor in respect of a liability
to pay interest on a debt incurred by a government, public institution,
other public authority or body corporate,
(b)
by virtue of section 582(1)(a) of ICTA or section 380 of ITTOIA 2005, the
issue is treated as if it were a payment of an amount of interest (“the
25
deemed interest”), and
(c)
the person by or through whom the bonds are issued is required, under
this Part, to deduct a sum representing income tax from the deemed
interest.
(2)
The person by or through whom the bonds are issued must retain bonds the
30
value of which is, at the time of their issue, equal to income tax on the deemed
interest at the savings rate in force for the tax year in which the bonds are
issued.
(3)
A person who retains bonds in accordance with subsection (2) is treated as
complying with the duty to deduct a sum representing income tax from the
35
deemed interest.
(4)
The person may tender the bonds retained in satisfaction of any income tax to
be collected from the person in respect of the deemed interest under Chapter
15 or 16.
(5)
But see section 940 for provision about circumstances where it is impracticable
40
to retain bonds in accordance with subsection (2).

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 13 — Unauthorised unit trusts
462

(6)
In this Chapter “funding bonds” includes any bonds, stocks, shares, securities
or certificates of indebtedness.
940
Exception from duty to retain bonds
(1)
This section applies if an issue of funding bonds is treated as a payment of
interest (“the deemed interest”) as mentioned in section 939(1) and—
5
(a)
the person by or through whom the bonds are issued is required to
retain bonds under section 939(2), but
(b)
it is impracticable for the person to do so.
(2)
The duty to deduct a sum representing income tax from the deemed interest
under this Part does not apply if the person tells the Commissioners for Her
10
Majesty’s Revenue and Customs—
(a)
the names and addresses of the persons to whom the bonds have been
issued, and
(b)
the amount of the bonds issued to each person.
(3)
Accordingly—
15
(a)
the duty to retain bonds under section 939(2) does not apply, and
(b)
the provisions in Chapters 15 and 16 about the collection of income tax
in respect of the deemed interest do not apply.
Chapter 13
Unauthorised unit trusts
20
941
Deemed payments to unit holders and deemed deductions of income tax
(1)
Subsections (2) and (3) apply if a unit holder in an unauthorised unit trust is
treated under Chapter 10 of Part 4 of ITTOIA 2005 (distributions from
unauthorised unit trusts if the trustees are UK resident) as having received
income on a date.
25
(2)
The trustees are treated as making on that date a payment to the unit holder
representing the gross amount of the income (see section 548(2) of ITTOIA
2005).
(3)
The trustees are also treated as deducting from that payment a sum
representing income tax on the gross amount of the income at the basic rate for
30
the tax year in which the payment is made.
(4)
Subsection (5) applies if the trustees of an unauthorised unit trust are treated
under section 469(4A) of ICTA (distributions from unauthorised unit trusts if
the trustees are UK resident) as making an annual payment to a unit holder.
(5)
The trustees are also treated as deducting from the annual payment a sum
35
representing income tax on its gross amount (see section 469(4C) of ICTA) at
the basic rate for the tax year in which the payment is made.
(6)
In this Chapter—
“deemed deduction” means a deduction within subsection (3) or (5),
“deemed payment” means a payment within subsection (2) or (4), and
40
“the gross amount” means, in relation to a deemed payment, the amount
of the payment before the deemed deduction is made from it.

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 13 — Unauthorised unit trusts
463

942
Income tax to be collected from trustees
(1)
This section applies if in a tax year the trustees of an unauthorised unit trust are
treated as making deemed payments.
(2)
Income tax is to be collected through the trustees’ self-assessment return for the
tax year (see Chapter 17).
5
(3)
The amount of income tax to be collected (“the collectable amount”) is the
amount equal to the sum of the deemed deductions from the deemed
payments.
(4)
But if the sum of the gross amounts of the deemed payments exceeds the
trustees’ modified net income for the tax year (see section 1025), the collectable
10
amount is the amount calculated by taking the steps in subsection (5).
(5)
The steps to be taken are as follows.
Step 1

Take the amount equal to the sum of the gross amounts of the deemed
payments and reduce that amount by—
15
(a)
the amount of the trustees’ income pool as at the start of the tax year
(see section 943), or
(b)
if less, the amount by which the sum of the gross amounts of the
deemed payments exceeds the trustees’ modified net income.
Step 2
20

Apply the basic rate for the tax year to the result from Step 1.
943
Calculation of trustees’ income pool
(1)
This is how the amount of the trustees’ income pool as at the start of a tax year
(“the current tax year”) is calculated.

The calculation to be used depends on which of the following cases applies.
25

But this needs to be read with subsections (2) and (3).
Case 1

This case applies if the trustees’ modified net income for the previous tax year
exceeded the sum of the gross amounts of the deemed payments treated as
made by the trustees in that year.
30

The trustees’ income pool as at the start of the current tax year is the sum of—
(a)
the amount of the trustees’ income pool as at the start of the previous
tax year, and
(b)
the amount by which the trustees’ modified net income for the previous
tax year exceeded the sum of the gross amounts of the deemed
35
payments treated as made by the trustees in that year.
Case 2

This case applies if the trustees’ modified net income for the previous tax year
was less than the sum of the gross amounts of the deemed payments treated as
made by the trustees in that year.
40

The trustees’ income pool as at the start of the current tax year is—
(a)
the amount of the trustees’ income pool as at the start of the previous
tax year, less

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 14 — Tax avoidance: directions for duty to deduct to apply
464

(b)
the amount of the reduction made at Step 1 in section 942(5) for the
purpose of calculating the collectable amount for the previous tax year.
Case 3

This case applies if the trustees’ modified net income for the previous tax year
equalled the sum of the gross amounts of the deemed payments treated as
5
made by the trustees in that year.

The trustees’ income pool as at the start of the current tax year is the same as
the amount of the trustees’ income pool as at the start of the previous tax year.
(2)
If the trustees were non-UK resident for the previous tax year, references in
subsection (1) to the previous tax year are to be read as references to the last tax
10
year prior to the current tax year for which the trustees were UK resident.
(3)
The income pool as at the start of the current tax year is nil if—
(a)
the current tax year is the tax year during which the unauthorised unit
trust is established, or
(b)
the trustees have been UK resident for no tax year prior to the current
15
tax year.
Chapter 14
Tax avoidance: directions for duty to deduct to apply
944
Directions for deduction from payments to non-UK residents
(1)
This section applies if it appears to an officer of Revenue and Customs that any
20
person entitled to an amount taxable under—
(a)
Chapter 3 of Part 13 (tax avoidance: transactions in land), or
(b)
Chapter 4 of that Part (tax avoidance: sales of occupation income),

is non-UK resident.
(2)
The officer may, in relation to any payment forming the whole or part of that
25
amount, direct that 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 basic
rate in force for the tax year in which the payment is made.
(3)
Subsection (2) does not affect the final liability of the person entitled to the
amount mentioned in subsection (1) including any liability under section
30
768(4) or 786(4) (recovery of tax where consideration receivable by person not
assessed).
(4)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under subsection (2)—
(a)
see Chapter 15 if the person making the payment is a UK resident
35
company, and
(b)
otherwise see Chapter 16.

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 15 — Collection: deposit-takers, building societies and certain companies
465

Chapter 15
Collection: deposit-takers, building societies and certain companies
Introduction
945
Overview of Chapter
(1)
This Chapter provides—
5
(a)
for persons who have made payments within section 946 (“section 946
payments”) to make returns of the payments, and
(b)
for the collection of income tax in respect of those payments.
(2)
Sections 947 and 948 contain definitions and other provisions in relation to the
following basic concepts used in the Chapter: “return period” and “accounting
10
period”.
(3)
Section 949 requires persons who have made section 946 payments to deliver
returns of those payments made in return periods falling within accounting
periods, and section 950 requires such persons to deliver returns of those
payments made otherwise than in accounting periods.
15
(4)
Section 951 explains—
(a)
how much income tax is due from persons in respect of section 946
payments made by them, and
(b)
when that income tax must be paid.
(5)
Sections 952 to 955 allow persons who have made section 946 payments to
20
make claims for income tax they have suffered to be set off against income tax
payable by them in respect of the payments.
(6)
Sections 956 to 960 explain what happens in cases where income tax payable in
respect of section 946 payments is not paid when it is due, or where returns are
incomplete or incorrect.
25
(7)
Sections 961 and 962 contain supplementary provisions.
(8)
For further provisions applying to returns and set-off claims under this
Chapter, see TMA 1970 (in particular section 113(1) (returns) and section 42
and Schedule 1A (claims)).
946
Payments within this section
30
The payments within this section are—
(a)
a payment from which a deposit-taker or building society is required to
deduct a sum representing income tax under section 851,
(b)
a payment from which a UK resident company is required to deduct a
sum representing income tax under—
35
(i)
section 874(2) (payments of yearly interest),
(ii)
section 889(4) (payments in respect of building society
securities),
(iii)
section 892(2) (certain payments of UK public revenue
dividends),
40
(iv)
section 901(4) (annual payments made by persons other than
individuals),

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 15 — Collection: deposit-takers, building societies and certain companies
466

(v)
section 903(7) (patent royalties),
(vi)
section 906(5) (royalty payments etc where the owner lives
abroad),
(vii)
section 910(2) (proceeds of a sale of patent rights paid to non-
UK residents),
5
(viii)
section 928(2) (chargeable payments connected with exempt
distributions), or
(ix)
section 944(2) (directions for deduction from payments to non-
UK residents), and
(c)
a payment from which a company is required to deduct a sum
10
representing income tax under section 919(2) (manufactured interest on
UK securities: payments by UK residents etc).
947
Return periods
(1)
For the purposes of this Chapter, the return periods which fall within a
person’s accounting period are determined as follows.
15
(2)
If at least one quarter date falls within the accounting period, each of the
following is a return period which falls within the accounting period—
(a)
any complete quarter which falls within the accounting period, and
(b)
any part of the accounting period which is not a complete quarter and
which—
20
(i)
ends with the first (or only) quarter date in that period, or
(ii)
begins immediately after the last (or only) quarter date in that
period.
(3)
If no quarter date falls within the accounting period, the accounting period
itself is to be treated as a return period which falls within the accounting
25
period.
(4)
In this section—
“quarter” means a period of three months ending—
(a)
unless paragraph (b) applies, with the last day of March, June,
September or December, or
30
(b)
if the person mentioned in subsection (1) is a building society,
with the last day of February, May, August or November, and
“quarter date” means—
(a)
unless paragraph (b) applies, the last day of March, June,
September or December, or
35
(b)
if the person mentioned in subsection (1) is a building society,
the last day of February, May, August or November.
948
Meaning of “accounting period”
(1)
In this Chapter “accounting period”, in relation to a deposit-taker who is not a
company, means a period for which the deposit-taker’s accounts are drawn up.
40

“Deposit-taker” has the same meaning as in Chapter 2 (see section 853).
(2)
See section 12 of ICTA (basis of, and periods for, assessment) for provision
about accounting periods of companies.