Income Tax Bill

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Session 2006 - 07
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Income Tax Bill

507
Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988

Schedules
Schedule 1
Section 1027

Minor and consequential amendments
Part 1
Income and Corporation Taxes Act 1988
5
1
The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.
2
Omit sections 1 to 2 (the charge to income tax, application of lower rate to
income from savings and distributions, rates of tax applicable to distribution
income etc, and fractions of a pound and yearly assessments).
3
Omit section 3 (certain income charged at basic rate).
10
4
Omit section 4 (construction of references in Income Tax Acts to deduction
of tax).
5
Omit section 7(1) (deduction of income tax from payments to companies).
6     (1)
Amend section 9 (computation of income: application of income tax
principles) as follows.
15
      (2)
In subsection (2)—
(a)
after “except that it does not include” insert “— (a)”, and
(b)
after “subsection (1) above” insert “, or
(b)
ITA 2007”.
      (3)
In subsection (4) after “ITTOIA 2005” insert “and ITA 2007”.
20
      (4)
In subsection (6) omit the words from the beginning to “this Act; and”.
7
Omit section 42A (non-resident landlords and their representatives).
8
Omit sections 50, 51 and 51AA (United Kingdom securities: Treasury
directions for payment without deduction of tax etc).
9
In section 56(3)(c) (transactions in deposits with and without certificates or
25
in debts) for “charity” substitute “charitable company”.
10
In section 105(2) (allowable deductions) omit “or by virtue of section 90(4) of
the Finance Act 1995”.
11
Omit section 109A (relief for post-cessation expenditure).
12
In section 110(1) (interpretation of sections 103 to 109A) for “sections 103 to
30
109A” substitute “sections 103 to 106”.
13
Omit section 117 (restriction on relief for limited partners: individuals).

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Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
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14    (1)
Amend section 118 (restriction on relief for limited partners: companies) as
follows.
      (2)
In subsection (2) before the definition of “relevant accounting period”
insert—
““limited partner” means—
5
(a)
a company which is carrying on a trade as a limited
partner in a limited partnership registered under the
Limited Partnerships Act 1907;
(b)
a company which—
(i)
is carrying on a trade as a general partner in a
10
partnership;
(ii)
is not entitled to take part in the management
of the trade; and
(iii)
is entitled to have its liabilities, or its liabilities
beyond a certain limit, for debts or obligations
15
incurred for the purposes of the trade
discharged or reimbursed by some other
person; or
(c)
a company which carries on a trade jointly with
others and which, under the law of any territory
20
outside the United Kingdom—
(i)
is not entitled to take part in the management
of the trade; and
(ii)
is not liable beyond a certain limit for debts or
obligations incurred for the purposes of the
25
trade;”.
      (3)
In subsection (2) in the definition of “relevant accounting period” omit
“(within the meaning of section 117(2))”.
      (4)
In subsection (2) in the definition of “the relevant sum” omit “(within the
meaning of section 117(3))”.
30
      (5)
After that subsection insert—
“(3)
A partner company’s contribution to a trade at any time is the
aggregate of—
(a)
the amount which the partner company has contributed to
the trade as capital and has not, directly or indirectly, drawn
35
out or received back (other than anything which it is or may
be entitled so to draw out or receive back at any time when it
carries on the trade as a limited partner or which it is or may
be entitled to require another person to reimburse to it), and
(b)
the amount of any profits of the trade to which the partner
40
company is entitled but which it has not received in money
or money’s worth.”
15
For section 118ZB substitute—
“118ZB
  Restriction on relief: companies
Section 118 has effect in relation to a member of a limited liability
45
partnership as in relation to a limited partner, but subject to sections
118ZC and 118ZD.”

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Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
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16    (1)
Amend section 118ZC (member’s contribution to trade) as follows.
      (2)
In subsection (1) for “section 117” substitute “section 118”.
      (3)
In subsection (2)—
(a)
omit “that section and”,
(b)
for “him” substitute “it”, and
5
(c)
for “his” substitute “its”.
      (4)
In subsection (3)—
(a)
for “he”, in each place where it occurs, substitute “it”, and
(b)
for “him” substitute “it”.
      (5)
In subsection (4)—
10
(a)
for “he”, in both places where it occurs, substitute “it”,
(b)
for “its” substitute “the partnership’s”, and
(c)
for “it” substitute “the partnership”.
      (6)
Omit subsection (5).
17    (1)
Amend section 118ZD (carry forward of unrelieved losses) as follows.
15
      (2)
In subsection (1)—
(a)
for “chargeable periods” substitute “accounting periods”,
(b)
omit “117 or”,
(c)
for “his”, in both places where it occurs, substitute “the member’s”,
(d)
for “chargeable period” substitute “accounting period”, and
20
(e)
for “he” substitute “the member”.
      (3)
In subsection (2)—
(a)
for the words from the beginning to “as they apply” substitute
“Sections 393A(1) and 403 (and section 118 as it applies”,
(b)
for “chargeable period”, in both places where it occurs, substitute
25
“accounting period”, and
(c)
for “his” substitute “the member’s”.
      (4)
In subsection (3)—
(a)
for “chargeable period”, in each place where it occurs, substitute
“accounting period”,
30
(b)
for “his”, in each place where it occurs, substitute “the member’s”,
and
(c)
for “the Tax Acts” substitute “the Corporation Tax Acts”.
18
Omit sections 118ZE to 118ZK (restriction on reliefs for non-active general
partners and non-active members of LLPs).
35
19
Omit sections 118ZL and 118ZM (restriction on reliefs for partnerships
exploiting films).
20
Omit sections 118ZN and 118ZO (partners: meaning of “contribution to the
trade”).
21    (1)
Amend section 125 (annual payments for dividends or non-taxable
40
consideration) as follows.
      (2)
In subsection (1)—

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Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
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(a)
omit “shall be made without deduction of income tax and”, and
(b)
for “or total income of the person by whom” substitute “of the
company by which”.
      (3)
In subsection (2)(b) omit “income tax or”.
      (4)
In subsection (3)—
5
(a)
insert “or” at the end of paragraph (b), and
(b)
omit paragraph (d) and the “or” immediately before it.
22
In section 209A(4) (section 209(3AA): link to shares of company or associated
company) for “section 349(5) and (6)” substitute “section 984 of ITA 2007”.
23
Omit section 214(1)(b) (chargeable payments connected with exempt
10
distributions: deduction of tax at source).
24    (1)
Amend section 231AA (no tax credit for borrower under stock lending
arrangement or interim holder under repurchase agreement) as follows.
      (2)
In subsection (1) omit “above or section 397(1) of ITTOIA 2005”.
      (3)
Omit subsection (1A).
15
25    (1)
Amend section 231AB (no tax credit for original owner under repurchase
agreement in respect of certain manufactured dividends) as follows.
      (2)
In subsection (1) omit “above or section 397(1) of ITTOIA 2005”.
      (3)
Omit subsection (1A).
26
In section 231B(12) (consequences of certain arrangements to pass on the
20
value of a tax credit) for the definition of “tax advantage” substitute—
““tax advantage” has the meaning given by section 840ZA”.
27    (1)
Amend section 256 (personal reliefs: general) as follows.
      (2)
In subsection (1) for “sections 275 to 278” substitute “section 278”.
      (3)
In subsection (2)—
25
(a)
for “an income tax reduction” substitute “a tax reduction”, and
(b)
for the words from “the effect of that relief” to the end of the
subsection substitute “the amount of the tax reduction is equal to 10
per cent. of the specified amount”.
      (4)
Omit subsection (3).
30
28
After section 256 insert—
“256A
Meaning of “adjusted net income”
(1)
For the purposes of this Chapter an individual’s adjusted net income
for a year of assessment is calculated as follows.

35

Step 1

Take the amount of the individual’s net income for the year of
assessment.


Step 2
40

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Part 1 — Income and Corporation Taxes Act 1988
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If in the year of assessment the individual makes, or is treated under
section 426 of ITA 2007 as making, a gift that is a qualifying donation
for the purposes of Chapter 2 of Part 8 of that Act (gift aid) deduct the
grossed up amount of the gift.

5

Step 3

If the individual is given relief in accordance with section 192 of FA
2004 (relief at source) in respect of any contribution paid in the year
of assessment under a pension scheme, deduct the gross amount of
the contribution.
10


Step 4

Add back any relief under section 266 of this Act given by virtue of
subsection (7) of that section (payments for life insurance etc) that
was deducted in calculating the individual’s net income for the year
15
of assessment.

The result is the individual’s adjusted net income for the year of
assessment.
(2)
The grossed up amount of a gift is the amount of the gift grossed up
by reference to the basic rate for the year of assessment.
20
(3)
The gross amount of a contribution is the amount of the contribution
before deduction of tax under section 192(1) of FA 2004.
256B
Meaning of “the minimum amount”
In this Chapter “the minimum amount” means £2,350.”
29    (1)
Amend section 257 (personal allowance) as follows.
25
      (2)
In subsection (1) for “deduction from his total income” substitute “personal
allowance”.
      (3)
In subsection (2)—
(a)
for “deduction from his total income” substitute “personal
allowance”, and
30
(b)
for “the deduction” substitute “the allowance”.
      (4)
In subsection (3)—
(a)
for “deduction from his total income” substitute “personal
allowance”, and
(b)
for “the deduction” substitute “the allowance”.
35
      (5)
In subsection (5) for “total income” substitute “adjusted net income”.
      (6)
After subsection (5) insert—
“(6)
An allowance under this section is given effect at Step 3 of the
calculation in section 23 of ITA 2007.”
30    (1)
Amend section 257A (married couple’s allowance: pre-5 December 2005
40
marriages) as follows.
      (2)
In subsections (2) and (3) for “an income tax reduction” substitute “a tax
reduction”.
      (3)
In subsection (5) for “total income” substitute “adjusted net income”.

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Part 1 — Income and Corporation Taxes Act 1988
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      (4)
In subsection (5A) for “£2,350” substitute “the minimum amount”.
      (5)
In subsection (6) for “income tax reduction” substitute “tax reduction”.
      (6)
After subsection (6) insert—
“(6A)
A tax reduction under this section is given effect at Step 6 of the
calculation in section 23 of ITA 2007.”
5
31    (1)
Amend section 257AB (married couple’s allowance: post-5 December 2005
marriages and civil partnerships etc) as follows.
      (2)
In subsection (1)(d) for “total income” (in both places it occurs) substitute
“net income”.
      (3)
In subsection (2) for “an income tax reduction” substitute “a tax reduction”.
10
      (4)
In subsection (4) for “total income” substitute “adjusted net income”.
      (5)
In subsection (5) for “£2,350” substitute “the minimum amount”.
      (6)
In subsection (6) for “income tax reduction” substitute “tax reduction”.
      (7)
After subsection (9) insert—
“(10)
A tax reduction under this section is given effect at Step 6 of the
15
calculation in section 23 of ITA 2007.”
32    (1)
Amend section 257BA (elections as to transfer of relief under section 257A or
257AB) as follows.
      (2)
For subsections (1) to (3) substitute—
“(1)
An individual may elect that for any year of assessment for which the
20
individual’s spouse or civil partner is entitled to a tax reduction
under section 257A or 257AB—
(a)
the individual shall be entitled (on making a claim) to a tax
reduction calculated by reference to half the minimum
amount, and
25
(b)
the spouse or civil partner’s appropriate amount shall be
reduced by half the minimum amount.
(2)
An individual and the individual’s spouse or civil partner may
jointly elect that for any year of assessment for which the individual
is entitled to a tax reduction under section 257A or 257AB—
30
(a)
the individual’s spouse or civil partner shall be entitled (on
making a claim) to a tax reduction calculated by reference to
the minimum amount, and
(b)
the individual’s appropriate amount shall be reduced by the
minimum amount.
35
(3)
An individual may elect that for any year of assessment for which the
individual’s spouse or civil partner is entitled to a tax reduction by
virtue of an election under subsection (2) above—
(a)
the individual shall be entitled (on making a claim) to a tax
reduction calculated by reference to half the minimum
40
amount (in addition to any tax reduction to which the
individual is already entitled under section 257A or 257AB),
and

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Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
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(b)
the tax reduction to which the spouse or civil partner is
entitled by virtue of that election shall be calculated by
reference to half the minimum amount (instead of by
reference to the minimum amount).”
      (3)
After subsection (3) insert—
5
“(3A)
In this section “the appropriate amount” means the amount by
reference to which the calculation of the tax reduction is to be made.”
      (4)
Omit subsection (6).
      (5)
In subsection (9) for “income tax reduction” substitute “tax reduction”.
      (6)
After subsection (9) insert—
10
“(10)
A tax reduction under this section is given effect at Step 6 of the
calculation in section 23 of ITA 2007.”
33    (1)
Amend section 257BB (transfer of relief under section 257A or 257AB where
relief exceeds income) as follows.
      (2)
For subsection (1) substitute—
15
“(1)
Where—
(a)
an individual is entitled to a tax reduction under section 257A
or 257AB, but
(b)
the amount of the tax reduction to which the individual is
entitled is greater than the individual’s comparable tax
20
liability,

the individual’s spouse or civil partner shall be entitled (in addition
to any tax reduction to which that spouse or civil partner is entitled
by virtue of an election under section 257BA) to a tax reduction equal
to the unused part of the individual’s MCA tax reductions.”
25
      (3)
After subsection (1) insert—
“(1A)
The individual’s MCA tax reductions are the sum of—
(a)
the tax reduction to which the individual is entitled under
section 257A or 257AB, and
(b)
any tax reduction to which the individual is entitled by virtue
30
of an election under section 257BA(3).
(1B)
The unused part of the individual’s MCA tax reductions is equal to—
(a)
the individual’s MCA tax reductions, less
(b)
the individual’s comparable tax liability.”
      (4)
For subsection (3) substitute—
35
“(3)
Where—
(a)
an individual is entitled to a tax reduction by virtue of an
election under section 257BA, but
(b)
the amount of the tax reduction to which the individual is
entitled is greater than the individual’s comparable tax
40
liability,

the individual’s spouse or civil partner shall be entitled (in addition
to any tax reduction to which that spouse or civil partner is entitled