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These notes refer to the Saving Gateway Accounts Bill as introduced in the House of Commons on 4 December 2008 [Bill 3]
SAVING GATEWAY ACCOUNTS BILL
EXPLANATORY NOTES
INTRODUCTION
1. These explanatory notes relate to the Saving Gateway Accounts Bill as introduced in the House of Commons on 4 December 2008. They have been prepared by HM Treasury in order to assist the reader of the Bill and have not been endorsed by Parliament.
2. These notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.
BACKGROUND
3. In the 2008 Budget, the Government announced that the Saving Gateway, a cash saving scheme for working age people on lower incomes, would be introduced nationally.
Bill 3—EN 54/4
4. The Government has conducted two formal consultations on proposals for the Saving Gateway. Saving and Assets for All 1 published in April 2001, and Delivering Saving and Assets 2, published in November 2001, sought views on the principles of the Saving Gateway. The Saving Gateway was piloted twice between 2002 and 2007 and evaluations of the two Saving Gateway pilots have been published. 3 The Government also published The Saving Gateway: operating a national scheme 4 in March 2008, which set out more detailed proposals for introducing the Saving Gateway. All of these papers are available on the HM Treasury website. 5
1 The Modernisation of Britain’s Tax and Benefit System, Number 8 (HM Treasury, 2001)
2 The Modernisation of Britain’s Tax and Benefit System, Number 9 (HM Treasury, 2001)
3 Incentives to save: Encouraging saving among low-income households, Kempson, McKay, Collard (Personal Finance Research Centre, University of Bristol, March 2005); Final Evaluation of the Saving Gateway 2 Pilot, Harvey, Pettigrew, Madden, Emmerson, Tetlow, Wakefield (Ipsos MORI and Institute for Fiscal Studies, May 2007).
4 The Saving Gateway: operating a national scheme (HM Treasury and HM Revenue and Customs, 2008).
5 www.hm-treasury.gov.uk
5. The policy intention of the Saving Gateway is to:
- promote a saving habit among working age people on lower incomes by providing an incentive to save through a government contribution for each pound saved; and
- promote financial inclusion by encouraging people to engage with mainstream financial services.
6. Eligibility for Saving Gateway accounts will be “passported” from certain benefits and tax credits. Eligible people will be able to open accounts with financial institutions that have been approved to provide Saving Gateway accounts by Her Majesty’s Revenue and Customs (HMRC). Saving Gateway accounts will be of a fixed duration. At the end of the account’s duration the Government will make a contribution for each pound saved.
7. This legislation sets out qualifying conditions for eligibility for the Saving Gateway. It imposes a duty on HMRC to issue notices to those who are eligible and a duty to reimburse account providers for the payment of the government contribution, or “maturity payment”, to account holders. Details of the requirements for providers and of the operation of accounts will be set out in regulations. The Bill contains additional provisions covering such matters as tax relief, the use of information, penalties and arrangements for appeals against decisions taken by HMRC in relation to the administration of the scheme.
8. The Bill has 32 clauses.
COMMENTARY
Clause 1 Saving Gateway Accounts
9. This clause defines what is meant by a “Saving Gateway account” for the purposes of the Act.
10. Subsection (1) sets out the four characteristics of a Saving Gateway account:
- that it is held by a person who has received a notice of eligibility and who was eligible at the relevant date (which is defined in subsection (3)). Notices of eligibility will be issued by HMRC under the powers given in clause 2;
- that the account satisfies the requirements imposed by or under the Bill;
- that the account has been properly opened; and
- that the account has not ceased to be a Saving Gateway account. The circumstances in which an account ceases to be a Saving Gateway account will be set out in regulations made under clause 10.
11. Subsection (2) states that Saving Gateway accounts will be under the management of the Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”). The conferring of a managerial discretion on the Commissioners is a standard feature of HMRC legislation, and that of its predecessor departments - the Inland Revenue and HM Customs and Excise.
12. In older fiscal legislation, the managerial discretion conferred on HMRC’s predecessor departments has been denoted by the term “care and management”. This Bill uses the more modern term of “management”. The use of the term “management” is not intended to introduce a concept different from that found in older legislation.
13. Subsection (3) defines the “relevant date” for the purposes of subsection 1(a). The relevant date is either the date on which a notice of eligibility is issued, or, if a person has ceased to be eligible on that date, the Commissioners may determine that an earlier date is to be treated as the relevant date under subsection (3)(b).
14. This is intended to cater for situations where a person’s claim to one of the benefits or tax credits listed in clause 3(2) ends a short time before HMRC issues the notice of eligibility. HMRC will receive information on eligibility on a periodic basis from the Department for Work and Pensions (DWP) and the Department for Social Development (DSD). There may be instances in which a person’s claim to benefits or tax credits ceases before HMRC receive that information from the DWP or the DSD or between receipt of the information and the issue of the notice of eligibility.
Clause 2 Notices of eligibility
15. Subsection (1) requires the Commissioners to issue a notice of eligibility to each person who is eligible for a Saving Gateway account. Eligibility is defined by clause 3, which is described below.
16. Subsection (2) provides that the notice must include an expiry date. It enables the Treasury to specify in regulations what other information is to be contained in the notice and the way in which the notice is to be issued.
17. Subsection (3) enables regulations to be made allowing the Commissioners to issue a further notice of eligibility to a person where the expiry date in any previous notice has passed.
Clause 3 Eligible persons
18. This clause sets out when a person will be an eligible person for the purposes of this Bill. Individuals who are entitled to certain benefits will automatically receive a notice of eligibility and will be eligible to apply to open a Saving Gateway account, as will individuals who are eligible for certain tax credits who satisfy conditions to be specified in regulations. Clause 3 sets out which benefits and tax credits will lead to eligibility and makes provision for further conditions relating to eligibility to be set out in regulations.
19. Subsection (1) specifies two criteria that a person must meet in order to be an eligible person. Subsection (1)(a) provides that a person must be entitled to one or more of the benefits or tax credits listed in subsection (2) in order to be an eligible person. Subsection (1)(b) provides that, to be eligible, a person must have a connection with the United Kingdom of a kind set out in regulations to be made under this clause.
20. Subsection (2) lists the benefits and tax credits which a person must be entitled to in order to be an eligible person. These are:
- employment and support allowance;
- severe disablement allowance;
- child tax credit (subject to regulations made under subsection (4)); and
- working tax credit (subject to regulations made under subsection (4)).
21. For jobseeker’s allowance and employment and support allowance, both income-based and contribution-based entitlement will lead to eligibility for the Saving Gateway.
22. Subsection (3) provides that, where a joint claim is made to a benefit or tax credit by two eligible persons, such as may happen, for example, where a joint claim to child tax credit is made, both parties to the claim will be eligible for a Saving Gateway account.
23. Subsections (4) and (5) provide for regulations to be made limiting the circumstances in which a person entitled to child tax credit or working tax credit is eligible for a Saving Gateway account. Regulations made under this clause may include the imposition of an income threshold above which tax credit recipients are not eligible for Saving Gateway accounts, or provisions in relation to individuals whose entitlement to tax credits arises because they are also entitled to a prescribed social security benefit. Regulations made under subsection (4) may make provision similar to any provision of the Tax Credits Act 2002 6 or to any regulations made under that Act, with or without modifications. The Government is minded to impose an income threshold, above which tax credit recipients are not eligible for Saving Gateway accounts, and to align this with the child tax credit threshold, which is currently set at £15,575.
24. Subsection (6) enables the list of benefits and tax credits contained in subsection (2) to be amended by order.
25. Subsection (7) enables an order under subsection (6) to make consequential amendments to clause 3.
Clause 4 Requirements relating to accounts
26. Clause 4 contains requirements relating to accounts and gives the Treasury power to make regulations imposing requirements that an account must comply with to be a Saving Gateway account.
27. Subsection (1) determines that providers of Saving Gateway accounts must be approved by the Commissioners in accordance with regulations. Saving Gateway accounts may be held only with an approved account provider.
28. Subsection (2) specifies conditions that an account must meet in order to be a Saving Gateway account. Subsection (2)(a) provides that an account is not a Saving Gateway account unless, under the terms of the account, the account holder is entitled to a “maturity payment” at the end of the account. The maturity payment is the government contribution paid at the end of the account and is calculated according to the rules contained in clause 8.
29. Subsection (2)(b) provides that an account is not a Saving Gateway account unless, under the terms of the account, the personal representatives of the account holder are entitled to a payment (a “death payment”) in the event of the account holder dying before the end of the account. Regulations made under this clause will specify how the death payment is to be calculated and the period within which it is to be payable by the account provider.
30. Subsection (2)(c) provides that an account is not a Saving Gateway account unless it complies with any additional requirements imposed by regulations.
31. Subsection (3) enables the Treasury to make regulations imposing a limit on the amount which may be paid into a Saving Gateway account during a month. This limit does not apply to interest or other sums paid by the approved account provider under the terms of the account.
32. Subsection (4) defines “month” for the purposes of subsection (3). The effect of this subsection is to ensure that the deposit limit set under the regulation-making power in subsection (3) applies to a calendar month, apart from in the first month of the account’s duration. The first month of the account duration runs from the day on which the account is opened to the end of the calendar month in which it is opened, and so may be less than a full calendar month.
Clause 5 Approvals
33. Clause 5 relates to the approval of account providers by HMRC. The approval process will be set out in regulations and will be based on the process for providers wishing to offer Child Trust Funds.
34. Subsection (1) provides that regulations made by the Treasury under clause 4(1) may include provisions enabling the Commissioners to impose conditions on an approved account provider, and that approval may be withdrawn.
35. Subsection (2) enables regulations to impose requirements on providers whose approval as an account provider has been or is to be withdrawn to provide prescribed information to prescribed account holders. The details of the process to be followed in such circumstances will be set out in regulations but may, for example, include a requirement to supply to account holders notification of their right to transfer their account to another approved account provider.
Clause 6 Account opening
36. Clause 6 relates to the opening of accounts and gives the Treasury power to make regulations in relation to the opening and holding of accounts by eligible persons.
37. Subsection (1) states that a person who receives a notice of eligibility may apply to open a Saving Gateway account with an approved account provider.
38. The information to be contained in notices of eligibility will be set out in regulations made under clause 2 and, as specified in clause 2(2)(a), will contain an expiry date. Subsection (2) specifies that an application to open an account must be made, and accepted by the account provider, by the end of the expiry date specified in the notice. The application must also include a true declaration as prescribed in regulations and must be made in accordance with regulations. Where an incorrect declaration is made or an application for an account otherwise breaches the requirements of subsection (2), the account opened will not be a Saving Gateway account as provided for in clause 1(1)(c). Where an incorrect declaration is made deliberately by a person seeking to open a Saving Gateway account, a penalty may be charged under clause 19(1), as described below.
39. Where an application is made that meets the requirements of this clause, the account provider is obliged to open a Saving Gateway account under subsection (3).
40. Subsection (4) provides that exceptions to the obligation to open an account may be set out in regulations. These exceptions may, for example, include a situation where an account provider believes the notice of eligibility is not genuine or that the applicant has provided incorrect information as part of the application.
41. Subsection (5) allows the Treasury to make regulations in relation to holding and opening Saving Gateway accounts. Regulations may in particular prevent a person holding more than one Saving Gateway account at the same time, may specify a period after the end of a Saving Gateway account during which a person cannot open another Saving Gateway account and may prevent a person from opening more than a specified number of accounts in their lifetime, or from holding more than a specified number of Saving Gateway accounts until the end of their maturity periods.
Clause 7 Transfers
42. Clause 7 gives the Treasury power to make regulations regarding the transfer of accounts from one account provider to another. The detail of the account transfer procedure will be set out in regulations.
Clause 8 Maturity payments
43. Clause 8 specifies how the maturity payment payable at the end of the account’s maturity period is to be calculated.
44. Subsection (1) contains the method for calculating the maturity payment. The maturity payment is the government contribution made at the end of a Saving Gateway account. The amount of the maturity payment is calculated by multiplying the number of whole pounds in the qualifying balance of an account at the end of the maturity period (“A”) by an amount in pence to be specified in regulations (“B”).
45. The Government has announced that the amount to be specified in regulations will be 50 pence, meaning that the government contribution will be calculated at the rate of 50p for every £1 in the qualifying balance of a Saving Gateway account.
46. Subsection (2) provides that the qualifying balance of a Saving Gateway account is the highest balance achieved during the maturity period.
47. Subsection (3) provides that two sums are to be disregarded when calculating the highest balance that has been achieved in a Saving Gateway account. Subsection (3)(a) specifies that interest or other sums credited to the account by the account provider under the terms of the account are to be disregarded. Subsection (3)(b) specifies that any amounts paid in breach of the limit on deposits specified in regulations under clause 4(3) are to be disregarded.
48. Worked examples are given below to illustrate how these rules operate in different cases. All figures are purely illustrative. The Government has announced that the limit to be specified in regulations under clause 4(3) on the amount that can be deposited in a month is £25 and that the maturity period to be specified in regulations under clause 4(2)(a) is two years.
49. Example 1. An account holder saves £25 per month over two years and makes no withdrawals. Interest of £2 is credited to the account at the end of month 12 and £3 at the end of month 24. This gives a closing balance on the account of £605, made up of 24 monthly payments of £25 and £5 of interest. The qualifying balance in this example would be £600, as the interest payments are disregarded under subsection (3)(a). The maturity payment in this example would therefore be 600 x 50p = £300.
50. Example 2. An account holder deposits £10 a month in the first 11 months of the maturity period but makes a deposit of £50 in month 12, in breach of the limit on deposits in a month specified in regulations under clause 4(3). The account holder continues to deposit £10 a month in each of the remaining 12 months of the account. No withdrawals are made. £2 of interest is paid at the end of month 12 and £2 of interest is paid at the end of month 24.
51. The actual closing balance of the account would be £284, made up of 23 monthly deposits of £10, a deposit of £50 in month 12 and £4 of interest. In this case the qualifying balance would be £255, as the interest payments of £4 are disregarded under subsection (3)(a) and the sum of £25 paid in excess of the monthly limit in month 12 is disregarded under subsection (3)(b), meaning that only £25 of the £50 deposited in month 12 counts towards the qualifying balance. The maturity payment in this example would therefore be 255 x 50p = £127.50.
52. Example 3. A person saves £25 each month for the first 12 months of the account, giving an actual balance of £300. The person withdraws £100 in month 12 and makes no further withdrawals or deposits. The closing balance of the account would be £200 (assuming in this example that no interest is paid). The qualifying balance of the account is £300 as this is the highest balance achieved during the maturity period. The maturity payment in this example would be 300 x 50p = £150.
53. Example 4. A person saves £25 each month for the first 12 months of the account, giving an account balance of £300 and then withdraws £100 in month 12. The actual closing balance at the end of month 12 is £200. The account holder makes deposits of £25 in each of the remaining 12 months of the maturity period. An interest payment of £2 is credited to the account at the end of month 12 and at the end of month 24.
54. The closing balance on the account at the end of month 24 is £504, which comprises 24 monthly deposits of £25 (£600) less the £100 withdrawal made in month 12, plus £4 of interest. The qualifying balance in this example is £500, which is the highest balance achieved during the maturity period, of £504 at the end of month 24, less £4 interest which is disregarded under subsection (3)(a). This example illustrates that where a withdrawal has been made, the account holder must make further deposits to catch up to the previous highest balance achieved before amounts saved count towards the qualifying balance. In this example the £25 deposits made in months 13 to 16 enable the account holder to catch up to the previous highest balance of £300. The maturity payment in this example would be 500 x 50p = £250.
55. Subsection (4) requires the maturity payment to be paid by the account provider to the account holder within a period of time, to be specified in regulations, after the end of the maturity period.
56. Subsection (5) provides that the account holder is not entitled to a maturity payment where an account is closed before the end of the maturity period.
Clause 9 Statements etc.
57. Clause 9 gives the Treasury the power to make regulations about the account statements to be issued by account providers.
58. Subsection (1) gives the Treasury the power to make regulations requiring account providers to send account statements to account holders. Regulations may specify the information that account statements are to contain and how often they are to be sent to account holders.
59. Subsection (2) disapplies section 234A of the Income and Corporation Taxes Act 1988 7, so that there is no duty under section 234A on account providers to supply information to account holders concerning the distribution of interest.
Clause 10 Account ceasing to be Saving Gateway account
60. Clause 10 gives the Treasury power to make regulations specifying when an account ceases to be a Saving Gateway account.
Clause 11 Returns of information to HMRC
61. This clause concerns the information to be provided by persons who are or were approved account providers to HMRC.
62. Subsection (1) provides that regulations may place a requirement on approved account providers, or persons who were approved account providers, to submit an information return to HMRC about Saving Gateway accounts or former Saving Gateway accounts.
63. Subsection (2) provides that the regulations may specify the information to be included in the return, the form of the return, the period to which a return relates and the period within which it is to be submitted. Subsection (2)(e) provides that regulations may set out how a return is to be submitted, which may include a requirement that returns are to be made by electronic means under the provisions of section 135 of the Finance Act 2002 8, with or without modifications.
64. Section 135 of Finance Act 2002 provides authority for the Commissioners to make regulations requiring electronic communications to be used by specified persons to deliver specified information relating to a taxation matter. The regulations in Part 10 of the Income Tax (Pay As You Earn) Regulations 2003 9 which make Pay As You Earn online filing and payment mandatory for large employers are, for example, made partly in exercise of the powers granted in section 135 of Finance Act 2002. As the powers conferred on the Commissioners by section 135 are limited to “taxation matters” they could not be used to make provision relating to Saving Gateway accounts. Clause 11(2)(e) therefore allows regulations to be made applying the provisions made under section 135, with or without modifications, to Saving Gateway accounts.
65. Under the powers given by subsection (3) regulations may provide for the return to include a claim by the approved account provider for payment of an amount equal to maturity payments made to account holders and death payments made to the personal representatives of deceased account holders. Regulations made under this subsection will require account providers to submit a monthly claim to HMRC for payment of these amounts.
66. Subsection (4) provides that the Commissioners must pay any amount claimed in accordance with regulations made under subsection 3(a) within a period to be specified in regulations.
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