Joint Committee on Tax Simplification Bills Minutes of Evidence



  This note summarises the background to the Inland Revenue's Tax Law Rewrite project and briefly outlines the main features of the project team's approach to the work.


  2.  In December 1995 the Inland Revenue presented a report to Parliament on the scope for simplifying the UK tax system. The main recommendation was that UK direct tax legislation should be rewritten in clearer, simpler language.

  3.  This recommendation was warmly welcomed, both in Parliament and in the tax community. After further work on important practical issues and a period of preliminary consultation, the then Chancellor of the Exchequer announced in his November 1996 Budget speech that the Inland Revenue would propose detailed arrangements for a major project to rewrite direct tax legislation in plainer language. We did so in Tax Law Rewrite: Plans for 1997 published in December 1996.

  4.  Our overall aim is to rewrite all (or most) of the United Kingdom's existing primary direct tax legislation to make it clearer and easier to use, without changing or making less certain its general effect.


  5.  The Tax Law Rewrite is run on project lines. Our project team currently comprises almost 40 people, including five tax professionals recruited on fixed term contracts from the private sector. Four multi-disciplinary rewrite teams work on particular areas of tax legislation. There is also a drafting team headed by a senior Parliamentary Counsel on loan from the Office of Parliamentary Counsel, together with a small policy and project support team.

  6.  A Steering Committee chaired by the Rt Hon the Lord Howe of Aberavon CH, QC provides strategic guidance to the project. It ensures that the project is meeting its objectives of clarity and user friendliness, and is taking full account of private sector concerns. This Committee brings together a wide range of talents and experience, with members drawn from both Houses of Parliament, the judiciary, the legal and accountancy professions, consumer interests and business. It meets regularly and its minutes are published on the Internet.

  7.  There is also a standing Consultative Committee, whose role is to ensure continuous consultation on the rewritten law with all the main private sector interests. Chaired by the Project Director, it consists of a core group of the main representative bodies in the tax professions, business and consumer interests. Project team members and, where appropriate, Inland Revenue officials dealing with the subject matter being discussed, also attend its meetings. In addition, there is a group of specialist representative bodies who receive all the Committee's papers but attend meetings only when a subject relevant to their interests is being discussed. This Committee's minutes are also published on the Internet.


  8.  We are committed to proceeding with our work on the basis of full consultation at every stage of the process.

    —  As we develop draft clauses, we involve Inland Revenue specialists (and, where appropriate, interested parties outside the Department) and produce "work in progress" papers for consideration by our Committees.

    —  In the light of comments from both Committees and further work within the project, we refine the draft clauses and work up Exposure Drafts for public consultation. These contain a general commentary and a more detailed clause-by-clause commentary. Near final drafts are considered by both Committees before publication.

    —  We publish these Exposure Drafts for written comments.

    —  Usually we publish a response document, summarising the comments received from formal consultation and our response to these points. This provides feedback to all those who have commented.

    —  Finally we publish draft rewrite Bills—with a commentary—for a final round of formal consultation before introducing them in Parliament for enactment.

  9.  All this consultation places heavy demands on those whom we consult. We are very grateful to them for the time and resources they have been prepared to devote in order to give us their comments. Their input has been invaluable, and it will remain so as the project progresses.


  10.  We use a number of techniques when rewriting legislation. These are all different ways of meeting our paramount objective of making the legislation easier for the reader to understand, while preserving its technical accuracy.


  11.  By far the most useful of these is to establish the best structure for the present purpose of the legislation (as opposed to its original purpose). This process involves the detailed analysis of all the existing legislation on a particular topic, as well as any relevant extra statutory concessions and other non-statutory material. We then reconstruct the propositions in the most logical order. This initial analysis is usually much harder and more time-consuming than was first expected.

  12.  This reordering at a detailed level is complemented at a higher level by the reordering of material within the Acts and between Acts. Our working assumption remains that the rewrite will in the end result in the following main Acts:

    —  Income Tax

    —  Corporation Tax

    —  Capital Allowances

    —  Capital Gains

    —  Stamp Duties

    —  Inheritance Tax

    —  Management.


  13.  We use colloquial English wherever we can, adopting shorter sentences in the active, rather than passive, voice. We replace archaic expressions with modern ones, taking care not to change the law inadvertently by rewriting words or expressions that have a well understood meaning. We harmonise definitions across the Acts where possible, and then make it easier for the reader to find defined terms. We group similar rules together in one place, and make greater use of signposts to guide the reader to other relevant provisions. And we continue to explore other techniques for making legislation more accessible—method statements, formulae and, where appropriate, tables.

Minor changes

  14.  To achieve our overall aim our rewritten legislation has to be not only clear, but also technically accurate. It must reproduce the effect of the existing legislation, except where we can make minor changes to improve the legislation still further. The project team is responsible for the overall accuracy of the rewritten legislation. Accuracy is assured largely by exposing the draft clauses to the close scrutiny of a series of internal and external experts through our extensive consultation processes.

  15.  Minor changes in law or in approach are called "proposed rewrite changes" in our Exposure Drafts. Typically they would involve correcting small errors, enacting an extra statutory concession or dropping material which is no longer necessary. We aim at every stage of the consultative process to identify clearly all such changes and to highlight any issues which may arise. When a Rewrite Bill is introduced in Parliament, minor changes in the law are written up in an annex to the Explanatory Notes accompanying the Bill. Some of the points flagged up in Exposure Drafts as proposed rewrite changes involve textual changes which we do not think change the legal effect of the provisions. These are written up in another annex.

  16.  Our consultation from time to time reveals suggestions for policy change that go beyond our remit. We aim to record these suggestions when responding to our consultation, and we pass all of them on to our Revenue colleagues to consider further and, where appropriate, to inform Ministers. With them, we continue to look for opportunities to further improve and modernise our tax system.

17 January 2001



Part of Bill How many changesOther remarks
Part 1Introduction
Part 2Plant and machinery allowances 31One change (10) also applies in Part 5.
Part 3Industrial buildings allowances 9One change (34) also applies in Part 10.

Another (38) also applies in each of Parts 4 to 10.

Another (40) also applies in Parts 4 to 6, 9, 10 and 12.

Another (39) also concerns a change in Part 6.
Part 4Agricultural buildings allowances 6
Part 5Mineral extraction allowances 2
Part 6Research and development allowances 5
Part 7Know-how allowances 2These changes also apply to patent allowances (and one (54) is similar to a change (8) in Part 2).
Part 8Patent allowances 1
Part 9Dredging allowances 1
Part 10Assured tenancy allowances
Part 11Contributions 3
Part 12Supplementary provisions 4
Sch.2Consequential amendments 1
Sch.3Transitionals and savings 1


1.   Clauses 15(1)(f) and 252: Mining concerns etc dealt with in section 55 of the Income and Corporation Taxes for 1988 (ICTA) and plant and machinery allowances

  This corrects a previously unnoticed glitch in the legislation which could mean that some section 55 concerns are not, strictly speaking, entitled to allowances for plant and machinery. It brings the legislation into line with practice.

2.   Clause 23(3): Expenditure on buildings and structures, etc, which is unaffected by exclusions from what can be plant or machinery

  This simplifies some complex provisions identifying what can be treated as plant or machinery. If anything, the simplification extends the scope for obtaining plant and machinery allowances.

3.   Clause 23(5): Meaning of "caravan"

  This legislates an ESC which gives "caravan" an extended meaning for the purpose of entitlement to plant and machinery allowances.

4.   Clause 26(1)(b): Demolition costs

  This ensures that expenditure on demolition of plant or machinery which was last in use for the purposes of a qualifying activity can qualify for plant and machinery allowances. Under existing law, demolition expenditure only qualifies if the plant or machinery is in use for those purposes at the time of demolition.

5.   Clause 27(1)(b): Expenditure on thermal insulation, safety measures and double relief

  This simplifies the legislation by aligning similar tests for obtaining plant and machinery allowances for expenditure on thermal insulation of industrial buildings or on various safety measures, including personal security.

6.   Clause 29(5) and (6): Fire safety (Northern Ireland)

  This legislates part of an Extra-statutory concession (ESC) relating to obtaining plant and machinery allowances in respect of expenditure on fire safety measures in Northern Ireland.

7.   Clause 48: Legislation used to determine whether a business is small or medium-sized for purposes of entitlement to first-year allowances

  Northern Ireland legislation is not properly referred to for the purposes of certain first-year allowances; this change corrects this.

8.   Clause 58: Allocation of expenditure to pools

  This brings the legislation into line with practice by giving the taxpayer the flexibility to allocate expenditure to a pool for a chargeable period after that in which the expenditure is incurred. It also removes the need for formal elections.

9.   Clause 60(3): More than one disposal event

  This brings the legislation into line with practice by ensuring that once expenditure on plant or machinery has been pooled the taxpayer is not liable to bring a disposal value into account in respect of more than one disposal event in respect of that pooled expenditure.

10.   Clauses 61, Table, item 5 and 402(5): Disposal value and relevant receipts where plant or machinery used for mineral exploration and access is abandoned

  This changes the disposal value (from market value to compensation etc money) where plant or machinery used for mineral exploration and access is abandoned. (Essentially the same change is made in Part 5 in connection with pre-trading expenditure.)

11.   Clause 62: General limit on amount of disposal value

  This ensures that the "cap" on the disposal value is based on qualifying expenditure rather than capital expenditure. The effect is that the cap could be lower in cases involving connected persons.

12.   Clause 63(1) and (2): Nil disposal value for certain gifts

  This ensures that there is a "nil" disposal value (instead of "no disposal value") for gifts to educational establishments, charities and heritage bodies. The effect is essentially taxpayer favourable, and reflects existing practice.

13.   Clause 63(2): Relief for gifts to educational establishments

  This brings provisions about gifts to educational establishments into line with provisions about gifts to charities and heritage bodies. It abolishes requirements that the taxpayer (1) must have claimed plant and machinery allowances on the gift and (2) must put in a claim to take advantage of the special disposal value rule.

14.   Clause 64: Case where no disposal value need be brought into account

  This ensures that the taxpayer is not required to bring a disposal value into account if he or she has not used the expenditure in a tax claim. There is an exception for connected persons cases which is designed to prevent tax leakage.

15.   Clause 65 (and clause 19): Final chargeable periods (and, in particular, final chargeable period for special leasing)

  This ensures that a person is entitled to a balancing allowance in respect of expenditure on plant or machinery in certain circumstances where this is not at present entirely clear.

16.   Clause 68(3): Hire-purchase contracts, etc

  This changes the disposal value (from market value to relevant capital sums) where plant or machinery being acquired under a hire-purchase or similar contract is disposed of before it is brought into use.

17.   Clause 70(2) to (5): Plant or machinery required to be provided under terms of lease

  This clarifies the positions of lessor and lessee where plant or machinery has been provided under the terms of a lease, and the lease ends. It spells out what has been taken to be the meaning of some very compressed wording in the existing legislation.

18.   Clause 80(2): Vehicles provided for purposes of employment or office

  This extends the availability of allowances for employees (etc) in respect of cars (etc) to bring them into line with the availability of deductions in respect of travelling expenses under section 198 of ICTA.

19.   Clause 98(1) and (2): Long-life assets: monetary limit relief applied to all qualifying activities

  The lower rate (6 per cent) for writing-down allowances for long-life asset expenditure does not apply to expenditure below the monetary limit. This change applies the monetary limit relief to any employees and office holders, etc who have long-life asset expenditure.

20.   Clause 109(3): Application of 10 per cent rate to pool for expenditure on plant and machinery used partly for purposes other than those of the qualifying activity

  There is a lower rate for writing-down allowances (10 per cent) where plant or machinery is used for certain kinds of leasing to non-residents. This change applies that rate in cases where the plant or machinery is used only partly for the purposes of the qualifying activity.

21.   Clause 129: Election to use appropriate non-ship pool

  This enables a shipowner to opt to use the appropriate non-ship pool by an "election" instead of by giving "notice". The main significance of this is that the shipowner can make a supplementary election if an error or mistake in it is discovered.

22.   Clause 138(1)(a): Deferral of balancing charge on ship—limit on amount deferred

  This simplifies one of the rules used to identify the limit on how much of a balancing charge on a ship can be deferred. It means that the limit could be lower for some taxpayers.

23.   Clause 141(2): Amounts deferred as a result of disposal events occurring at the same time as relevant disposal event

  This extends slightly the circumstances in which deferred balancing charges may be attributed to new expenditure. Greater flexibility is likely to favour the taxpayer.

24.   Clause 155(2)(b): Notices given by successors to shipowner's qualifying activity

  This enables a successor to a shipowner's qualifying activity to give notice attributing a deferred amount to new expenditure. It is a logical extension of the ability that the successor already has under the existing law to vary an attribution made by the shipowner.

25.   Clause 161(4)(a): Pre-trading expenditure on mineral exploration and access

  This puts beyond doubt that, in the context of pre-trading expenditure on mineral exploration and access, plant and machinery allowances cannot be obtained for revenue expenditure.

26.   Clause 172: Adjustment of second part of section 51(1) of the Capital Allowances Act (CAA 1990)

  This removes a rule that could be read as preventing anyone at all from claiming an allowance in respect of a fixture if more than one person is treated as being the owner of the fixture.

27.   Clause 229: Section 25(6) of CAA 1990

  This ensures that, in an anti-avoidance case, the expenditure that an assignee of the benefit of a hire-purchase or similar contract is treated as having incurred is not unduly restricted.

28.   Clause 237: Additional VAT liabilities, first-year allowances and change of circumstances

  This deals explicitly with the effect of certain changes of circumstances occurring between the time when a person initially incurs expenditure giving rise to a first-year allowance and the time when an additional VAT liability is incurred.

29.   Clause 239: Limit on disposal value where additional VAT rebate made

  This has the effect that a lower disposal value may be required to be brought into account where more than one additional VAT rebate is made and one of them accrues after an ordinary disposal event has occurred in respect of the plant or machinery.

30.   Clause 265(3): Property treated as sold to person succeeding to qualifying activity

  This prevents a successor from being treated as having bought plant or machinery at market value if the plant or machinery was not owned by the predecessor immediately before the succession. It reflects the way the legislation has been operated in practice.

31.   Clause 267(2)(a) and (3): Effect of election for continuity on succession to qualifying activity

  This makes clear that where a continuity election is made, the time at which the plant or machinery is treated as sold is the time of the succession. It also slightly extends the range of plant and machinery in relation to which a continuity election can be made.


32.   Clause 278: Buildings used by more than one licensee

  This makes clear that a building can be an "industrial building" (giving rise to allowances) even if one of the licensees is an undertaking carried on by way of trade (rather than a trade proper).

33.   Clause 284: Roads on industrial estates etc

  This extends the availability of industrial buildings allowances for roads in business parks (and similar areas) in enterprise zones. It also extends slightly the availability of industrial buildings allowances for roads on industrial estates outside enterprise zones.

34.   Clauses 287 and 496: Acquisition of interest as a result of incurring expenditure on construction

  This extends the availability of industrial buildings allowances (and assured tenancy allowances) in cases where expenditure is incurred on construction and there is an interval between the completion of the construction and the acquisition of the interest in the building. It reflects the way the legislation has been operated in practice.

35.   Clause 305(1): Commercial buildings in enterprise zones

  This makes clear that initial allowances are available for all commercial buildings in enterprise zones, and not just for those occupied for the purposes of qualifying trades. It reflects the way that the legislation was originally intended to operate and how it has been operated in practice.

36.   Clauses 306(4), 352(2) and 354(6): Miscellaneous changes consequential on Change 35

  This ties up some loose ends which arise once it is made clear that initial allowances are available for all commercial buildings in enterprise zones.

37.   Clause 307(4): Withdrawal of initial allowances

  This extends a provision for making assessments and adjustments of assessments so that it applies in both cases where initial allowances are withdrawn under the clause. It is simpler than the standard fall-back provisions (in the Taxes Management Act (TMA) 1970 and the Finance Act (FA) 1998).

38.   Clauses 309(2), 372(3), 418(6), 441(3), 458(4), 472(4), 487(6) and 507(2): Claim for reduction in amount of allowances

  This is a group of changes which makes clear that the taxpayer can claim less than the full amount of allowances. It brings the legislation into line with practice.

39.   Clauses 335(1) and 441(1): Writing off research and development allowances for industrial buildings allowances (IBA) purposes

  Where an allowance and a disposal value arise in the same chargeable period in respect of the same expenditure, Part 6 now gives a net R&D allowance (rather than an allowance and a charge). This makes no difference in Part 6. But there is a knock-on effect on Part 3—the expenditure on which a person may obtain an industrial buildings allowance may be reduced by a smaller amount (ie the net R&D allowance).

40.   Clauses 356(1), 369(4) and (5), 370(3), 384(1), 412(2), 438(5), 439(4), 440(3), 485(2), 530(1) and 562(3): Just and reasonable apportionment

  This is a group of changes which brings into line the wording used for making apportionments so that they all refer to a "just and reasonable" apportionment, in contrast to the existing law, where some of the provisions refer merely to what is "just".


41.   Clause 361(1)(a): Agricultural buildings

  This alters the wording used to describe the buildings in respect of which agricultural buildings allowances are available. This is so that the legislation works at the technical level in relation to intensive rearing of livestock and fish and short rotation coppicing (which are recognised as "husbandry" for the purposes of these allowances) where strictly speaking the buildings might not be "farm buildings".

42.   Clause 368(2) and (3): New lease of whole or part of agricultural land

  This ensures that entitlement to agricultural buildings allowances will pass to a new tenant rather than to the landlord where the new tenant takes on a lease of part of the agricultural land as well as where the new tenant takes on a lease of the whole of it.

43.   Clause 370(1)(d): Capital sum paid for relevant interest before first use of agricultural building

  This puts beyond doubt that, where a person buys the relevant interest in land before an agricultural building is first used, allowances are available only if the buyer incurs capital (as opposed to revenue) expenditure.

44.   Clauses 381(2)(c) and 383, Table, item 4: "Ceases to exist as such" and "ceases altogether to be used"

  This corrects a mismatch in two provisions in the existing law which are meant to interlock, by changing a balancing event so that it occurs where an agricultural building ceases altogether to be used rather than where it ceases to exist as such.

45.   Clause 386: Calculation of residue of qualifying expenditure

  This ensures that balancing charges are included in the calculation of the residue of qualifying expenditure. It increases the residue and therefore the availability of allowances. It brings the legislation into line with practice.

46.   Clause 387: Overall limit on balancing charge

  This puts beyond doubt that the limit on a balancing charge includes allowances which are available but not yet made. (It would be odd if the taxpayer could lower the limit by delaying a claim for an allowance.)


47.   Clauses 400, 403, 407, 408, 409, 414 and 415: The condition that, for mineral extraction allowances, expenditure must be incurred for the purposes of a mineral extraction trade

  This repeats in various clauses a requirement that expenditure be incurred for the purposes of a mineral extraction trade, but omits it in relation to "restoration expenditure". It is the omission of the requirement that is significant. Restoration expenditure is post-trading expenditure and so will not necessarily be incurred for the purposes of a mineral extraction trade.

48.   Clauses 404(5)(b), 422(4)(b) and 424(5)(b): "Existing permitted development" in the case of land outside the UK

  This ensures that there will continue to be a workable test of what is "existing permitted development" for land outside the UK now that the existing test has been rendered potentially unworkable as a result of devolution.


49.   Clauses 442(3) and (4) and 449: Research and development allowances: limiting balancing charges by reference to unclaimed allowance

  This ensures that a person who claims only part of an R&D allowance does not suffer a balancing charge where the disposal value brought into account is not more than his unclaimed allowance. (See change 38.)

50.   Clause 443, Table, items 1 and 2: Disposal value for asset representing allowable research and development expenditure

  This ensures that only net amounts and capital compensation are taken into account in calculating the disposal value for an asset representing allowable R&D expenditure.

51.   Clause 444(3)(a) and (4): Chargeable period for which a disposal value is to be brought into account for research and development allowances

  This concerns an unusual case where a person ceases to own an asset representing allowable R&D expenditure (or the asset is destroyed) before the chargeable period for which the allowance would be made. It requires a disposal value to be brought into account for that period.

52.   Clause 445(1): Research and development allowances and pre-trading demolition costs

  This is about the demolition of an asset representing allowable R&D expenditure before the commencement of the trade by reference to which the expenditure is allowable. It ensures that the demolition costs can be taken into account (to reduce the disposal value and, in some cases, to give a further allowance).

53.   Clause 448(5): Pre-trading additional VAT rebates in respect of allowable research and development expenditure

  This concerns a case where an additional VAT rebate in respect of allowable R&D expenditure accrues before the commencement of the trade by reference to which the expenditure is allowable. It requires a disposal value to be brought into account for the chargeable period for which the allowance would be made.


54.   Clauses 460 and 474: Allocation of expenditure to know-how and patent pools

  This brings the legislation into line with the approach taken in Part 2 (see Change 8). It gives the taxpayer the flexibility to allocate expenditure to a pool for a chargeable period after that in which the expenditure is incurred.

55.   Clauses 462(2) and 476(3): Only capital sums to be included in proceeds of sale

  This ensures that only capital proceeds of sale are brought into account as a disposal value on the sale of know-how or patent rights.


56.   Clause 471(6): Final chargeable period for non-trade patent pool

  A balancing allowance in respect of non-trade patent expenditure is currently available only for the chargeable period in which the last of the patent rights comes to an end. This ensures that a balancing allowance arises either for that chargeable period or for the chargeable period in which the last of the rights is wholly disposed of.


57.   Clause 486(1): Preliminary dredging expenditure

  This extends the availability of dredging allowances in respect of one kind of pre-trading expenditure, by making them available as soon as the trade is carried on, rather than making them available only once premises are occupied.


58.   Clauses 535 and 536: Contributions to research and development expenditure

  This enables a person who receives a contribution to research and development expenditure to obtain allowances in respect of the contribution in certain circumstances. At present this is not possible.

59.   Clauses 536(5) and 537(4): Contributions, Part 2 and the meaning of "trade"

  This makes clear that provisions relating to contributions apply to all the "qualifying activities" in Part 2 except employments and offices. The general effect is that a recipient cannot obtain allowances under Part 2 in respect of a contribution from someone carrying on one of these qualifying activities but the contributor can do so.

60.   Clause 538(3): Single asset pools for contributions to expenditure on plant and machinery

  This makes clear that a person entitled to allowances under Part 2 in respect of a contribution has a "single asset pool" for the contribution rather than a "class pool".


61.   Clause 545(1) and (2): Omission of section 434E(1)(b) of ICTA

  This simplifies the definition of "investment asset" in connection with provisions about allowances for companies carrying on life assurance business. It brings the legislation into line with the way it was intended to operate and has been operated in practice.

62.   Clauses 558(5), 559(5) and 577(2)(b): Permanent discontinuance etc of a property business

  This deals with missed consequentials on reforms relating to Schedule A businesses and overseas property businesses.

63.   Clause 564(4): Procedure for determination of questions affecting tax liability of two or more persons and section 152B(8) of CAA 1990

  A reorganisation of material here has the indirect effect of picking up missed consequentials on the insertion of section 152B(8) of CAA 1990.

64.   Clause 576(1): The Inland Revenue and tax inspectors

  The definition of "the Inland Revenue", when read with various other clauses, ensures that certain functions which are currently exercisable by inspectors are exercisable by an officer of the Board.

65.   Paragraph 1 of Schedule 2: Claims for postponed first-year allowances in respect of ships

  This deals with a case where a person is entitled to a first-year allowance in respect of a ship, postpones it, and then claims the postponed allowance (or part of it). It extends the rules about partnership returns to these claims to call in postponed first-year allowances.

66.   Paragraph 98(3) of Schedule 3: Reduced writing-down allowance for patent allowances on pre-1 April 1986 expenditure

  This has the effect that reduced writing-down allowances on pre-1 April 1986 patent expenditure are proportionately increased or reduced if the chargeable period for which they are given is more or less than a year. This is likely to have little effect in practice since the provisions giving allowances on such expenditure will soon be spent.

17 January 2001



  1.  The Committee asked about changes which were suggested for the Capital Allowances Bill but not included in the Bill.


  2.  In the course of consultation on legislation various organisations, companies and individuals suggest changes to the legislation which are not appropriate to a Tax Simplification Bill. Our practice is to:

    —  record and publish suggestions for changes on which we have not acted, either in a separate document summarising responses or with the next draft of the legislation in question if, as with capital allowances in 2000, we are publishing revised clauses quickly; and

    —  pass those suggestions on for consideration along with other representations for changes in a Budget and Finance Bill.

  3.  Suggestions made in reponse to the four Exposure Drafts on capital allowances were published in Appendix 1 to the commentary which accompanied the draft Capital Allowances Bill published in August 2000. This note adds to those some additional suggestions made in response to that draft Bill.


  4.  The Appendix to this note sets out the changes suggested in response to the four Exposure Drafts on capital allowances or the draft Bill. They are grouped under the headings of the Parts of the Capital Allowances Bill.


  5.  The proposed changes in the Appendix span a wide range in terms of their potential effects on, for example, the length and complexity of the legislation, on individual taxpayers, and on revenues. Each was considered only so far as was necessary to establish that it would not be appropriate to make the change in the Capital Allowances Bill. In this we were guided by both the remit given to the project at the outset and the views expressed by the Steering Committee, by the Consultative Committee and by others in response to Exposure Drafts and the draft Bill.

  6.  We would usually consider appropriate changes which improve the legislation. This might be because the change:

    —  makes the legislation shorter, simpler, clearer, more certain or more consistent with other legislation.

    —  incorporates extra-statutory concessions;

    —  codifies judgements of the courts;

    —  corrects points overlooked in the course of consolidation Acts;

    —  removes an anomaly which is patently unintended and unfair;

    —  confirms the intended and accepted interpretation of the legislation; or

    —  fills a gap in the legislation.

  7.  We would not consider appropriate to a Tax Simplification Bill changes which:

    —  make the legislation more complex;

    —  contradict the clear intention when the legislation was introduced;

    —  lead to changes beyond the scope of the Bill in question to the tax system more generally;

    —  involve substantially more or less allowances;

    —  have more than negligible effects on tax revenues; or

    —  are or are likely to be contentious.

  8.  For many changes, and especially those suggested but not made, there may be arguments both for and against making them. It is then a matter of the balance of benefits and disadvantages.


  9.  It may assist the Committee to illustrate this by reference to specific examples.

  10.  Two of the changes in the Appendix might lead to major simplification of the capital allowances legislation. These are:

    (j)  simpler legislation for industrial buildings allowances for buildings in enterprise zones: there are some relatively lengthy and complex provisions for expenditure on buildings in enterprise zones to provide for the special initial allowances at 100 per cent and the optional alternative of writing-down allowances at 25 per cent a year; and

    (m)  removing the separate legislation for agricultural buildings allowances leaving such buildings to qualify (or not) for industrial buildings allowances. This would remove Part 4 (some 11 pages) from the Capital Allowances Bill (subject to any transitional provisions).

  11.  But both would involve policy issues affecting substantial amounts of tax relief and numbers of taxpayers:

    —  the legislation for buildings in enterprise zones gives people much faster tax relief than the general 4 per cent rate of industrial buildings allowances on a much wider range of buildings. This is a valuable difference. So, as ever, a key issue is drawing the line between buildings and expenditure which qualify and those which do not. Simpler legislation would inevitably mean moving that boundary with winners and losers, less certainty, effects on yield, or a mixture of all of those; and

    —  getting rid of the separate legislation for agricultural building allowances would mean that some people who currently get allowances for agricultural buildings would cease to do so. There would also be compulsory balancing allowances and charges which at present are optional. The separate legislation for agricultural buildings was introduced (in its current form in 1986) precisely because the rules for industrial buildings were felt not to fit the particular needs of that sector. To take just one aspect, a farmer can carry on getting agricultural buildings allowances on a barn which is converted to a shop.

  12.  Another type of change is illustrated by item (a). This would extend relief for gifts to (broadly) educational establishments, charities and certain heritage bodies to a wider range of donors, mainly investment companies, employments and offices. (This is discussed in detail in Note 18 in Annex 2 to the explanatory notes which accompany the Bill.) However, the legislation in the Income and Corporation Taxes Act 1988 (ICTA) does not apply only for capital allowances. It also applies to gifts of trading stock. In addition, the relief provided by section 83A of ICTA was introduced by section 55 of the Finance Act 1999 and debated then. Extending the scope of the relief as suggested would therefore be a change in policy, to recent legislation, which would introduce differences between the scope of the capital allowances legislation and the legislation in ICTA.

  13.  An example of another type of change is item (d) in the Appendix. This suggests legislation for large numbers of items of plant or machinery:

    —  each of which is a short-life asset for the purposes of plant and machinery allowances and so requires a separate single asset pool; but

    —  are held in large numbers and cannot practicably be identified and tracked individually. For example returnable containers or cutlery.

  14.  In these cases the practice allows simpler records and computations of plant and machinery allowances. It does not change the entitlement to allowances or liability to charges. Legislation to set out all the possible forms of the simpler calculations would be complex and long; and even then probably not cope with all possible circumstances. So we judged it would not be appropriate to impose it.

  15.  Finally some changes in the Appendix were suggested towards the end of 2000 so it was not possible to consider them fully in time for the Bill. An example is (k) in the Appendix (a statutory definition of a member of his family or household). This is a term which is used and defined in ICTA. There would, on the face of it, be benefits in using the same definition for capital allowances. But the point was raised by only one person; the definitions in ICTA are themselves being rewritten for the second Tax Simplification Bill; and there is no evidence that the lack of a statutory definition causes uncertainty in practice. So this point is left for consideration for a later Tax Simplification Bill or Finance Bill.


  16.  There is rarely one, single reason for not making the changes listed in the Appendix. And the fact that the change is not made does not necessarily mean that it was felt to be intrinsically undesirable.

22 January 2001

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