Tax Bulletin Issue 21

INLAND REVENUE TAX BULLETIN 
Issue 21

CONTENTS

Deduction of tax and tax relief at source (No longer relevant)

Purchase by an unquoted company of its own shares

interpretations

Exchange gains and losses:

Farmer's averaging and the transition to Self Assessment (Superseded by BIM73120 & BIM73125)

Record keeping requirement:

Schedule A:

Schedule D Cases I & II

Self Assessment:

miscellaneous

Joint working:

  • Update (Article no longer current)

PAYE settlement agreements (Article deleted since index 2002)

Pension Schemes Office:

Vouchers for claims to repayment by or on behalf of individual taxpayers (Article no longer current)

Statements of Practice and Extra-Statutory Concessions

EDITORIAL

It was announced in Issue 20 (December 1995) that the 1996 subscription would be £20 and it was also explained that different distribution arrangements would apply.

I would like to remind readers that future issues will only be sent to those on the Tax Bulletin subscription list for 1996. If in the past you received Tax Bulletin because of your Press Release subscription, you must complete a separate Tax Bulletin subscription form if you wish to continue to receive it.

(No longer relevant)
DEDUCTION OF TAX AND
TAX RELIEF AT SOURCE

The Taxes Acts specify that various payments are to be made under deduction of income tax. In addition, a number of tax reliefs are given at source by reducing the amounts paid. And certain forms of income are treated as though they have already borne income tax when they are received, although such tax is not repayable.

Last year's Budget included proposals:

  • to reduce the basic rate of income tax from 25 to 24 per cent, and
  • to reduce the tax charge on interest and other savings income to the lower rate of 20 per cent.

The changes are intended to take effect from 6 April 1996.

Assuming the Budget proposals become law, most of the rates at which income tax is deducted, or relief is given at source, or tax is treated as having been borne, will change for 1996-97. This article sets out the rates which will be applicable next year and provides background information about some of the changes.

PAYMENTS MADE UNDER DEDUCTION OF TAX

From 6 April (except where indicated) where any person is required, or entitled, under the Taxes Acts to make a payment under deduction of income tax, the rate at which income tax is to be deducted is set-out overleaf:

Payment                                                          Rate
Interest paid by banks and other deposit-takers
(Section 480A Income and Corporation Taxes Act (ICTA) 1988)      20%
Interest paid by building societies
(Regulation 3 Statutory Instrument (SI) 1990 No. 2231)           20%
Interest on National Savings First Option Bonds
(Section 349 ICTA 1988)                                          20%
Interest on UK Government securities (Currently Section 349
and Paragraphs 6-15 of Schedule 3 ICTA 1988)                     20%
Interest on other securities (Section 349 ICTA 1988)             20%
Interest distributions by UK authorised unit trusts
(Section 349 ICTA 1988)                                          20%
Interest on cash deposits withdrawn from PEPs
(Regulation 17A SI 1989 No. 469)                                 20%
Other annual interest payable under deduction of tax
(Section 349 ICTA 1988)                                          20%
Annual payments (including charges on income, such as payments
under deeds of covenant to charities, and distributions by
unauthorised unit trusts) (Sections 348 and 349 ICTA 1988)       24%
The income element of purchased life annuities
(broadly those within Section 656 ICTA 1988)
(Section 349 ICTA 1988)                                          20%
Other annuities (where PAYE does not apply)
(Sections 348 and 349 ICTA 1988)                                 24%
Certain payments made by paying and collecting agents
(Currently Section 123 and Paragraphs 6-15 of
Schedule 3 ICTA 1988)                                            20%
Rents paid to non-resident landlords (Section 43 ICTA 1988)      24%
Patent royalties (Sections 348 and 349 ICTA 1988)                24%
Copyright royalties where the owner is abroad
(Section 536 and Section 349 ICTA 1988)                          24%
Public lending rights where the owner is abroad
(Section 537 and Section 349 ICTA 1988)                          24%
Design royalties where the owner is abroad
(Section 537B and Section 349 ICTA 1988)                         24%
Rents paid in respect of electric line wayleaves
(Section 120 ICTA 1988)                                          24%
Payments made before 1 July 1996 to uncertificated
sub-contractors who do not hold a valid exemption (714)
certificate (Section 559 ICTA 1988)                              25%
Payments made on or after 1 July 1996 to uncertificated
sub-contractors who do not hold a valid exemption (714)
certificate (Section 559 ICTA 1988)                              24%
Payments to foreign entertainers and sportsmen --
subject to any application for a reduced tax payment
(Section 555 ICTA 1988)                                          24%
Payments out of pension scheme AVC surpluses made by scheme
administrators -- see below (Section 599A ICTA 1988)             34%

INSURANCE BENEFITS

Under other Budget proposals certain annual payments paid as benefits under sickness or unemployment insurances will be exempt from tax. Where insurance companies currently deduct tax from payments to be covered by the exemption they need not do so for payments which fall to be made on or after 6 April 1996.

NATIONAL SAVINGS

Interest on National Savings investments which is taxable, will continue to be paid gross, apart from interest on First Option Bonds which will continue to be paid after deduction of tax. Interest on Index-linked Savings Certificates, Fixed Interest Savings Certificates and Children's Bonus Bonds and the first £70 of interest on National Savings Ordinary Accounts, will continue to be exempt from tax. Interest earned on all other National Savings investments, whether paid gross or after deduction of tax, remains taxable and will be within the definition of savings income. From the 6 April such interest will be liable to tax at the lower rate, or at 40 per cent for a higher rate taxpayer.

PAYMENTS TO CHARITY UNDER DEED OF COVENANT

Most covenants provide for a 'net' payment, that is a sum which after deduction of tax at the basic rate is equal to £X. The change in the basic rate will not affect the amount paid by the individual to the charity. However, a payment of £75 which, at present, represents £100 less tax at 25 per cent, will from 6 April represent £98.68, less tax at 24 per cent. Any higher rate tax relief due to the payer will be given on £98.68.

Some covenants provide for payment of a 'gross' amount, for example £Y, less tax. If the payment is £100 the payer must at present deduct £25. From 6 April he or she must deduct £24, increasing the payment to the charity from £75 to £76. Higher rate relief will continue to be given on the gross amount (£100 in this example).

For individuals, the rate at which tax is to be deducted from a payment under a covenant is generally the basic rate for the year in which the payment is due. (So where payments due before 6 April are paid on or after that date the 25 per cent rate will apply.) For companies, the tax rate is the basic rate which applies for the year in which a payment is made.

Where a person who pays tax only at the lower rate makes a payment under deed of covenant (or Gift Aid), the lower rate tax will not wholly cover the basic rate tax deducted from the payment. That person's tax office may take steps to recover the difference.

TAX RELIEF AT SOURCE SCHEMES

From 6 April, where an individual is entitled under the Taxes Acts to tax relief when making any payment, the rate at which relief is to be given is as follows:

Payment                       Rate
Interest on a home loan
(under MIRAS)
(Section 369 ICTA 1988)           15%
Interest on a loan used to buy
a life annuity (under MIRAS)
(Section 369 ICTA 1988)           24%
Private medical insurance
(Section 54
Finance Act (FA) 1989)            24%
Vocational training relief
(Section 32 FA 1991)              24%
Life assurance premium
relief (Section 266(4)
ICTA 1988)                        12.5%
Free-standing additional
voluntary contributions
(Section 593 ICTA 1988)           24%
Contributions to approved
personal pension schemes
(Section 639 ICTA 1988)           24%

INCOME WHICH IS TREATED AS HAVING BORNE TAX

The Taxes Acts treat certain forms of income as though they have already borne income tax when they are received. Such tax is not repayable. From 6 April, income tax will be treated as having been borne at the following rates:

Income                         Rate
Foreign income dividends
(Section 246D ICTA 1988)           20%
Stock dividends
(Section 249 ICTA 1988)            20%
Certain chargeable event gains
(Section 547 ICTA 1988)            24%
Loans to participators
which are waived
(Section 421 ICTA 1988)            20%
Payments out of pension
fund AVC surpluses received
by employees
(Section 599A ICTA 1988)           24%

If an individual receives a stock dividend of, say, £80, that dividend will be treated as having borne tax of £20 out of income of £100. An individual who is not liable to tax will not be able to claim any repayment. An individual liable at the lower or basic rate will have no further tax to pay. An individual liable at the higher rate of 40 per cent will have to pay further tax of £20, being the liability of £40 on the income of £100 less the £20 of tax treated as having been borne.

The treatment of chargeable event gains is slightly different. If a higher rate taxpayer receives a gain of, say, £800 on a non-qualifying life policy (and the policy is not of a type on which a basic rate charge arises), tax is due on the gain at the difference between the higher and basic rates so the tax due will be £800 at 16 per cent = £128.

SURPLUS EMPLOYEE ADDITIONAL VOLUNTARY CONTRIBUTIONS

Payments by occupational pension schemes of surplus employee additional voluntary contributions are currently subject to a special tax charge on the scheme administrator at the rate of 35 per cent. The scheme member is then deemed to have received the payment net of basic rate tax. From 6 April the pension scheme administrator should deduct tax at a rate of 34 per cent from such payments. The amount received by the scheme member will be treated as if tax at 24 per cent has been deducted.

ADVANCE CORPORATION TAX -- DIVIDENDS AND OTHER DISTRIBUTIONS

The value of the tax credit accompanying a dividend or other distribution paid by a UK company will continue to be 20 per cent of the value of the dividend plus the tax credit. Companies should continue to account for Advance Corporation Tax (ACT) of 20/80 on dividends and other distributions.

TAX-EXEMPT SPECIAL SAVINGS ACCOUNTS (TESSA)

An investor is permitted to withdraw funds from a TESSA, without the TESSA losing its tax exempt status. But the amount that may be withdrawn is limited to the equivalent of the "net" interest and bonuses earned on the account. The "net" amount is currently 75 per cent of the total interest and bonuses earned. (Total less tax at the basic rate of 25 per cent.)

For interest or bonuses paid or credited on or after 6 April this "net" amount will be increased to 80 per cent. (Total less tax at the lower rate of 20 per cent.)

SPECIAL RATE APPLICABLE TO TRUSTS

The income of a discretionary or accumulation trust is chargeable to income tax at a special rate (35 per cent for 1995-96). For 1996-97 the special rate will be reduced to 34 per cent. When the income is distributed the beneficiaries are chargeable to tax on the income at their normal rates and credit is given for the tax paid by the trustees. For 1996-97 a basic rate taxpayer will be liable at 24 per cent.

DEDUCTING TAX AT THE WRONG RATE

If tax is deducted at the wrong rate when a payment is made, the payer should whenever possible seek to rectify the situation with the recipient of the payment. If too much tax has been deducted, the balance should be repaid to the recipient. If not enough tax has been deducted, the recipient should be asked to repay the balance or the shortfall should be collected by adjusting the next payment made, if possible.

INTEREST ON GILTS AND QUARTERLY ACCOUNTING

As described in Tax Bulletin Issue 19 (October 1995) companies and Lloyd's syndicates are now (from 2 January 1996) able to receive gilt interest gross under the new arrangements introduced to facilitate the operation of the gilt repo market. The regulations at SI 1995 No. 2934 set out these arrangements.

Companies and Lloyd's syndicates who now receive gilt interest gross have to account for income tax on a quarterly basis. (The main regulations for companies are in SI 1995 No. 3224, and those for Lloyd's syndicates are in SI 1995 No. 3225.) For companies, this quarterly accounting process is dealt with on CT61 returns. In addition to the usual quarterly payments there is also to be a payment on account by 14 March. A special return form will be issued for this separately.

Where gilt interest is received gross before 6 April the basic rate (25 per cent) applies. Where gilt interest is received gross on or after 6 April the lower rate will apply. Regulations will be made after the 1996 Finance Bill receives Royal Assent to achieve this, having retrospective effect from 6 April. Companies accounting for tax between 6 April and the date when the amended regulations come into force may apply the lower rate to avoid the need for retrospective adjustments. (The Inland Revenue will accept accounting on that basis as meeting companies' obligations.)

TAXATION OF SAVINGS INCOME

The reduction in the income tax liability on interest and other savings income means that this income will be taxed in a similar way to dividends. Dividends will be included in the definition of the income which will be taxable at the lower rate of 20 per cent rather than at the basic rate. Savings income will be treated as the top slice of a person's income (after any chargeable event gains or employment termination payments).

A non-taxpayer will be entitled to repayment of all the tax actually deducted from savings income and will have no further tax to pay on savings income received gross. (Tax that is treated as paid -- for example, on foreign income dividends -- is not repayable.)

A taxpayer liable at the lower rate will be entitled to repayment of tax actually deducted from any savings income which falls below the threshold for the lower rate band, but will not be entitled to repayment of the tax deducted from income which falls above that threshold. And he or she will have to pay tax at the lower rate on any savings income received gross which falls above that threshold.

A taxpayer liable at the basic rate will not be entitled to repayment of the tax actually deducted from any savings income which falls within the lower rate band or the basic rate band. He or she will have no further tax to pay on savings income received under deduction of tax but will have to pay tax at the lower rate on any savings income received gross.

For a taxpayer liable at the higher rate the tax charge on any income (including savings income) falling above the higher rate threshold remains at 40 per cent.

PURCHASE BY AN UNQUOTED COMPANY
OF ITS OWN SHARES

As a general principle, where a company makes a purchase of its own shares (a "PoS"), any excess paid over the amount of capital originally subscribed for the shares is a distribution. However, under Section 219 Income and Corporation Taxes Act (ICTA) 1988, where none of the company's shares are listed in the Stock Exchange Official List the excess is not treated as a distribution if various conditions are satisfied.

Under Section 225 ICTA 1988 companies intending to make a PoS can request the Board of Inland Revenue to say in advance whether they are satisfied that Section 219 ICTA 1988 will apply (or that it will not apply) to any such excess. If the Board indicate that they are satisfied, that statement is ordinarily binding on the Revenue. Thus a clearance enables the company to know whether or not it will need to account for ACT on the excess. In most cases both the company and the vendor hope to obtain Section 219 ICTA 1988 treatment, but sometimes distribution treatment is found to be advantageous.

The procedure for obtaining clearance from the Board is set out in the Annex to Statement of Practice 2/82, which was revised in 1994 and can be found in its new form in the booklet IR131 "Inland Revenue Statements of Practice". The following notes deal with various matters which we find are sometimes overlooked or misunderstood.

  • The Board can only consider a request relating to a transaction which appears to be a valid PoS. The Companies Act 1985 lays down certain procedural rules which must be followed. Also, the consideration for the shares must be paid immediately and must be paid in money. The first of these requirements means that payment by instalments is not possible. It is, however, possible to make a contract under which successive tranches of shares are to be purchased on specified dates.
  • One simple rule which is often forgotten is that under Section 220 ICTA 1988 the shares must have been held for 5 years. There are relaxations where, for example, the vendor acquired the shares under the will of the previous owner, or in exchange for other shares as part of a company reconstruction. But those exceptions apart, if it is less than 5 years since the company was incorporated, the rule cannot be satisfied and Section 219 ICTA 1988 cannot apply.
  • Another rule which is sometimes overlooked is that Section 219 ICTA 1988 can only apply if the company is a "trading company", which is defined in Section 229 ICTA 1988 as a company whose business consists wholly or mainly of carrying on a trade. (Alternatively it can be a member of a trading group, in which case the businesses carried on must in aggregate consist wholly or mainly of trades). As the definition itself implies, not every business is a trade -- for example, property investment is not a trade. Furthermore, for this particular purpose trading does not include dealing in shares, securities, land or futures. Finally, it is not enough that the company used to be, or hopes to be, a trading company; it must be one when the PoS takes place.
  • For Section 219 ICTA 1988 to apply it is necessary (except in the special circumstances mentioned in Section 219(1)(b)) for the PoS to have the main purpose of benefiting a trade carried on by the company (or its subsidiary). Guidance on the Board's view of this requirement can be found in SP2/82.

In many cases the benefit in view is of such a nature that it can only be secured if the shareholder is bought out completely. Even where that is not the case, it is still necessary to ensure that the number of shares purchased is such that two arithmetical tests are met. First, the percentage of share capital held by the vendor (and his associates) immediately after the purchase must be less than three quarters of the percentage held immediately before it (see Section 221). Secondly, following the purchase the vendor (and his associates) must not be "connected" with the company as defined in Section 228 ICTA 1988 -- that is, broadly, must not have interests in the company totalling more than 30%.

It sometimes happens that the company wants to buy out the shareholder completely but cannot afford to do so. In such a case, the parties may agree that the PoS should go ahead but that the shareholder will lend part of the consideration back to the company immediately afterwards. There is no reason why that should not happen. However, it should be remembered that after the PoS the shareholder's interests in the company must not exceed 30%; where the shares have a high market value, the issued share capital being relatively small, it is possible that the loan may cause this rule to be breached. It is acceptable for the company to avoid this result by making a bonus issue before the PoS takes place, thus increasing its issued share capital.

Example

Norman owns 3,000 out of the 10,000 issued £1 shares of a company.

It is agreed that the company will buy the shares for £50,000, which is their market value, and that Norman will then lend the company £25,000.

But this would mean that Norman held loan capital of £25,000 out of the company's combined share and loan capital of £32,000, so he would be connected with the company, and both parties are agreed that they would prefer the transaction to come within Section 219.

So before making the PoS the company makes a bonus issue of 9 shares for each one held.

Norman then sells back his 30,000 shares for £50,000 and lends the company £25,000. He now holds loan capital of £25,000 out of the company's combined share and loan capital of £95,000, and since this is less than 30% of the whole he is not connected with the company.

Every year something like 1,500 companies request clearance from the Board for a proposed PoS. We try to give a response well within the statutory deadline of 30 days, but in some cases that response has to take the form of a request for further information. It is therefore advisable to allow a reasonable time for a decision to be reached and not to leave the application until the last moment.

Finally, Section 226 ICTA 1988 requires a company to make a "return" to the Inspector dealing with its affairs if it purchases its own shares and does not treat the payment as giving rise to a distribution -- that is, does not account for ACT. This must be done within sixty days after the purchase. The requirement applies whether or not clearance was requested. If clearance was requested the Inspector will have received a copy of the letter of clearance (or refusal), so all that is needed is a short letter detailing any changes from the arrangements advised to the Board and reporting the date of the transaction. If clearance was not requested, the Inspector will need to know the date of the purchase, the name of the vendor, the number of shares and the amount of the consideration, and the grounds on which it was considered that the "trade benefit" test was satisfied.

interpretations

(Article deleted since index 2002)

EXCHANGE GAINS AND LOSSES:
TRANSITIONAL PROVISIONS

This article clarifies our views on the treatment of deep discount and qualifying indexed securities under the transitional rules for the foreign exchange (FOREX) legislation in Finance Act 1993.

Tax Bulletin Issue 15 (February 1995) referred to the introduction of a new legislative package for Exchange Gains and Losses and Financial Instruments. It also gave details of an Explanatory Statement containing clarifications which had been given during the consultative process about the operation of the scheme.

The scheme applies to the corporate sector and will apply from the first day of a company's first accounting period beginning on or after 23 March 1995 -- its "commencement day". Under the scheme, Exchange Gains and Losses are computed by reference to the
"basic valuation" of an asset or liability. The Exchange Gains and Losses (Transitional Provisions) Regulations (SI 1994 No 3226) provide rules:

  • to establish the basic valuation of an asset or liability which was held or owed immediately before and at the beginning of a company's commencement day, and
  • to deal with pre-commencement gains and losses on such assets and liabilities.

Where a deep discount or qualifying indexed security held by a qualifying company would have given rise to a chargeable gain or allowable loss, had it been disposed of at market value immediately before the company's commencement day, then Regulation 6(3) of the transitional rules will apply: its basic valuation will be its market value immediately before commencement day. As a "Regulation 6(3) asset" any pre-commencement gain or loss will be dealt with under Part III of the Transitional Provisions Regulations which provides rules for cumulative set-off against post-commencement exchange differences.

Where a deep discount or qualifying indexed security would not have given rise to a chargeable gain or allowable loss pre-commencement because, for example, it was a liability owed by the company or a qualifying corporate bond held by the company, then Regulation 6(3) will not be in point. Instead, the basic valuation will be established by Regulation 6(6). This will normally be the issue price (possibly net of issue costs) or cost of acquisition. Because such debts are defined in Regulation 3(9) as fixed debts for the purposes of the Transitional Provisions Regulations, pre-commencement exchange differences will be dealt with under Part IV of those regulations which provides the rules for the operation of a "kink test".

Further detail of the treatment of deep discount and qualifying indexed securities outside Regulation 6(3) is included in paragraph 2.8 of the Explanatory Statement.

[The Exchange Gains and Losses (Transitional Provisions) Regulations (SI 1994 No 3226)]

(Superseded by BIM73120 & BIM73125)

FARMER'S AVERAGING AND THE
TRANSITION TO SELF ASSESSMENT

We have been asked about farmer's averaging and the transition to Self Assessment.

At present, farmer's averaging works by adding the profits before capital allowances assessable for two consecutive years of assessment and assessing half the total each year.

It is profits assessable which are averaged not profits for periods of account. So the first step is to work out the profit assessable. For cases where 1996-97 is the transition year for Self Assessment, the profit will generally be based on the results of two years of account reduced by Self Assessment transition averaging (under paragraph 2(2) Schedule 20 Finance Act 94). For example, a farmer's results are:

Year ended 31 December 1994
Profit £55,000

Year ended 31 December 1995
Profit £60,000

Year ended 31 December 1996
Profit £10,000

The profits assessable are:

1995-96
£55,000   previous year basis
1996-97
£35,000   half the total profit for the two years ended
31 December 1996.

The profits assessable differ by more than 30% of the higher of them so farmer's averaging may be claimed. If a claim is made the profits assessable become:

1995-96     £45,000
1996-97     £45,000

We have seen it suggested that farmer's averaging can be claimed when the results shown by the accounts for the first of these two years (the year ended 31 December 1995 in the example) are known. This suggestion is incorrect. It is based on the misconception that it is profits for periods of account, rather than profits for years of assessment, which are averaged.

The way in which averaging is given will change fundamentally under Self Assessment. This will be explained in detail in a later article in Tax Bulletin and in a Help Sheet which will be available to farmers to assist them with their Self Assessment Tax Returns.

If 1996-97 is averaged with 1997-98 then new rules will apply:

  • it is profits after capital allowances which are averaged, and
  • claims will be at partner level not partnership level.

By contrast, if 1996-97 is averaged with 1995-96 then the present rules apply:

  • profits before capital allowances are averaged, and
  • if the farm is a partnership averaging is dealt with at partnership level.

For cases which commenced for tax purposes after 5 April 1994 the new rules apply straightaway.

For further information see pages 188/9 of Inland Revenue Guide SAT1(1995) "The new current year basis of assessment".

[Section 96 ICTA 1988]

! This Article Is No Longer Current (Deleted Index 2004)

RECORD KEEPING REQUIREMENT --
OPTICAL IMAGING

There has beenan increasing number of queries over recent months about the Revenue's attitude towards the use of optical imaging systems to preserve taxpayers' records.

Until recently there were no specific requirements for either business or personal taxpayers to keep records or to retain them after their returns and accounts had been filed. Obviously, people have always needed to keep records in order to make a complete and correct return. Equally, it has always made sense for them to retain these records for a time afterwards. In that respect, nothing has changed.

However, legislation introduced in the 1994 Finance Act as part of the preparation for the Self Assessment system for individuals (which will be introduced from the tax year 1996-7) has now helped to clarify the position by setting some clear rules. These rules will also apply in due course to companies, although the precise starting date has yet to be fixed.

The rules, drafted with computer held records in mind, say that the new duty to preserve records may be satisfied by preserving the information which they contain. In the Revenue's view, these rules will specifically permit for tax purposes the use of optical imaging systems, provided that what is retained on disc represents a complete and unaltered image of the underlying paper document.

Records relating to a taxpayer's obligations as an employer (for example, records of PAYE deductions etc.) must still be retained in paper form and contractors in the construction industry must continue to keep the originals of subcontractor documents and vouchers (for example forms SC60).

Any vouchers which will be used as the basis of a claim to repayment (for example, dividend vouchers) must also be retained in the original paper form. However, there is no change for financial intermediaries which are already authorised to retain records on microfiche or similar media without retaining the originals.

The Revenue regards these rules as applying now to both individuals and companies.

Further information can be obtained from:

Julia Hawkes
Room 538, SW Wing
Bush House
Strand
London WC2 4RD
Tel: 020 7438 6196

Further information on the new record keeping requirement can be found in the leaflet SA/BK3 "Self Assessment: A guide to keeping records for the self-employed".

[Section 12B TMA 1970 (introduced by Para.3 Schedule 19 FA 1994)]

(Superseded by PIM4600 & IR150 App 3)

SCHEDULE A:
BASIS PERIODS -- CASE I/II
PARTNERSHIPS WITH ANCILLARY LETTING
INCOME -- TRANSITION TO NEW SCHEDULE A

Finance Act 1995 introduced new rules for calculating taxable income from UK property under Schedule A. These rules apply for income tax purposes only and apply for the 1995-96 tax year and later years. Inland Revenue Guide SAT1 (1995) "The new current year basis of assessment" explains the general approach to the transition from old to new Schedule A at paragraph 9.94 onwards, but says nothing specific about ancillary letting income of trading and professional partnerships. This article covers several detailed points about basis periods.

COMMENCEMENT OF TRADE OR PROFESSION AFTER 5 APRIL 1994

Where the trade or profession started after 5 April 1994, the partnership's rental income is immediately taxed on a current year accounts basis. The effect of this rule is that a partner's share of rental income will be assessed using the same basis period as that for trading or professional income. No special transitional problem arises and this article says nothing more about these cases.

COMMENCEMENT OF TRADE OR PROFESSION BEFORE 6 APRIL 1994

But if the partnership's trade or profession started before 6 April 1994, the current year accounts basis will not normally apply to Schedule A ancillary sources until 1997-98 and an extra transitional difficulty arises. Strictly, ancillary partnership rental income is taxed for 1995-96 and 1996-97 on a fiscal year basis. That is, taking the results of the years to 5 April 1996 and 5 April 1997 respectively. But for 1997-98 (and later years) the current year accounts basis must be used. In some cases this can mean that the Schedule A basis periods have to be changed from an accounts basis, to a fiscal basis and then back to an accounts basis again.

The rest of this article explains the way to avoid this problem.

PARTNERSHIP USED CURRENT YEAR ACCOUNTS BASIS FOR 1994-95

In Tax Bulletin Issue 18 (August 1995 page 241) we said that, where a partnership's trade or profession started before 6 April 1994, we will accept that ancillary partnership Schedule A or Case VI rental income previously assessed on a current yearaccounts basis, including for 1994-95, can retain the same basis for 1995-96 and 1996-97. A current year accounts basis will then apply under statute for 1997-98 and later years. This avoids the change of basis period for 1995-96 and 1996-97.

PARTNERSHIP USED PREVIOUS YEAR ACCOUNTS BASIS FOR 1994-95

We have now been asked whether a similar approach may be used for trading or professional partnerships which started before 6 April 1994 and where Schedule A or furnished lettings income was assessed on a previous yearaccounts basis. It can. We will accept that a current year accounts basis may be used in 1995-96 and 1996-97 in these cases. This means that, for these cases, the transition to new Schedule A will include a change from a previous year accounts basis for 1994-95 to a current year accounts basis for 1995-96.

PARTNERSHIP USED FISCAL YEAR BASIS FOR 1994-95

The ancillary rental income of some partnerships may have been taxed up to 1994-95 on the current, fiscal year basis (that is, the year to each 5 April). Here, the 5 April basis should continue to be used for 1995-96 and 1996-97 and then the current year accounts basis must be used for 1997-98.

TRANSITIONAL SCHEDULE A ADJUSTMENT FOR 1994-95 IN PARTNERSHIP CASES

SAT 1 (1995) explains how to work out any transitional adjustment needed because of gaps between the basis periods for 1994-95 and 1995-96 (paragraph 9.94 onwards). The calculation must be made for 1994-95 and, ideally, made in 1994-95. Where, however, the 1994-95 assessment is final and is not capable of further amendment, any transitional adjustment (calculated as for 1994-95) should be made in the 1995-96 assessment. Tax Bulletin Issue 20 (December 1995) gave some examples at pages 268 to 271. Further guidance is set out below for trading and professional partnerships which started before 6 April 1994 and which have ancillary rental income.

TRANSITIONAL SCHEDULE A ADJUSTMENT -- CURRENT YEAR ACCOUNTS BASIS USED FOR 1994-95

There are two separate cases where the partnership used a current year accounts basis for ancillary rental income in 1994-95 and earlier years.

First, there is the case where the partnership decides to stay on the current year accounts basis for 1995-96 and 1996-97. Here there will be no change of basis period and no transitional basis period adjustment will be needed on this account. This approach may be preferable because it is simpler and gets the transition over quickly.

Second, there is the case where the partnership decides to change to the fiscal year basis for 1995-96 and 1996-97. Here there will be a gap between the 1994-95 and 1995-96 basis periods and a transitional basis period adjustment on this account will need to be considered. The partnership will have to change back to a current year accounts basis in 1997-98. The 1997-98 charge will be based on the full profits of the current year accounts.

TRANSITIONAL SCHEDULE A ADJUSTMENT -- PREVIOUS YEAR ACCOUNTS BASIS USED FOR 1994-95

Where a previous year accounts basis has been used in the past for rental income, there will always be a gap between the basis period for 1994-95 and 1995-96. Any transitional adjustment because of the gap should be calculated using the principles explained in SAT 1(1995) and Tax Bulletin Issue 20. There are two cases.

First, there is the case where the partnership decides to change at once to a current year accounts basis for 1995-96. Changing at once to the current year accounts basis may be preferable because it gets the transition over.

Second, there is the case where the partnership chooses to adopt the fiscal year basis for 1995-96 and 1996-97. Here, the partnership will also have to change to a current year accounts basis in 1997-98.

TRANSITIONAL SCHEDULE A ADJUSTMENT -- FISCAL YEAR BASIS USED FOR 1994-95

In this case there will be no change of basis period after 1994-95 because the fiscal year basis will continue to be used up to and including 1996-97. Hence no 1994-95 transitional adjustment for a gap can arise.

IDENTIFICATION OF TRANSITIONAL OVERLAP PROFIT, OR GENUINE OVERLAP PROFIT, IN 1997-98

We intend to publish a further note in a later issue of Tax Bulletin on the position in 1997-98.

! This Article Is No Longer Current (Deleted Index 2004)

SCHEDULE D CASES I & II
ACQUISITION OF NEW BUSINESSES

We have been asked in what circumstances the Case I & II of Schedule D "commencement" provisions apply where an existing business acquires another business as a going concern. For example, suppose Ms Green runs three clothes shops and then acquires a fourth shop from Mr Brown. Should the "commencement" provisions be applied and if so to what profits? The same question arises whether the relevant commencement provisions are the "old" ones in the existing Sections 60-62 Income Corporation and Taxes Act (ICTA) 1988 or the "new" ones introduced in connection with Self Assessment.

ISSUE 1: "SUCCESSION"

The first question we ask is whether Ms Green has "succeeded" to Mr Brown's trade. This will happen if what she has taken over is the whole of Mr Brown's trade (and not just part of it) and if the business at what was Mr Brown's shop is still being carried on in an identifiable form. We would look at all the circumstances in order to decide whether the business was still being carried on in an identifiable form; these might include whether any goodwill was transferred as part of the purchase, whether stock was transferred, whether the shop continues to stock the same lines and sell to the same sort of customers and whether its name stays the same. No single factor will necessarily be conclusive.

If Ms Green has "succeeded" to Mr Brown's trade then the long established rules in Section 113(1) ICTA 1988 say that this must be regarded as the commencement of a new trade by Ms Green, regardless of whether it is in fact a new trade. (Section 113(1) actually talks about a "change in the persons engaged in carrying on any trade" but decided cases show that this means the same as the earlier wording of "succeeds to any trade".) This means that the "commencement" provisions will apply to her profits from the new shop. If Ms Green prepares one set of accounts for all four shops, the profits will have to be apportioned between the three old shops and the new shop until the commencement provisions no longer apply. Unless what Ms Green is doing at her new shop is in fact a new and separate trade (see below), there will be no need for any apportionment once the normal continuing basis applies to all four shops.

There is no change to this aspect of Section 113 under Self Assessment.

ISSUE 2: "NEW TRADE"

If Ms Green has not "succeeded" to a trade (either because Mr Brown's shop was not the whole of his trade or because she does not carry on his business in an identifiable form) the second question is whether what she does in her new shop is in fact a new trade separate from the trade she carries on at her old shops. Again we would look at all the circumstances in order to decide this. These might include the amount of central co-ordination and control of the four shops, whether stock and staff are moved between the shops, whether customers of the old shops might use the new one and geographical factors such as whether the old shops are all in one town and the new shop in another. Again no single factor will be conclusive.

If what Ms Green is doing at her new shop is in fact a new and separate trade then the "commencement" provisions will again apply to her profits from this shop and again if a single set of accounts is prepared the profits will have to be apportioned. It will then be a question of fact whether at some later time the two trades she is carrying on merge to form a single trade.

No succession and no new trade

If Ms Green has not "succeeded" to a trade and what she is doing at the new shop is not a new and separate trade, then for tax purposes she is continuing to carry on the same trade as before, so that she can prepare a single set of accounts bringing in the new shop's activities. The acquisition of the new shop in this case has no effect on the basis of assessment.

WHICH COMMENCEMENT PROVISIONS APPLY?

If Ms Green acquired her new shop before 6 April 1994 and it was either a "succession" or a "new trade", then the commencement provisions to be applied are those in the existing Sections 60-62 ICTA 1988. If the acquisition takes place on or after 6 April 1994 (and is a "succession" or a "new trade") then the Self Assessment commencement provisions apply. These are summarised in Chapter 1 of the Inland Revenue guide SAT1 (1995) "The new current year basis of assessment".

The computational aspects of successions and mergers under Self Assessment and the consequences for the "transitional" years from 1994-95 to 1996-97, are dealt with in Chapter 8 of SAT1.

[Sections 60-62 and 113 ICTA 1988]

(No longer relevant)
SELF ASSESSMENT:
DUE DATES FOR PAYMENT OF TAX
CHARGED IN COMPOSITE PARTNERSHIP
ASSESSMENT FOR 1996-97

We have been asked to clarify the due dates for payment of the tax charged in a composite partnership assessment for 1996-97.

1996-97 is the first year of Self Assessment (SA) for personal returns, including returns completed by individual partners. It will also be the first year in which SA returns are required from partnerships. But for most partnerships the 1996-97 Case I/II Schedule D profits will be assessed by means of a composite partnership assessment (see Inland Revenue Guide SAT2(1995) para 5.12 "Self Assessment: the legal framework"). All the associated machinery provisions, for example in respect of the payment of tax or an appeal will apply to that assessment as they do now.

In particular, the notes to Table 23 of Schedule 26 Finance Act (FA)1994 indicate that the repeal of Section 5 Income Corporation and Taxes Act 1988 does not apply to partnerships until 1997-98. Therefore the due dates for a 1996-97 composite assessment made at the normal time remain 1 January 1997 and 1 July 1997.

Each individual partner will have to include his or her share of the 1996-97 profit in his or her SA return. But to ensure that these profits are not taxed twice, each partner will be able to treat the tax paid by the partnership on his or her share of partnership profit as if it were a tax credit for tax deducted at source (para 3 Schedule 21 FA 1995: see SAT2(1995) paras 3.123 to 3.125).

(No longer relevant)
TRANSITIONAL ISSUES --
CLAIMS UNDER SECTION 383 ICTA 1988
FOR 1995-96

Under Self Assessment (SA) capital allowances are treated as a trading expense of the period of account for which they are due. If the adjustment for capital allowances creates or augments a Case I/II Schedule D loss, this loss is available for relief in the normal way without the need for a special claim by the taxpayer (beyond the claim to the allowances themselves).

In contrast, under the existing rules a taxpayer is required to make a separate claim -- under Section 383 Income Corporation and Taxes Act (ICTA) 1988 -- if he or she wants to create or augment a Case I/II loss using capital allowances. Where such a claim is made, the resulting loss is available for set off against other income -- subject to certain conditions -- as if it were a Case I/II loss available for relief under Section 380 or Section 381 ICTA 1988.

We have been asked to clarify how the special transitional basis period rules for 1996-97 affect the operation of Section 383 for 1995-96 and 1996-97. (Note: if the trade or profession commenced on or after 6 April 1994 neither Section 383, nor this article, are relevant, because the new SA rules already apply from the date of commencement.)

The capital allowances that can be included in a Section 383 claim are those of "the year of assessment for which the year of loss is the basis year" -- Section 383(1). For an established business this means that a Case I/II loss for any particular year of assessment can be created or augmented by the capital allowances that would otherwise be due for the next year of assessment.

For example, if the result of the accounting period, the 12 months to 30/4/94, is a loss, then:

  • year of loss is 1994-95,
  • the basis period for capital allowances relevant to Section 383 claim is 12 months to 30/4/94,
  • the year the allowances would have been given in an assessment is 1995-96.

But what of the next accounting period, the 12 months to 30/4/95?

1995-96 is now the year of loss. But for a continuing business, the 12 months to 30/4/95 do not form the basis period for 1996-97, or any other year of assessment. Instead the special transitional rules in Schedule 20 Finance Act 1994 apply. The assessment for 1996-97 will be based on the average profits of the 24 months 1/5/94 to 30/4/96 and the capital allowances due for 1996-97 will be calculated by reference to the qualifying expenditure in that same 24 month period(for example, see para. 6.68, of Inland Revenue guide SAT1(1995) "The new current year basis of assessment").

The intention was that the existing loss relief rules should operate unchanged for 1995-96 and 1996-97. This was to ensure that losses were not averaged in the transition to current year assessment. Therefore, we do not intend to refuse Section 383 claims for 1995-96 providing:

  • the claim is made in respect of the capital allowances that would have been available for such a claim if the existing preceding year basis of assessment had continued to apply for 1996-97, and
  • the claim includes an undertaking that thecapital allowances claimed and relieved under Section 383 in 1995-96 will be deducted from any capital allowances available for claim in 1996-97, including any allowances to be given effect by set-off against any balancing charges arising in that year.

In effect, a Section 383 claim for 1995-96 will be a claim for a portion of the capital allowances which, in our view, are only strictly due in 1996-97. Where the allowances advanced by such a claim exceed the allowances available for 1996-97, the excess will be recovered as if it were a balancing charge for that later year (see example 2 below).

Example 1: Simple case; no additions or disposals

A trader has an annual accounting date of 30 September. The capital allowance computations for 1995-96 and 1996-97 are as follows:

Capital Allowance basis period Plant & Machinery1995-96   12 mths to 30/9/94  WDV b/f      12,000
wda          (3,000)
9,000
1996-97   24 mths 1/10/94 to 30/9/96            WDV b/f       9,000
wda          (2,250)
WDV c/f       6,750

But the result for the 12 months to 30/9/95 is a loss. If the trader wants to augment this loss under Section 383 then he or she can do so in respect of the capital allowances that would have been available for such a claim if the existing preceding year basis of assessment had continued to apply for 1996-97.

If the existing preceding year basis of assessment had continued to apply, the Case I/II basis period for 1996-97 would have been the 12 months to 30/9/95. The allowances that would have been due are £2,250:

Notional Capital Allowance  basis period   Plant & Machinery1996-97   12 mths to 30/9/95   WDV b/f  9,000
wda          (2,250)

The allowances used to create or augment the 1995-96 loss must then be deducted from the claim made for 1996-97:

1996-97   Allowances actually due                             2,250
less Allowances used in 1995-96 loss claim          2,250
Balance available 1996-97                               0
WDV c/f                                             6,750

Example 2: Additions and disposals

A trader has an annual accounting date of 30 September. The capital allowance computations for 1995-96 and 1996-97 are as follows:

Capital Allowance basis period        Plant & Machinery 1995-96   12 mths to 30/9/94  WDV b/f  20,000
additions     4,000
disposals        (0)
Total        24,000
wda          (6,000)
WDV c/f      18,000
Capital Allowance basis period       Plant & Machinery 1996-97   24 mths 1/10/94 to 30/9/96 WDV b/f 18,000
(12 mths to 30/9/95)                additions      2,000
disposals     (4,000)
(12 mths to 30/9/96)                additions      4,000
disposals    (14,000)
Total          6,000
wda           (1,500)
WDV c/f        4,500

But the result for the 12 months to 30/9/95 is a loss. If the trader wants to augment this loss under Section 383, then he or she can do so in respect of the capital allowances that would have been available for such a claim if the existing preceding year basis of assessment had continued to apply for 1996-97.

If the existing preceding year basis of assessment had continued to apply, the Case I/II basis period for 1996-97 would have been the 12 months to 30/9/95. The allowances that would have been due are £4,000:

Notional Capital Allowance basis period        Plant & Machinery 1996-97 12 mths to 30/9/95  WDV b/f  18,000
additions     2,000
disposals    (4,000)
Total        16,000
wda          (4,000)

The allowances used in this way must then be deducted from the claim made for 1996-97:

1996-97   Allowances actually due                           1,500
less Allowances used in 1995-96 loss claim                 (4,000)
Balance available 1996-97                                       0
Balancing charge 1996-97                                    2,500
WDV c/f                                                     4,500

Example 3: No allowances available

A trader has an annual accounting date of 30 September. The capital allowance computations for 1995-96 and 1996-97 are as follows:

Capital Allowance basis period  Plant & Machinery 1995-96   12 mths to 30/9/94   WDV b/f  20,000
additions     4,000
disposals        (0)
Total        24,000
wda          (6,000)
WDV c/f      18,000
1996-97   24 mths 1/10/94 to 30/9/96          WDV b/f      18,000
(12 mths to 30/9/95)                additions     2,000
disposals   (24,000)
(12 mths to 30/9/96)                additions    20,000
disposals         0
Total        16,000
wda          (4,000)
WDV c/f      12,000

But the result for the 12 months to 30/9/95 is a loss. If the trader wants to augment this loss under Section 383, then he or she can only do so in respect of the capital allowances that would have been available for such a claim if the existing preceding year basis of assessment had continued to apply for 1996-97.

If the existing preceding year basis of assessment had continued to apply, the Case I/II basis period for 1996-97 would have been the 12 months to 30/9/95. But no allowances would have been due for that period:

Notional Capital Allowance  basis period  Plant & Machinery 1996-97   12 mths to 30/9/95  WDV b/f  18,000
additions     2,000
disposals   (24,000)
Total        (4,000)
wda               0
notional balancing charge                         4,000

In this example no Section 383 claim would be possible for 1995-96.

miscellaneous

! This Article Is No Longer Current (Deleted Index 1998)

JOINT WORKING -- UPDATE

On 19 September 1995, details of the joint working programme between Contributions Agency and Inland Revenue were announced as part of the Government's response to Francis Maude's report on deregulation. The objective of the programme is to reduce the burden on business of dealing with tax and national insurance and a range of measures were outlined.

One measure which was covered in Tax Bulletin Issue 19 (October 1995) was the trial of the "joint notification" form which is being conducted in the North of England. The trial is progressing well and the "single notification" approach is proving popular with both individuals and accountants. It is also proving a useful source of information which is being used to determine the way in which the form is introduced nationally. It is planned that the "joint notification" form for the newly self-employed, currently known as form 41G/CF11 will be introduced nationally in April 1996, at which time leaflet CW1 will be revised and the form will become a detachable part of the leaflet. The "joint notification" form will in future be known as CWF1 and the updated leaflet will be called CWL1.

Another area being taken forward is combining the annual issue to employers of Inland Revenue and Contributions Agency forms and literature. In February all employers dealt with by tax offices in the Midlands will receive an Annual Pack which contains both Inland Revenue and Contributions Agency material for use for 1996-97. Employers who are dealt with by offices outside the Midlands will receive separate Inland Revenue and Contributions Agency packs as normal. We will subsequently be asking employers who were sent a joint pack for their reaction to it, for their opinion of its contents and how it might be improved upon, so that we can provide employers with the kind of joint pack they want when we issue a joint pack to all employers in February 1997.

A third area where progress has been made relates to changes to form P14 (End of Year Summary) which will be used for End of Year Returns for the 1997-98 tax year. Last summer employers and their representatives were consulted on the proposed revision of the design of form P14 to enable information on it to be scanned using Optical Character Recognition (OCR) equipment. Although the revised form will not be brought into use until the early part of 1998, consultation had to take place in 1995 as we need to give detailed advance notice of change to employers who use substitute forms.

As a result of consultation, changes are being made to the original draft and the final version of the new form will be ready later this year. The detailed specification for substitute versions of the form (booklet RD1) will be published and circulated in the autumn. It is hoped that the use of OCR to process End of Year documents will considerably improve the speed and efficiency of this work and result in earlier updating of employees' tax and national insurance records. This should reduce the number of enquiries an employer receives from both Departments and enable enquiries and claims from individual employees to be dealt with more quickly.

On 5 December 1995 the Government announced the appointment of Peter Wyman to oversee the joint working programme. Mr Wyman -- the head of Tax at Coopers & Lybrand -- is a member of Francis Maude's Deregulation Task Force and chairman of its Tax Group. His role will be to bring an external perspective to the work. He will be supported by full time programme managers in each Department.

(Article deleted since index 2002)

PAYE SETTLEMENT AGREEMENTS

For a number of years, employers who wish to settle their employees' tax liabilities on a range of minor benefits in kind and incidental expenses, have entered into informal, non-statutory arrangements -- known as "annual voluntary settlements" -- with their tax district. In these circumstances, the employer agrees to pay, in a single lump sum, the tax due on the items covered by the arrangement. In return, the employer is relieved from providing information about them in the end of year return and individual employees do not have to include details on their own tax returns.

It is proposed to put these arrangements on a statutory basis (see the Budget Day Press Release REV22) with effect from 6 April 1996. The detailed rules for the statutory scheme will be set out in Regulations and will be supplemented by a Statement of Practice. These will be published in draft and will be subject to consultation. A Consultative Document, provisionally entitled "PAYE Settlement Agreements", should be available in early March from:

Inland Revenue
Public Enquiry Room
West Wing
Somerset House
London
WC2R 1LB

Telephone: 020 7438 7772.

! This Article Is No Longer Current (Deleted Index 2001)

PENSION SCHEMES OFFICE
SYNOPSIS OF UPDATES

The Pension Schemes Office (PSO) issued further Updates to all practitioners on the PSO Mailing List on 15 November 1995 and 3 January 1996.

PSO Update No 11, issued on 15 November 1995, covers:

  • changes to practice in relation to the tax approval of pension schemes which include overseas employers;
  • the circumstances in which employees who work abroad may remain members of a tax approved pension scheme; and
  • the conditions on which employees with "foreign emoluments" may qualify for tax relief for contributions to overseas pension schemes.

As a result, the text of Part 15 of the Practice Notes (IR12 (1991) - 2nd edition) has been completely revised: replacement pages were enclosed with the Update.

The Update also announces the entry into force on 21 September 1995 of a Protocol to the United Kingdom/Republic of Ireland Double Taxation Convention (SI 1995 No 764). The Protocol offers tax reliefs, equivalent to those available to members and employers in exempt approved schemes, where a person who is a member of a scheme established in one country is sent to work in the other country. Copies of the Protocol, which sets out the conditions under which tax relief may be due, is available from HM Stationery office.

PSO Update No 12, issued on 3 January 1996, explains the new Information Powers Regulations which came into force on 1 January 1996. The Regulations extend and modernise the Inland Revenue's authority to require submission of, call for or inspect, information and underlying books, documents and other records relating to retirement benefits schemes. The Regulations also introduce minimum periods for scheme records to be maintained.

Perhaps the most significant development is the new power to make inspection visits. The PSO intend to start these in early spring and an explanation of their proposed method of operation will appear in the next Tax Bulletin.

Copies of the Regulations entitled "The Retirement Benefits Schemes (Information Powers) Regulations 1995 (SI 1995 No 3103)" may be obtained from HM Stationery Office (price £2.40).

Copies of the Updates can be obtained by writing to the:

PSO Supplies Section
Yorke House
PO Box 62
Castle Meadow Road
Nottingham
NG2 1BG

or by telephoning 0115 974 1670.

! This Article Is No Longer Current (Deleted Index 1999)

VOUCHERS FOR CLAIMS TO REPAYMENT
BY OR ON BEHALF OF INDIVIDUAL TAXPAYERS

Readers may remember that last August (Tax Bulletin Issue 18 -- page 246) we included an article explaining our requirements for vouchers -- certificates of tax credit and tax deducted -- to be produced in support of claims to repayment of tax.

Briefly the position has been that:

  • when a person is not liable to tax for the repayment year, all vouchers should be forwarded;
  • when any repayment computation includes interest from a bank, building society or licensed deposit-taker, all vouchers from this source should be forwarded, regardless of whether or not the tax on that particular item of income is repayable;
  • in other cases, vouchers to cover the amount of income which is being relieved from tax by repayment should be forwarded.

Since the article was published some readers have suggested that the second requirement can be unduly onerous in some circumstances and that it has not been applied consistently by all tax offices.

Our policy is to encourage all those who are eligible to claim repayment of tax to do so. We do not wish to discourage individuals from making claims by putting them to any unnecessary trouble obtaining vouchers which are not essential for the purpose of verifying entitlement to repayment.

We have decided that the requirement that vouchers from banks, building societies and licensed deposit-takers should be forwarded as a matter of course can be relaxed and only the interest for which tax is repayable needs to be covered.

In future, therefore, our second requirement will be less demanding so that:

when any repayment computation includes interest from a bank, building society or licensed deposit-taker, vouchers (certificates provided under Section 352 Income Corporation and Taxes Act 1988) tocover at least the amount of the interest for which tax is repayable should be forwarded.

The other two requirements for vouchers to be produced in support of claims to repayment of tax remain unchanged.

This more relaxed approach will apply to all open claims working with the Inland Revenue and to all future claims submitted.

INLAND REVENUE STATEMENTS OF PRACTICE AND
EXTRA-STATUTORY CONCESSIONS ISSUED BETWEEN
1 DECEMBER 1995 AND 31 JANUARY 1996

EXTRA-STATUTORY CONCESSIONS

Number        Title                                 	Date of Issue
A92            Tax Exempt Special Savings Account            21/12/95
(TESSAs): European Institutions
A93            Payments from offshore trusts to minor,       25/1/96
unmarried child of settlor: claim by
settlor for credit of tax paid by trustees
A11            Residence in the United Kingdom:              29/1/96
year of commencement or cessation             (revised)
of residence

(There have been no Statements of Practice issued in this period.)

You can get copies of SPs and ESCs from Christine Jordan of the Public Enquiry Room, Somerset House. Telephone: 020 7438 7722.

CONTENT

The content of Tax Bulletin gives the views of our technical specialists on particular issues. The information published is reported because it may be of interest to tax practitioners. Publication will be six times a year, and include a cumulative index on an annual basis.

  • You can expect that interpretations of the law contained in the Bulletin will normally be applied in relevant cases, but this is subject to a number of qualifications.
  • Particular cases may turn on their own facts, or context, and because every possible situation cannot be covered there may be circumstances in which the interpretation given here will
    not apply.
  • There may also be circumstances in which the Board would find it necessary to argue for a different interpretation in appeal proceedings.
  • "Revenue decisions" report conclusions that were reached on the facts of individual cases, but do not necessarily include all the detailed facts which may have been relevant to the decision. They provide an indication of the approach the Revenue has adopted in the past, but have not been drafted as generally applicable statements of the Revenue's position. It cannot be assumed therefore, that interpretations of the law contained or implicit in these decisions will necessarily be applied in other cases.
  • The Bulletin does not replace formal Statements of Practice.
  • The Board's view of the law may change in the future. Readers will be notified of any changes in future editions.

Nothing in this Bulletin affects a taxpayer's right of appeal on any point.

Letters on any article appearing in Tax Bulletin should be sent to the Editor, David Richardson,
Room 402, 22 Kingsway, London WC2B 6NR. We are sorry though that neither he nor our contributors will normally be able to enter into correspondence about Tax Bulletin or its contents.

SUBSCRIPTION

The subscription for 1996 is £20. If you would like to subscribe to Tax Bulletin please send your name and address together with your cheque to Inland Revenue, Finance Division, Barrington Road, Worthing, West Sussex BN12 4XH. Cheques should be crossed and made payable to "Inland Revenue".

If you would like further information regarding Tax Bulletin please contact Miss Susan Williams,
Room 436, 22 Kingsway, London WC2B 6NR. Telephone: 020 7438 7700.

COPYRIGHT

Tax Bulletin is covered by Crown Copyright. There is no objection to firms copying the Bulletin for their own use. Anyone wishing to republish Tax Bulletin or extracts more widely should write for permission to Ms Nahid Shariff, Room 435, 22 Kingsway, London WC2B

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