Tax Law Rewrite Consultative Committee: Nineteenth meeting

a) The Committee favoured the familiar expression "plant and machinery" over the statutory "machinery and plant", if no better single word label could be found. They suggested that this be aired in the Exposure Draft for consultation.

b) The Project Team had continued with the approach taken in the third Exposure Draft, drafting in terms of "qualifying expenditure" even if this concept meant different things in different Parts. The Committee agreed that this was helpful, provided the context made it clear what was meant.

c) The Committee suggested that there should be more use of notes, and the Project Team agreed to consider this further.

d) The Project Team had introduced the concept of "qualifying activity" to cover all the activities in respect of which a person could claim allowances (paragraph 13 of cover note). The Committee agreed this was helpful.

e) The Committee suggested a simple cross reference in 2.3.6(2) (page 47) rather than reproducing what was meant by a Schedule A business. They noted that the label would disappear as consequential amendments once ICTA was rewritten. The same point arose on other definitions, such as that for holiday lettings.

f) The Committee queried the treatment of the exclusion for expenditure on "land" and "buildings" (2.2.21 on page 69). The Project Team said that this reproduced the existing law, and that the position would become clearer when provisions relating to fixtures were rewritten in due course. They would consider whether the commentary could be expanded.

g) One member suggested that it would be helpful to include a flow diagram in the commentary accompanying this clause, or in the notes.

h) The Committee suggested that the rewrite team improve the label "certain contracts" to make it clearer to the lay reader that these included hire purchase etc contracts (2.4.2 on page 99).

i) Section 65 CAA (rewritten as 2.5.4 on page 139) deals with allowances for assets owned by a partner but used by the partnership. The Committee recognised that such allowances were, in general, allocated through the partnership agreement, but suggested that the possible manner of allocation could usefully be made explicit in the Exposure Draft.

j) The Committee suggested that the time limit for elections between connected persons should be made explicit (2.5.6 on page 147).

k) While the rewritten legislation was longer than before, the Committee agreed that clarity and ease of comprehension were more important than brevity.

l) They also preferred, where appropriate, signposting other provisions through the use of descriptions in parentheses over reproducing the provision itself.

m) The Committee had differing views on whether short sections were helpful to the reader, and made a number of suggestions where two or more sections could be run together. They recognised that section headings were important to the reader, and suggested that these could be expanded to do more than simply reproduce the content of a short clause. The Project Team replied they had adopted a uniform drafting approach across the capital allowances Exposure Drafts, which aimed to make clear to the reader what followed. This approach could be looked at again when the provisions were brought together into a rewrite Bill.

n) The rules for allowances on patents were found in Income and Corporation Taxes Act 1988. The Committee noted that the Revenue had now published a consultative document on the taxation of intellectual property, which might in due course affect these clauses.

o) The Committee welcomed the use of the method statement in 8A.3.2 on page 251, and suggested that this be adopted, if possible, for machinery and plant. One member suggested that this clause could adopt something even closer to a working sheet for the computation and outlined a possible approach. The Project Team said that they were guided by the nature of the material being rewritten, but that they would consider the working sheet with an open mind.

p) The Committee suggested replacing the concept of a "user of a patent" with something more meaningful. The Project Team noted that this expression was used in patent law, and that it had not been possible to improve it when rewriting sections 348 and 349 ICTA 88 in the second Exposure Draft.

a) Overall, respondents continued to find the rewritten legislation significantly clearer and easier to use than before.

b) The Exposure Draft proposed 45 rewrite changes. Generally, these were felt to be desirable, although a few respondents thought that changes should only be made through a Finance Bill.

c) The rewritten clauses included inoperative material, such as signposts. Some respondents found this helpful, while others were concerned about possible conflict with the substantive rules. A new approach, involving overviews and notes, had been tested in the Exposure Draft on capital allowances for industrial buildings, and the responses were currently being analysed.

d) Opinions had differed on the value of formulae, although most respondents were content with dual approach of using narrative text combined with a formula. No-one found formulae a hindrance.

e) The Committee had discussed the Accrued Income Scheme (AIS) at their earlier meeting. In the light of that discussion and the views of the Steering Committee, the AIS would now be rewritten in Part 6. And publication of the next Exposure Draft on savings and investment income would be put back until October so that the AIS could be included.

f) In general, respondents agreed with the proposed contents of Part 6, although some had commented that some existing annual payments could not be described as savings and investment income. The Project Team had concluded that they had to retain the concept of an annual payment, but would be looking at ways to make the provisions clearer. In addition, they were examining the implications of taking annual payments (apart from annuity payments on purchased life annuities) out of Part 6 and putting them in another part of the Act.

g) Some respondents felt that income from trusts and income from estates in administration were not savings and investment income. Rewritten clauses would be published for consultation in due course, although these might not necessarily be included in Part 6. A similar conclusion had been reached on the detailed rules for SAYE schemes.

h) And some respondents had felt that income from intellectual property was not savings and investment income. The Project Team was therefore considering taking the chapter on royalties etc out of Part 6. A Consultative Document on the taxation of intellectual property had since been published which might in due course affect these clauses.

i) The Project Team was considering how best to deal in Part 6 with United Kingdom source income, although this might be addressed as the larger question of how the rewrite approached foreign income generally.