20 May 1997
The minutes of the second meeting of
the Consultative Committee are attached.
Secretary to the Consultative Committee
Neil Munro - Chairman
Simon McKie (ICAEW)
Adam Broke (Special Committee) - Deputy Chairman
Cunnie Rankin (ICAS)
Mavis Sargent (ACCA)
Graham Aaronson (Revenue Bar Association)
Jane Vass (Consumers' Association)
Richard Baron (IoD)
John Whiting (CIOT)
David Brodie (Tax Aid)
Prof David Williams (Queen Mary College)
Russell Chaplin (British Chambers of Commerce)
Mervyn Woods (CBI)
Michael Cole (ABI)
Ron Downhill (Law Society)
1. The Chairman introduced the Project Team members in attendance. Geoffrey Sellers and Karolyn Cooper were from the drafting team (on secondment from the Office of the Parliamentary Counsel) and John McCormick and Lynne Leeder were from the rewrite team responsible for the rewrite of trading income.
Circulation of Committee papers
2. Several members expressed concern over the late circulation of the papers for the meeting, particularly those seeking views on fundamental issues. This gave insufficient time to discuss the issues fully with colleagues, and they stressed that any views expressed at this meeting would have to be regarded as initial reactions only.
3. The Chairman accepted this criticism and apologised for the delay in sending out the papers. He said that normally papers would be sent out at least a week in advance. He emphasised that the papers now before the Committee were very much work in progress. This was not therefore the last opportunity to discuss these issues. The paper on trading income in particular was aimed at exposing issues at an early stage to get the Committee's reaction. At the next meeting, the Committee would see a fuller version of the draft Exposure Draft for this legislation and would have a further chance to comment.
Paper CC(97)6 Tax Law Rewrite: Trading income of individuals
4. John McCormick introduced this paper, which outlined the developing work on trading income of individuals. The paper:
5. The rewrite work was proceeding on the basis of a working assumption that legislation on income tax would be reclassified into separate income types as set out in the December document 'Plans for 1997'. The present system of classification based on schedules would disappear. The Committee felt that they would like to see more information about this possibility. The Chairman said that work was still continuing on this issue. No firm decisions could yet be taken on whether to make a change, and what any such change might be. But the Steering Committee had recently considered a position paper which set out in a little more detail why the present schedular system had out lived its usefulness and he would circulate that paper to the Committee for its next meeting.
6. The Chairman emphasised the project team was only considering a change in the classification of types of income. There was no question of changing the underlying computational rules.
7. In considering the scope of this exposure draft, the project team had had to face decisions about where the various boundaries lay, for example between Schedule A and Schedule D. Other questions included whether or not to bring ESCs and Statements of Practice into the legislation.
8. In taking the rewrite work forward, the project team were also likely to identify possible changes - in law, policy or practice - which could, if made, facilitate greater simplification of the legislation, but which might give rise to winners and losers. The Chairman said that, in dealing with such issues, it was not the project team's intention to make changes in the rewrite which would substantially disadvantage taxpayers. But the project team would from time to time propose changes which, to the best of their knowledge, would form part of a balanced package. They would rely on the consultative process to show whether or not a proper balance had been achieved.
Technical issues: accounting principles
9. The issue here arose from the fact that, in dealing with the computation of trading and professional profits, the current legislation simply refers to "the full amount of the profits and gains", without specifying how these should be calculated. This gap in the statute has been filled by case law, accountancy practice, revenue statements and, in some cases, pragmatic decisions. The project team have been considering whether the gap should be filled in the rewritten legislation, by making explicit the starting point in the computation of profits. In particular, they were considering the possibility of referring to accepted principles of accountancy practice as the normal starting point in the computation.
10. The Committee were invited to comment on the general concept of making explicit the starting point in the computation, and also to consider the draft rewritten clause produced by the project team to achieve this effect.
11. In discussing the general approach, the following points were made:
13. The Committee also discussed the rewritten clause produced by the project team:
Technical issues: capital items
15. The issue here was the exclusion of capital items from the computation of profits.
16. The Committee were invited to comment on the draft clause making this exclusion specific in the rewritten legislation. In discussion the following points were made:
17. The issue here was whether the rule currently in Section 53(3) ICTA (commercial occupation of land) should be retained. This currently concerns cases other than farming or market gardening where the occupier of land manages it on a commercial basis with a view to making profits. The origin of this section lay in the history of the schedular regime introduced in 1803. The project team raised the question of its relevance today particularly as, if it were to be dropped, any activities currently governed by it would fall within Case I on general principles and anything else would probably fall within Case VI.
18. In discussion the Committee made the following comments:
Technical issues: mines, quarries, etc.
20. This issue was similar to the occupation of land (in that its origin lies in the history of the legislation). The question was whether the rule currently contained in Section 55 ICTA (mines, quarries and other concerns) needed to be retained.
21. The Committee provisionally agreed to the dropping of this provision, on the same basis as for Section 53(3). But they suggested that the Country Landowners Association should be consulted, as the group most likely to be affected. The project team undertook to do this and to report back in due course.
Technical issues: extra statutory concessions
22. This issue concerned the inclusion of extra statutory concessions or other non-statutory material in the legislation. The project team had taken as an example ESC A29 (letting income from certain caravan sites). The concession allowed caravan site owners who carried on other trading activities to include the income from caravan lettings as receipts of the trade. Without the concession the income would be taxable under Schedule A.
23. In the discussion the following points were made:
Example of draft clause (incidental costs of borrowing)
25. The Committee were invited to comment on the draft rewrite of the current Section 77 ICTA.
26. In discussion the following points were made:
Paper CC 97(7): Operating Plan
28. The Chairman emphasised that the Operating Plan was still a draft. In particular, it was very likely to change in the light of developments outside the project. The plan included milestones of proposed dates (on current plans) for publication of Exposure Draft and Technical Discussion Documents.
29. The Committee noted the current provisional nature of the Operating Plan and that they would receive updates in due course.
Paper CC 97(8): Paper from Institute of Directors
30. A short paper had been submitted from the IoD covering two issues - the question of allocation of work among the Consultative Committee, and a detailed drafting point. On the first, the Committee noted that the Special Committee of Tax Law Consultative Bodies intended to consider this issue later in the month and agreed to await the outcome. On the second point, the project team noted the point and would bear it in mind.
Paper CC 97(9): Legislated procedure for tax simplification bills
31. The Committee noted the summary of the report by the House of Commons Select Committee on Procedure.
Paper CC 97(10): Comments received on drafting guidelines
32. The Committee noted the comments received from the consultation process carried out in 1996 by the project team. The first full exposure draft which would be shown to the Committee at the next meeting would demonstrate more fully the drafting style and techniques which were to be used.
Minutes of the first meeting 23 April 1997
33. The Committee said that they would find it helpful to have more detail on the discussion of particular points included in the minutes.
34. On the role of the Committee in commenting on the rewritten legislation, the Chairman said that the Committee would see each exposure draft before publication. Where this took the form of an early draft, it would not be suitable for wider circulation, and Committee members would need to bear in mind that it represented work in progress rather than final thoughts. But subject to that caveat there would be no objection to Committee members consulting their colleagues on specific points. Where it took the form of a final draft (ie in the form in which it had gone to the printer) it would be subject to an embargo date. Committee members and any colleagues they consulted prior to publication would be asked to respect this embargo.
35. Subject to these points, the minutes were agreed.
3 June 1997