Deductions at source - CIOT - The Chartered Institute of Taxation

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Tax Law Rewrite Deduction at Source CIOT comments 14 November 20053. Specific comments – Clause 23.1 We wonder if the phrase “collected through the individual’s self assessmentreturn” is quite right. It conjures up the image of cash passing through themass of paper that constitutes a physical return. Perhaps it would be sufficientto refer to collection through the self assessment system (as suitably defined).3.2 We note that there are differences between the rules for individuals and otherpersons. However, the wording of clauses 2 and 3 is otherwise identical(except for the reference to clause 4). For this reason we do not think thatanything is gained by repeating the rules for relief in successive clauses. (Therewould therefore need to be a corresponding amendment to clause 4(1).)4 Clause 34.1 Q1: We agree with the proposal to align the approach to patent royalties withthat for annual payments.5 Clause 75.1 Q2: We agree with the proposed terminology “sums representing income tax”.6 Part 2, Chapter 26.1 We did not consider this Chapter in detail, as the clauses were recentlyconsidered in our document dated 25 April 2005, and it appears that the latestdraft incorporates the amendments discussed in the subsequent responsedocument.7 Part 2, Chapter 37.1 The layout of this Chapter is not easy to follow on an initial reading. First, oneis introduced to the concept of relevant payments and those payments to whichthe Chapter does not apply. Then one encounters the duty to deduct taxfollowed by the exceptions from that duty.7.2 For most readers of the legislation, it does not matter whether tax is notdeductible for (1) because the payment is not relevant or (2) because there isanother exemption.7.3 It would be clearer if (where possible) the exceptions from the duty to deductcould be placed together with the provisions which exclude certain paymentsfrom the duty to deduct.8 Clause 368.1 Whilst the term “discount” does not appear in the singular form in ITTOIA, wethink that the clause “is not discounts” in subsection (2)(b) reads ratherunnaturally. We note that paragraph 46 of the draft Explanatory Notes refers to“a discount”.8.2 The origin of the parenthetical words in subsection (3) is unclear.8.3 We are not convinced about the merits of retaining the expression “place ofabode” – except to say that its retention ensures that there can be noP/bc/subsfinal/tlr 2 14.11.05
Tax Law Rewrite Deduction at Source CIOT comments 14 November 2005unintended change in the law. In particular, we can find no authority whichsuggests that companies can be said to have an “abode”. Additionally, thereare a number of authorities which state that an individual’s usual place of abodecan be that individual’s place of business rather than the individual’s residence.To avoid such doubts and to rid the legislation of such archaic language, wewould recommend that the terminology be updated in the forthcoming FinanceBill as a pre-rewrite change.9 Clause 379.1 The heading of this and the next clause could be clearer if they explicitlyreferred to the fact that these clauses provide exceptions from the Chapter.9.2 The same point applies to clauses 40 to 46, although these at least are coveredby an italic cross-heading which serves a similar purpose.10 Clause 3910.1 We note that the statute must clearly extend who is treated as the payer of theinterest (and therefore extend the scope of the duty to deduct tax). However,the expression “by or through whom” could be misleading, in that it is followedby a requirement to deduct tax by the person “on making the payment”. Thiscondition suggests that it is only the person who makes the payment who isobliged to deduct the tax. If so, then the words “or through whom” could bedeleted. It is clear that this would not be appropriate, but it would be clearer ifone could readily determine the full breadth of the duty to deduct tax.11 Clause 4011.1 Subsection (1) is not as clear as it might be. In particular, the words “is made”appear to be better placed at the end of the sentence (or a different form ofwords is used, eg, “if there is a relevant payment of interest to which thisChapter applies”).11.2 We welcome the clearer approach adopted by subsections (4) and (5)compared with that in section 349(3AB). However, we wonder if subsection (5)could be simplified further by:• omitting the words “to deduct a sum representing income tax under section39” and “to a payment of interest on an advance from that organisation”; and• replacing the final words by “even if the condition in subsection (2) is notmet”.12 Clause 4112.1 It would be of immense benefit to readers of this clause to have a signpost tothe provisions that do require banks to deduct tax.13 Clause 4613.1 We wonder whether it would be appropriate to include section 486(9) within theorigins for subsection (1) as well as subsection (3).13.2 We note that subsection (2) might contravene EC law.P/bc/subsfinal/tlr 3 14.11.05
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Deductions at source - CIOT - The Chartered Institute of Taxation

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