The Finance Bill, published today, contains the following measures. Some of them are legislating proposals announced prior to the Budget on 21 March.
Clause 33 reduces the rate of income tax to be deducted from foreign dividends by paying and collecting agents to 10 per cent for 2000-01. It also deems that rate to have applied for 1999-00.
Clause 56 and Schedule 10 bring in relaxations from the tax charge on employee benefits and make improvements to the rules for beneficial loans.
Clause 57 introduces a new training relief for employees. Contributions by employers to qualifying education or training undertaken by employees who have an individual learning account will be exempt from tax and National Insurance contributions (NICs).
Clause 66 implements the Budget announcement of new rules for when shares and certain other assets qualify as business assets for the purpose of capital gains tax taper relief. In particular, the Bill includes a definition of which shares and securities will qualify as held in an unlisted company when that company is a member of a group.
Clause 83 exempts from tax payments made under the Department for Education and Employment (DfEE) New Deal 50plus programme from 25 October 1999 – the date the scheme commenced.
Clause 84 exempts from tax payments made under the DfEE Employment Zones programme from April 2000. Clause 82 complements the NIC exemption made in March 2000 for these payments.
Clause 102 and Schedule 30 contain legislation on double taxation relief in the form in which it was published by the Inland Revenue on Budget day. The Government invited comments by 19 April. Inclusion of the legislation in the Bill is therefore without prejudice to the fact that the consultation period announced on Budget day has not yet expired.
Clause 143 allows the Inland Revenue, which has been appointed to enforce the rates of National Minimum Wage (NMW), to use information obtained for that purpose for any of its other functions.
The Inland Revenue has also published today final Regulatory Impact Assessments (RIAs) for the ISA subscription limit changes and the new all-employee share plan. The RIAs, which have been produced following consultation with industry, outline the costs and benefits arising from the new measures.
Rate of deduction of tax from foreign dividends (clause 33)
1. Historically foreign dividends received by UK residents have been subject to UK tax at the lower and higher rates as appropriate. Where received through a UK Paying or Collecting Agent (broadly UK financial institutions) there was a requirement for UK tax to be deducted at the lower rate thus satisfying the liability of any recipient to tax at the basic rate.
2. From 6th April 1999 the liability was reduced from the lower rate to the Schedule F ordinary rate of 10 per cent. A corresponding reduction should also have been made in the rate of tax to be deducted by Paying and Collecting Agents but was overlooked. We believe that Paying and Collecting Agents have in fact been deducting tax at 10 per cent. since April 1999 and this clause sets that deduction on the correct statutory footing.
Deregulatory relaxations for benefits in kind (clause 56 and schedule 10)
3. The relaxations for benefits in kind will reduce reporting requirements on employers, and follow the announcement made by the Paymaster General in November last year (Press Release of 19 November 1999).
4. Subject to specified exemptions for certain high value benefits, assets and services used in performing the duties of the employment will be exempt from tax even where there is some private use, provided the private use is not significant.
5. A power is being taken to make regulations to exempt from tax minor benefits which are available to employees generally. This power will be used first to exempt employer provided welfare counselling.
6. Deregulatory provisions concerning beneficial loans mean that loans where all the interest qualifies for tax relief will be fully exempt from the tax charge, so that employers will no longer have to report these loans for tax purposes.
7. In addition, the exemption for loans made to employees on terms which are the same as those available to and taken up by members of the public (`ordinary commercial loans’) will be extended to loans to employees which are varied to bring them onto ordinary commercial terms.
8. The legislation also authorises the tax charge on a beneficial loan which is made jointly to more than one employee to be apportioned between the employees; and the exemption for ordinary commercial loans, which at present applies only to loans by lending businesses, is being extended to cover lending by any employer who supplies goods or services on credit.
9. Benefits which are exempt from tax will also be exempt from Class 1A NICs.
Employer contributions and individual learning accounts (clause 57)
10. The Learning and Skills Bill currently before Parliament includes provisions enabling individuals to open an individual learning account and receive grants and discounts towards the costs of qualifying education and training. Individual learning accounts can be held by anyone aged 19 or over. The intention is to allow members of the workforce to adapt their skills so that they can continue to fulfil their potential in a changing working environment. People in England and Wales with an individual learning account will be eligible for 80 per cent discounts on computer literacy courses and some other specific types of learning, or 20 per cent discounts on a wide range of other eligible learning activities on spending of up to 500 pounds a year. (Scotland and Northern Ireland will be deciding their own priorities for what will be eligible for receipt of the discounts). These discounts will be available from September 2000.
11. The Finance Bill includes a complementary measure ensuring that if the individual’s employer (or former employer) contributes towards the cost of that education or training, no tax or NICs arises provided certain conditions are met. As announced in Budget 99 (Budget Day press release IR3), this new relief will encourage employers to invest in their employees’ learning.
12. Work-related training funded by employers is already exempt from tax and NICs. Existing relief will, therefore, cover situations where employers might wish to contribute towards work-related training undertaken by employees who hold individual learning accounts.
13. The definition of what is “work-related” covers a broad range of activities. But the definition of eligible learning activities which will qualify for a grant or discount may extend to non work-related activities. The new relief is, therefore, necessary to extend the existing relief to such activities.
14. The new relief provides for employer contributions to be exempt from tax and NICs if:
the employee (or former employee) has an individual learning account
the education or training is eligible for a grant or discount authorised under the Learning and Skills Bill or under any similar provisions in Scotland and Northern Ireland
the contributions are made available to all existing employees on similar terms, under “fair opportunity arrangements”. Arrangements that permit employers to discriminate in favour of, or restrict the offer to, certain groups of employees will not, therefore, satisfy the criteria for exemption.
Business Assets Taper Relief (clause 66)
15. Where assets qualify as business assets, they benefit from more generous capital gains tax taper relief. In the Budget, the Chancellor announced that a broader range of assets would qualify as business assets, including all shares and securities in trading companies owned by employees and officers, shares and securities in listed trading companies where the share-holder held not less than five per cent of the voting rights, and all shares and securities in unlisted trading companies.
16. The clause includes a definition of unlisted companies for this purpose: a company is to be treated as unlisted if none of its shares or securities, and (in the case of a company that is a direct or indirect 51% subsidiary of another company) none of the shares or securities of its ultimate parent or any intermediate parent, is listed on a recognised stock exchange. So, for example, if a listed holding company has a 100% owned unlisted subsidiary, securities issued by the subsidiary would not qualify as business assets.
Exemption of payments under New Deal 50 plus (clause 83)
17. The Paymaster General announced on 22 October 1999 that employment credit payments and training grants received under the New Deal 50plus scheme would not be chargeable to NICs or tax (Inland Revenue press release of that date). Clause 81 complements the NIC exemption made in October 1999 for these payments.
Double taxation relief (clause 102 and Schedule 30)
18. This legislation was published on Budget day by the Inland Revenue in a paper entitled “Double taxation relief for companies: outcome of the review”.
Use of National Minimum Wage (NMW) information (clause 143)
19. Under section 13(1)(b) of the NMW Act 1998, the Secretary of State for Trade and Industry has made arrangements with the Inland Revenue for the enforcement of the rates of NMW.
20. This Clause is the mirror image to section 39 of the Employment Relations Act 1999 which permits NMW officers to use information held by the Inland Revenue for any purpose relating to the NMW Act 1998. The combined result is to remove artificial restrictions on the ability of the Inland Revenue’s NMW and other officers to make full use of available information for both NMW enforcement and the Inland Revenue’s other duties such as the assessment and collection of tax and the payment of tax credits.
NOTES FOR EDITORS
1. The Employment Zones programme has been established by DfEE, under section 60 of the Welfare Reform and Pensions Act 1999, to assist people who are currently claiming Jobseeker’s Allowance, to obtain sustainable employment.
2. Copies of the final RIA for the new all-employee share plan may be obtained from:
Room 138 New Wing
3. Copies of the final RIA for ISAs may be obtained from:
Room 132A New Wing
4. The RIAs are also available on the Inland Revenue website:
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