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Income Tax (Earnings and Pensions) Act 2003

Section 709: Additional provision for certain assessments

2874.This section provides that assessments must be made on the basis of generally prevailing practice in certain circumstances. It derives from section 206 of ICTA.

2875.The origin of section 206 was section 28(1) of FA 1961. Schedule 4 to the Income Tax Management Act 1964 extended section 28(1) of FA 1961 so that it applied to an assessment under Schedule E where it had previously applied to an assessment in respect of “emoluments”. Section 28(1) of FA 1961 was consolidated first as section 206 of ICTA 1970 and later as section 206 of ICTA. Section 111(2) of FA 1995 removed “under Schedule E” after the words “an assessment to income tax” in section 206 of ICTA.

2876.Subsection (1) sets out the circumstances in which the section applies.

2877.Subsection (2) sets out the consequences of the section applying.

2878.Subsection (3) defines “relevant income” – a term used to make the earlier subsections easier to read.

2879.Section 28(1) of FA 1961 was intended to put individuals who did not receive income tax assessments (because it was thought that all their tax had been settled under PAYE) on a similar footing to others who had received assessments. People who did not get assessments previously had an advantage over other taxpayers. Their tax affairs were not final so they had a much longer period after the end of a tax year in which to take advantage of a Court decision overturning what had earlier been the generally accepted practice. Section 28(1) accordingly set out circumstances in which a “late” assessment to income tax had to be made on the basis of earlier generally accepted practice. This could work to the disadvantage of individuals compared to their position prior to section 28(1). It could also work to their advantage by preventing the individual from being assessed on the basis of a later Court decision that was less favourable than earlier generally accepted practice. In short, it gave them broadly the same finality they would have had with an assessment.

2880.Section 206 of ICTA 1970 was considered in Walters v Tickner (1993) 66 TC 174. That case decided that section 206 could operate as a provision that charges income tax, but it could not do so in relation to an unqualified statutory exemption given to scholarship income.

2881.Since that case was decided the framework within which section 206 operates has been altered by Self Assessment. When the case was decided the Inland Revenue were obliged, subject to the pre-Self Assessment version of 205(1) of ICTA, to make assessments when returns of income were made which were considered to be correct and complete. But under Self Assessment, assessments are normally:

  • made by the taxpayer rather than the Inland Revenue; and

  • single assessments on all income rather than multiple assessments made on income split into separate Schedules.

2882.Section 111(2) of FA 1995 made a minor amendment to section 206 of ICTA in connection with the imminent start of Self Assessment. The amendment removed the words “under Schedule E” after the opening words “Where an assessment”. That minor amendment arguably introduced some uncertainties about how section 206 of ICTA operates under Self Assessment. This section removes those uncertainties, relating to the income in an assessment that must be based on earlier generally accepted practice. See Note 61 in Annex 2.

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