Introduction
1.These explanatory notes relate to the Income Tax Act 2007 (c.3) which received Royal Assent on 20 March 2007. They have been prepared by the Tax Law Rewrite project at HMRC in order to assist readers in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.
2.The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of its contents. So if a section or part of a section does not seem to require explanation or comment, none is given.
3.The commentary on each section indicates the main origin or origins of the section. A full statement of the origins of each section is contained in the Act’s Table of Origins.
4.At the end of the commentary, there is supporting material in two annexes:
Annex 1 contains details of the minor changes in the law made by the Act.
Annex 2 contains lists of:
the extra-statutory concessions to which the Act gives effect;
the minor changes made by the Act which involve giving statutory effect to principles derived from case law; and
provisions not included in the Act on the grounds of redundancy.
Summary
5.The main purpose of the Income Tax Act 2007 is to rewrite the income tax legislation that has not so far been rewritten so as to make it clearer and easier to use.
6.The Act covers:
the basic provisions about the charge to income tax, income tax rates, the calculation of income tax liability and personal reliefs;
various specific reliefs, including relief for losses, the enterprise investment scheme, venture capital trusts, community investment tax relief, interest paid, gift aid and gifts of assets to charities;
specific rules about settlements and trustees, manufactured payments and repos, accrued income profits, tax avoidance and deduction of tax at source; and
general income tax definitions.
7.The Act does not generally change the meaning of the law when rewriting it. The minor changes which it does make are within the remit of the Tax Law Rewrite project and the Parliamentary process for the Act. In the main, such minor changes are intended to clarify existing provisions, make them consistent or bring the law into line with established practice.
Background
The Tax Law Rewrite project
8.In December 1995 the Inland Revenue presented a report to Parliament on the scope for simplifying the United Kingdom tax system (The Path to Tax Simplification). The main recommendation was that United Kingdom direct tax legislation should be rewritten in clearer, simpler language.
9.This recommendation was warmly welcomed, both in Parliament and in the tax community. In his November 1996 Budget speech the then Chancellor of the Exchequer (the Rt Hon Kenneth Clarke QC MP) announced that the Inland Revenue would propose detailed arrangements for a major project to rewrite direct tax legislation in plainer language.
10.The project team was given the task of rewriting the United Kingdom’s existing primary direct tax legislation. The aim is that the rewritten legislation should use simpler language and structure than previous tax legislation. The members of the project are drawn from different backgrounds. They include HMRC employees, private sector tax professionals and parliamentary counsel including (as head of the drafting team) a senior member of the Parliamentary Counsel Office.
Steering Committee
11.The work of the project is overseen by a Steering Committee, chaired by the Rt Hon the Lord Newton of Braintree OBE DL (who took over from the Rt Hon the Lord Howe of Aberavon CH QC at the beginning of 2006). The membership of the Steering Committee as at 31 October 2006 was:
The Rt Hon the Lord Newton of Braintree OBE DL (Chairman)
Dr John Avery Jones CBE
Adam Broke
Baroness Cohen of Pimlico
Ian Dewar
Mike Eland CB
The Rt Hon Michael Jack MP
Eric Joyce MP
District Judge Rachel Karp
David Swaine
Professor John Tiley CBE
Consultative Committee
12.The work is also reviewed by a Consultative Committee, representing the accountancy and legal professions and the interests of taxpayers. The membership of the Consultative Committee as at 31 October 2006 was:
| Mark Nellthorp | Chairman |
| Derek Allen | Institute of Chartered Accountants of Scotland |
| Brian Atkinson | 100 Group |
| Adam Broke | Special Committee of Tax Law Consultative Bodies |
| Colin Campbell | Confederation of British Industry |
| Taha Dharsi | London Chamber of Commerce and Industry |
| Mary Fraser | Association of Chartered Certified Accountants |
| Malcolm Gammie CBE QC | The Law Society of England and Wales |
| Julian Ghosh | Revenue Bar Association |
| Keith Gordon | Chartered Institute of Taxation |
| Terry Hopes | Institute of Chartered Accountants in England and Wales |
| Isobel d’Inverno | Law Society of Scotland |
| Simon McKie | Institute of Chartered Accountants in England and Wales |
| Francis Sandison | The Law Society of England and Wales |
| Simon Sweetman | Federation of Small Businesses |
| Michael Templeman | Institute of Directors |
| Wreford Voge | Chartered Institute of Taxation |
| Professor David Williams | Office of the Social Security Commissioners |
| Mervyn Woods | Confederation of British Industry |
Consultation
13.The work produced by the project has been subject to public consultation. This has allowed all interested parties an opportunity to comment on draft clauses.
14.This consultation took the form of a series of papers which publish clauses in draft. There were 30 of these, published between April 2004 and October 2005. A draft Bill was published for consultation in February 2006. And two further papers on provisions in FA 2006 were published in July 2006. All these documents were made available on the Tax Law Rewrite website.
15.In addition to formal consultation, the project presents its papers to the Committees to inform the Committees and seek their views on particular issues. The project has also consulted on an informal basis with specialists in particular subject areas. For example, there have been regular meetings of the VCS (venture capital schemes) rewrite group during the development of the EIS and VCT Parts of the Act. This is a small group of practitioners (who represent a number of professional bodies), policy and technical specialists from HMRC and members of the project.
16.Those who responded to one or more of the papers, or to the draft Bill, include:
Anne Wilson
Anthony Davis
Association of Charitable Foundations
BDO Stoy Hayward LLP
Boodle Hatfield
British Bankers’ Association
Building Societies Association
Chartered Institute of Taxation
Charity Commission
Charity Law Association
Charles King-Farlow
Charles Pocock
Christine Harpin
City of Westminster & Holborn Law Society
Colin Campbell
Confederation of British Industry
David F Williams
Deloitte & Touche LLP
Department for Constitutional Affairs
Department of Finance and Personnel for Northern Ireland
Department for Social Development in Northern Ireland
Ernst & Young LLP
Euroclear
Francis Sandison
Freshfields Bruckhaus Deringer
George Harrison
Helen Billing
Horwath Clark Whitehill LLP
Investment Management Association
Institute of Chartered Accountants in England and Wales
Institute of Chartered Accountants of Scotland
James Kessler QC
John Avery Jones
John Clark
John Jeffrey-Cook
Ken Moody
KPMG LLP
Law Society of England and Wales
London Investment Banking Association
London Society of Chartered Accountants
Lovells
Low Incomes Tax Reform Group
Mark Whitehouse
Mazars LLP
Office of the Legislative Counsel, Northern Ireland
PricewaterhouseCoopers LLP
Sayer Vincent
Society of Trust and Estate Practitioners
Terry Hopes
Wedlake Bell
Wellcome Trust
Note: this list excludes those who asked that their responses be treated in confidence.
Income Tax Act 2007
17.The Act:
applies for income tax, continuing the general approach of previous rewrite Acts of separating income tax and corporation tax legislation;
contains the basic provisions of income tax, such as the charge to income tax, tax rates, how a person’s income tax liability is calculated, personal reliefs, and general definitions which apply for income tax purposes;
deals with various specific reliefs, including reliefs for losses, the enterprise investment scheme, venture capital trusts, community investment tax relief, interest paid, gift aid and gifts of assets to charities;
broadens the picture by filling in the rest of the income tax picture, in particular in relation to settlements and trustees, avoidance and deduction of tax at source; and
will take the place of ICTA as the main Act about income tax, complemented by ITEPA and ITTOIA (which dealt with the charges to income tax on employment, pension, trading and other income).
18.The Act has 1035 sections and 4 Schedules.
19.The sections are arranged as follows:
Part 1: Overview
Part 2: Basic provisions
Part 3: Personal reliefs
Part 4: Loss relief
Part 5: Enterprise investment scheme
Part 6: Venture capital trusts
Part 7: Community investment tax relief
Part 8: Other reliefs
Part 9: Special rules about settlements and trustees
Part 10: Special rules about charitable trusts etc
Part 11: Manufactured payments and repos
Part 12: Accrued income profits
Part 13: Tax avoidance
Part 14: Income tax liability: miscellaneous rules
Part 15: Deduction of income tax at source
Part 16: Income Tax Acts definitions etc
Part 17: Definitions for purposes of Act and final provisions
20.The Schedules are:
Schedule 1: Minor and consequential amendments
Schedule 2: Transitionals and savings
Schedule 3: Repeals and revocations
Schedule 4: Index of defined expressions
21.Tables of Origins and Destinations have also been prepared. The Table of Destinations shows the destination not only of repealed provisions but of all provisions rewritten in the Act.
Glossary
22.The commentary uses a number of abbreviations. They are listed below.
| CAA | the Capital Allowances Act 2001 |
| CAA 1990 | the Capital Allowances Act 1990 (and similarly CAA 1968) |
| CRCA | the Commissioners for Revenue and Customs Act 2005 |
| ESC | extra-statutory concession |
| HMRC | Her Majesty’s Revenue and Customs |
| FA 1989 | Finance Act 1989 (and similarly for other Finance Acts) |
| F(No 2)A | Finance (No. 2) Act |
| FISMA | the Financial Services and Markets Act 2000 |
| ICTA | the Income and Corporation Taxes Act 1988 |
| ICTA 1970 | the Income and Corporation Taxes Act 1970 |
| IHTA | the Inheritance Tax Act 1984 |
| ITEPA | the Income Tax (Earnings and Pensions) Act 2003 |
| ITTOIA | the Income Tax (Trading and Other Income) Act 2005 |
| MOD | manufactured overseas dividend |
| PAYE | Pay As You Earn |
| R&D | research and development |
| TCGA | the Taxation of Chargeable Gains Act 1992 |
| TMA | the Taxes Management Act 1970 |
| VAT | value added tax |
