Chapter 14: Tax avoidance: directions for duty to deduct to apply
Section 944: Directions for deduction from payments to non-UK residents
2885.This section enables HMRC to require certain payments to non-UK residents to be paid under deduction of basic rate income tax. It is based on section 777(9) of ICTA.
2886.In Pardoe v Entergy Power Development Corporation (2000), 72 TC 617 ChD(13), the High Court held that a direction under section 777(9) of ICTA could be given if, and only if, at the time of the direction, HMRC were satisfied that there was a present entitlement to a relevant payment; a direction could not be given where there was only a prospect (however imminent) of future entitlement.
2887.But, following Pardoe, it is still open to HMRC to give a direction under section 777(9) of ICTA in a case in which a non-UK resident is entitled to payment of consideration by instalments. It is therefore rewritten in this Part.
2888.Section 777(9) of ICTA deems the payment in question to be an annual payment within section 349(1) of ICTA. This section spells out the implications of this.
2889.This section replaces the references to “the Board” with a reference to “an officer of Revenue and Customs” (namely, the officer dealing with the case). See Change 5 in Annex 1.
2890.The HMRC Business Income Manual tells officers (BIM 60390):
“No attempt to invoke [section 777(9) of ICTA] in a working case should be made without prior specific reference to Business Tax (Technical), who will consider such cases on an individual basis and decide whether to seek a direction from the Board.”
2891.Change 5 will have no effect on this practice.
2892.The collection mechanisms of section 350(1) of, and Schedule 16 to, ICTA apply to tax deducted at source under section 349(1) of that Act from payments subject to section 777(9) directions. Schedule 16 and section 350(1) are rewritten in Chapters 15 and 16 respectively of this Part, and subsection (5) gives signposts to those Chapters.
2893.In rewriting Schedule 16, Chapter 15 makes some minor changes to the law. Three of them are potentially relevant to the collection of tax deducted at source under section 777(9) directions:
Change 143 makes it clear that a return need be submitted only where a relevant payment was made in that particular return period. It also clarifies related points.
Change 144 brings into line the information required to be included on a return where a payment is made otherwise than in an accounting period with the information which is required where the payment is made in an accounting period.
Change 147 removes the charging provision in section 350(1) of ICTA, to bring this legislation into line with the approach taken in other legislation about collection of income tax deducted at source. So a person will not be chargeable in cases falling within Chapters 3 to 7, 10, 12, 13 and 18 of this Part.
[2000] STC 286.
