The Friendly Societies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1996

Explanatory Note

(This note is not part of the Regulations)

Section 51A(1) of the Income and Corporation Taxes Act 1988 (“the 1988 Act”), inserted by section 77 of the Finance Act 1995 (“the 1995 Act”), provides that, in certain circumstances, interest on gilt-edged securities shall be paid without deduction of income tax and that the interest so paid shall be chargeable under Case III of Schedule D. Section 51B of the 1988 Act, inserted by section 78(1) of the 1995 Act, provides that the Treasury may by regulations provide that persons to whom payments of interest on gilt-edged securities are made without deduction of tax shall make periodic returns to an officer of the Commissioners of Inland Revenue.

The powers conferred on the Treasury by section 51B of the 1988 Act were exercised in the Gilt-edged Securities (Periodic Accounting for Tax on Interest) Regulations 1995 (S.I. 1995/3224) (“the Gilts Regulations”) and, in relation to cases where payments of interest on gilt-edged securities are made without deduction of tax to companies carrying on pension business, in the Insurance Companies (Gilt-edged Securities) (Periodic Accounting for Tax on Interest) Regulations 1995 (S.I. 1995/3223) (“the Insurance Companies Regulations”).

The Insurance Companies Regulations provide that, notwithstanding the provisions of the Gilts Regulations, a company carrying on life assurance business shall not be required to include in its return for any return period the amount of tax on the amount of excess gilt interest received which is referable to the company’s pension business. The Insurance Companies Regulations also make provision modifying the operation of Schedule 19AB to the 1988 Act in relation to cases where payments of interest on relevant gilt-edged securities are made without deduction of tax to companies carrying on pension business.

Section 121 of the Finance Act 1993 empowers the Treasury to provide by regulations for Schedule 19AB to the 1988 Act to have effect in relation to the tax exempt business of a friendly society as it has effect in relation to the pension business of an insurance company; and the Friendly Societies (Provisional Repayments for Exempt Business) Regulations 1993 (S.I. 1993/3112) (“the Friendly Societies Regulations”) provided for Schedule 19AB to the 1988 Act to have such effect (subject to certain modifications and exceptions). These Regulations make further provision in relation to the tax exempt business of friendly societies.

Regulation 1 provides for citation and commencement, and regulation 2 for interpretation.

Regulation 3 contains the basic rule that, notwithstanding the provisions of the Gilts Regulations, a friendly society carrying on both tax exempt business and business other than tax exempt business shall not be required to include in its return for any return period the amount of tax on the amount of excess gilt interest received which is referable to the society’s tax exempt business. The amount of tax must be identified in a claim made by the specified date.

Regulation 4 provides that the Friendly Societies Regulations shall have effect, in relation to cases where payments of interest on relevant gilt-edged securities are made without deduction of tax to friendly societies carrying on tax exempt business with the modifications specified in regulations 5 to 9; and regulations 5 to 9 make modifications of the Friendly Societies Regulations.