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Finance Act 1971

Status:

This is the original version (as it was originally enacted).

PART IIIncome Tax and Corporation Tax

CHAPTER IGeneral

13Surtax rates for 1970-71

(1)Subject to subsection (2) below, income tax for the year 1970-71 shall be charged, in the case of an individual whose total income exceeded £2,500, at the same higher rates in respect of the excess of that income over £2,000 as were charged for the year 1969-70.

(2)An individual whose total income for the year 1970-71 did not exceed £2,681 shall be entitled to have the surtax chargeable by virtue of subsection (1) above reduced to an amount equal to 40 per cent. of the difference between his total income and £2,500.

14Charge of corporation tax for financial year 1970

Corporation tax shall be charged for the financial year 1970 at the rate of 40 per cent.

15Alterations of personal reliefs

(1)Chapter II of Part I of the Taxes Act shall be amended in accordance with the following provisions of this section.

(2)In section 7 (relief for persons over sixty-five with small incomes)—

(a)for the references to £475 and £740 (income limits for exemption) there shall be substituted—

(i)for the year 1971-72 references to £504 and £786; and

(ii)for subsequent years of assessment references to £530 and £825;

(b)for the reference to £255 (the excess over those limits beyond which relief by reduction of tax is excluded) there shall be substituted—

(i)for the year 1971-72 a reference to £330; and

(ii)for subsequent years of assessment a reference to £345;

(c)for the reference to 47.5 per cent. (the percentage governing relief by reduction of tax) there shall be substituted, for the year 1972-73 and subsequent years of assessment, a reference to 50 per cent.

(3)In section 9 (earned income and old age reliefs)—

(a)in subsection (1) the following shall be substituted for paragraph (b):—

(b)15 per cent. of the amount of any excess of his earned income over £4,005;

(b)in subsection (2) for the words from the beginning to “living with him ” there shall be substituted the words “If the claimant proves that at any time within the year of assessment he ” and for the words “shall be entitled” there shall be substituted the words “he shall be entitled ”;

(c)after subsection (3) there shall be inserted the following subsection—

(3A)If the claimant proves that, at any time within the year of assessment,—

(a)he had his wife living with him ; and

(b)either he or his wife living with him was of the age of sixty-five years or upwards ;

subsections (2) and (3) above shall have effect as if for the references to £1,000 there were substituted references to £1,200.

(4)In section 10(3) (appropriate amount for child)—

(a)for “£165 ” (child over sixteen) there shall be substituted “£205 ”;

(b)for “£140 ” (child over eleven but not over sixteen) there shall be substituted “£180 ”, and

(c)for “£115 ” (child not over eleven) there shall be substituted “£155 ”.

(5)In section 12(1) (widower's or widow's housekeeper) the following shall be added at the end of the proviso:— and

(iv)no relief shall be allowed under this section to a person entitled to relief under section 14 below.

(6)In section 16 (relief for dependent relatives)—

(a)for the reference in subsection (1) to £260 (lower income limit of dependent relative) there shall be substituted—

(i)for the year 1971-72 a reference to £289; and

(ii)for subsequent years of assessment a reference to £312;

(b)for the references in subsections (1) and (2) to £335 (normal higher income limit) there shall be substituted—

(i)for the year 1971-72 references to £364 ; and

(ii)for subsequent years of assessment references to £387 ; and

(c)for the reference in subsection (2) to £370 (higher income limit where the claimant is a woman other than a married woman living with her husband) there shall be substituted—

(i)for the year 1971-72 a reference to £399; and

(ii)for subsequent years of assessment a reference to £422.

(7)Section 24(1) (reduction in reliefs on account of family allowances) shall have effect, and be deemed always to have had effect, as if—

(a)the words “or allowances ” and the words “for each allowance if more than one ” were omitted; and

(b)at the end there were added the following paragraph—

Where for any year of assessment an individual is assessable to income tax in respect of payments on account of two or more allowances within the preceding provision of this subsection, the appropriate reduction shall be made thereunder in respect of each such allowance and section 14(4) of the [1968 c. 44.] Finance Act 1968 (which was replaced by section 24(1)) shall be deemed to have been enacted with the like omissions and addition; but nothing in this subsection shall affect the determination of any commissioners, or the judgment of any court, made or given before 17th March 1971.;

16Parent and child-repeal of aggregation provisions, and amendment of settlement provisions

(1)For the year 1972-73 and subsequent years of assessment—

(a)Chapter V of Part I of the Taxes Act (under which a child's investment etc. income is, in certain circumstances, to be treated as income of his or her parent) shall not have effect, and

(b)Chapter II of Part XVI of that Act (settlements by parents: treatment of income thereunder of unmarried children below the age of eighteen years, or between that age and twenty-one but not working regularly) shall not apply to any child who has attained the age of eighteen.

(2)In consequence of subsection (1) above, the said Act shall be amended for those years as follows—

(a)the following subsection shall be substituted for subsection (3) of section 168—

(3)A claim for relief under this section may require that the relief be given only by reference to the income of the person sustaining the loss, without extending to the income of that person's wife or husband.,

(b)in section 437(1), for all the words from “the child was unmarried ” to “working regularly ” there shall be substituted the words “the child was unmarried and below the age of eighteen ”,

(c)in section 438(2)(b) and section 440(1), for the words “within subsection (1)(a) or subsection (1)(b) of section 437 above” (wherever occurring) and the words “within the said subsection (1)(a) or subsection (1)(b) ” there shall be substituted the words “below the age of eighteen ” , and

(d)the following subsection shall be substituted for subsections (3) and (4) of the said section 437—

(3)Income paid to or for the benefit of a child of a settlor shall not be treated as provided in subsection (1) above for any year of assessment in which the aggregate amount of the income paid to or for the benefit of that child, which, but for this subsection, would be so treated by virtue of this Chapter, does not exceed £5.

17Partnership changes-time limit for elections under section 154 of Taxes Act

(1)Subject to subsection (2) below, section 154(2) of the Taxes Act (under which, at any time within twelve months after a change in the ownership of a trade, etc., the persons concerned may in certain circumstances elect that the trade is not to be treated as discontinued, or a new one as set up and commenced) shall be amended by substituting, for the words “twelve months ”, the words “two years ”.

(2)Subsection (1) above shall not apply where the change referred to in the said section 154(2) occurred before 6th April 1970.

18Exemption of invalidity benefit, attendance allowances and family income supplements, and increase in relief on savings bank interest

(1)Subsections (1) and (2) of section 219 of the Taxes Act (income tax treatment of social security benefits) shall be amended as follows—

(a)in paragraph (a) of the said subsection (1) (which charges national insurance benefits except unemployment benefit, sickness benefit, maternity benefit and death grant), after the words “sickness benefit” there shall be inserted the words “invalidity benefit, attendance allowance ” , and

(b)in the said subsection (2) (which exempts payments of benefit under the [1966 c. 20.] Ministry of Social Security Act 1966 and the [1966 c. 28 (N.I.).] Supplementary Benefits &c. Act (Northern Ireland) 1966), after the words “(Northern Ireland) 1966 ” there shall be inserted the words " and payments in respect of a family income supplement under the [1970 c. 55.] Family Income Supplements Act 1970 or the [1971 c. 8 (N.I.).] Family Income Supplements Act (Northern Ireland) 1971 ".

(2)Section 414(1) of the Taxes Act (relief from income tax other than surtax on the first £15 of certain savings bank interest) shall be amended by substituting, for each reference to £15, a reference to £21.

19Exemption of interest on damages for personal injuries

The following section shall be inserted in the Taxes Act after section 375:—

375AExemption of interest on damages for personal injuries.

(1)The following interest shall not be regarded as income for any income tax purpose—

(a)any interest on damages in respect of personal injuries to a plaintiff or any other person, or in respect of a person's death, which is included in any sum for which judgment is given by virtue of an order under section 3 of the [1934 c. 41.] Law Reform (Miscellaneous Provisions) Act 1934 or section 17 of the [1937 c. 9 (N.I.).] Law Reform (Miscellaneous Provisions) Act (Northern Ireland) 1937, and

(b)any interest on damages or solatium in respect of personal injuries sustained by a pursuer or by any other person, decree for payment of which is included in any interlocutor by virtue of section 1 of the [1958 c. 61.] Interest on Damages (Scotland) Act 1958.

(2)In this section “personal injuries” includes any disease and any impairment of a person's physical of mental condition.

20Annuities for the self-employed and others

(1)In section 226(1)(b) of the Taxes Act (relief in respect of annuity contracts having for their main object the provision of a life annuity in old age) after the words “in old age ” insert “or under a contract for the time being approved under section 226A of this Act ”.

(2)For subsection (1) of section 227 of the Taxes Act substitute—

227(1)Relief shall be given under this section in respect of a qualifying premium paid by an individual only on a claim made for the purpose, and where relief is to be so given, the amount of that premium shall, subject to the provisions of this section, be deducted from or set off against his relevant earnings for the year of assessment in which the premium is paid.

(1A)Subject to the provisions of this section and of section 228 below, the amount which may be deducted or set off in any year of assessment (whether in respect of one or more qualifying premiums, and whether or not including premiums in respect of a contract approved under section 226A of this Act)—

(a)shall not be more than the sum of £1,500, and

(b)shall not be more than 15 per cent. of the individual's net relevant earnings for that year.

(1B)Subject to the provisions of this section, the amount which may be deducted or set off in any year of assessment in respect of qualifying premiums paid under a contract approved under section 226A of this Act (whether in respect of one or more such premiums)—

(a)shall not be more than the sum of £500, and

(b)shall not be more than 5 per cent. of the individual's net relevant earnings for that year.

(1C)Where the condition in section 226(1)(a) above is satisfied as respects part only of the year, then for the said sums of £1,500 and £500 mentioned above there shall be substituted sums which respectively bear to £1,500 and £500 the same proportion as that part bears to the whole year.

(3)At the end of section 226(2) of the Taxes Act (which precludes approval of an annuity contract if any annuity is capable of commutation) add—

Provided that the contract may give the individual the right to receive, by way of commutation of part of the annuity payable to him, a lump sum not exceeding three times the annual amount of the remaining part of the annuity, taking, where the annual amount is or may be different in different years, the initial annual amount, and shall make any such right depend on the exercise by the individual of an election at or before the time when the annuity first becomes payable to him.

(4)Schedule 2 to this Act shall have effect for supplementing this section which in that Schedule is referred to as “the principal section ”.

21Occupational pension schemes

(1)Part I of Schedule 3 to this Act, which—

(a)postpones the repeal of section 208 of the Taxes Act (approval of superannuation funds), and

(b)makes other provision as to the transition to Chapter II of Part II of the [1970 c. 24.] Finance Act 1970 from the present law about occupational pension schemes,

shall have effect.

(2)For section 19(1) of the Finance Act 1970 (conditions for approval of schemes) substitute—

19(1)The Board shall not approve any retirement benefits scheme for the purposes of this Chapter unless the scheme satisfies all of the conditions set out in subsection (2) below.

(3)In the said section 19 after subsection (2) insert—

(2A)Subject to subsection (1) above, the Board shall approve a retirement benefits scheme for the purposes of this Chapter if the scheme satisfies all of the conditions in this subsection, that is—

(a)that any benefit for an employee is a pension on retirement at a specified age not earlier than 60, (or, if the employee is a woman, 55) and not later than 70, which does not exceed one-sixtieth of the employee's final remuneration for each year of service up to a maximum of 40,

(b)that any benefit for any widow of an employee is a pension payable on his death after retirement such that the amount payable to the widow by way of pension does not exceed two-thirds of any pension or pensions payable to the employee,

(c)that no other benefits are payable under the scheme,

(d)that no pension is capable in whole or in part of surrender, commutation or assignment, except so far as the scheme allows an employee on retirement to obtain, by commutation of his pension, a lump sum or sums not exceeding in all three-eightieths of his final remuneration for each year of service up to a maximum of 40.

The conditions set out in subsection (2) above and in this subsection are referred to in this Chapter as “the prescribed conditions .

(4)For subsection (2) of section 20 of the [1970 c. 24.] Finance Act 1970 (discretionary approval) substitute—

(2)The Board may in particular approve by virtue of this section a scheme—

(a)which exceeds the limits imposed by the prescribed conditions as respects benefits for less than forty years' service, or

(b)which provides pensions for the widows of employees on death in service, or for the children or dependants of employees, or

(c)which provides on death in service a lump sum of up to four times the employee's final remuneration (exclusive of any refunds of contributions), or

(d)which allows benefits to be payable on retirement within ten years of the specified age, or on earlier incapacity, or

(e)which provides for the return in certain contingencies of employee's contributions, or

(f)which relates to a trade or undertaking carried on only partly in the United Kingdom and by a person not resident in the United Kingdom.

(5)In section 21 of the [1970 c. 24.] Finance Act 1970 (tax relief for exempt approved schemes) after subsection (2) insert—

(2A)Exemption from income tax shall, on a claim being made in that behalf, be allowed in respect of underwriting commissions if, or to such extent as the Board are satisfied that, the underwriting commissions are applied for the purposes of the scheme, and would, but for this subsection, be chargeable to tax under Case VI of Schedule D.

This subsection shall have effect as respects tax for the year 1971-72 and subsequent years of assessment.

(6)Part II (taxation of refunds of contributions and certain other payments made out of the funds of schemes), and Part III (consequential and minor amendments) of Schedule 3 to this Act shall have effect, and in that Schedule this and the next following section are referred to as “the principal sections ”.

22Amendments of schemes

(1)This section applies to any amendment of a retirement benefits scheme proposed in connection with an application for the Board's approval for the purposes of Chapter II of Part II of the Finance Act 1970 which is needed in order to ensure that approval is so given, or designed to enhance the benefits under the scheme up to the limits suitable in a scheme for which approval is sought.

(2)A provision, however expressed, designed to preclude any amendment of a scheme which would prejudice its approval under section 208 or section 222 of the Taxes Act shall not prevent any amendment to which this section applies.

(3)In the case of a scheme which contains no powers of amendment, the administrator of the scheme may, with the consent of all the members of the scheme, and of the employer (or of each of the employers), make in the scheme any amendment to which this section applies.

(4)The Chief Registrar of Friendly Societies (in this section called “the Chief Registrar ”) shall have power, on an application made by or on behalf of the administrator of the scheme, by direction to make in the scheme any amendment to which this section applies.

(5)An application to the Chief Registrar under subsection (4) above shall be in writing and shall state—

(a)the proposed amendments of the scheme, and the reasons therefor,

(b)if the instrument regulating the scheme provides a method whereby it may be amended, the reasons why the proposed amendments cannot without serious difficulty be made by that method,

(c)whether and to what extent persons interested in the scheme have had an opportunity to vote or have been otherwise consulted on the proposed amendments, and the results of any such voting or consultation.

(6)The application shall be accompanied—

(a)by a written certificate given by the Board and stating that the Board will, if the proposed amendments are made, approve the scheme for the purposes of Chapter II of Part II of the [1970 c. 24.] Finance Act 1970, and

(b)unless the Chief Registrar otherwise directs, by two copies of the instrument regulating the scheme.

(7)Before making a decision on the application the Chief Registrar may invite any persons interested in the scheme to make representations with regard to the application, and may require the applicants to give notice of the application, in a form and manner to be approved by him, to other persons interested in the scheme, or any of them, for the purpose of inviting them to make representations to him in such manner and within such time as the notice may specify, or otherwise for the purpose of ascertaining their views on the application.

(8)After considering any representation so made, or view so ascertained, the Chief Registrar may issue a direction authorising the administrator of the scheme, or any other person having, under the rules of the scheme, power to amend it, to amend the scheme within such limits and subject to such conditions as the direction may specify, and any amendments so made shall have effect notwithstanding anything to the contrary contained in the instrument regulating the scheme.

(9)In the application of this section to a scheme established under the law of Northern Ireland, for references to the Chief Registrar there shall be substituted references to the Registrar of Friendly Societies for Northern Ireland.

(10)The Treasury shall have power by order contained in a statutory instrument to prescribe fees chargeable by the Chief Registrar, or the Registrar of Friendly Societies for Northern Ireland, in respect of applications made under this section, and in respect of the giving of directions in pursuance of such applications.

23Taxation of wife's earnings

(1)Where a man and his wife living with him jointly so elect for the year 1972-73 or any subsequent year of assessment the wife's earnings and their other income shall be chargeable to income tax as provided in Schedule 4 to this Act.

(2)An election under this section must be made in such form and manner as the Board may prescribe and must be made not earlier than six months before the beginning of the year of assessment for which it is made nor later than six months after the end of that year or such later time as the Board may in any particular case allow.

(3)An election under this section for any year of assessment shall, unless revoked, have effect also for any subsequent year of assessment.

(4)An election in force for any year may be revoked by notice in writing in such form and manner as the Board may prescribe and any such notice must be given jointly by the husband and the wife not later than six months after the end of that year or such later time as the Board may in any particular case allow.

(5)Any election or revocation of an election under this section that could have been made jointly with a person who has died may, within the time permitted by this section, be made jointly with his personal representatives.

24Claims for deferment of part of surtax for 1972-73

(1)A person chargeable to surtax for the year 1972-73 may claim to be allowed to defer payment of two-thirds of that surtax or, if his income includes income which has borne tax by deduction, two-thirds of so much of that surtax as is attributable to his other income.

(2)One half of any amount deferred under this section (that is to say one-third of the surtax) shall be payable on 1st January 1975 instead of on 1st January 1974 and the other half on 1st January 1976.

(3)For the purposes of this section—

(a)income which has borne tax by deduction is income from which tax at the standard rate has been deducted (otherwise than in pursuance of section 204 of the Taxes Act (pay as you earn)) or is treated as having been deducted; and

(b)the amount of surtax attributable to a person's other income is the surtax to which he would be chargeable if his other income, reduced by any deductions under section 28 of the Taxes Act, were his only income; and

(c)any reductions of his total income attributable to any provision other than section 28 of the Taxes Act shall be treated as first reducing income which has borne tax by deduction ; and

(d)where, in the case of a husband and wife, an application under section 38(2) of the Taxes Act (separate assessment to surtax) or an election under section 23 of this Act has effect, the amounts that may be deferred by them respectively shall be ascertained, in accordance with the preceding provisions of this section, by reference to the surtax to which each of them is chargeable and to the income in respect of which that surtax is chargeable.

(4)A claim under this section shall be made to the Board but shall not be allowed by the Board unless it appears to them that the amount to be deferred is £100 or more and is not in dispute.

25Close companies

(1)The provisions of Chapter III of Part XI of the Taxes Act relating to shortfalls in distributions of close companies shall be amended as follows:—

(a)in section 290(6) (relevant maximum and minimum amounts for trading companies) for “£9,000” and “£1,500” (in both places) there shall be substituted respectively “£15,000 ” and “£5,000 ” ; and

(b)in section 290(5) (proportion of reduction) for “one-fifth ” there shall be substituted “one-half ”, and

(c)in section 291(3)(b) (deduction in arriving at distributable investment income) for “£200” there shall be substituted “£500 ” .

This subsection has effect for any accounting period ending after 30th March 1971; but where such an accounting period begins before that day the relief to be given under the provisions amended by this subsection shall be limited to the aggregate of—

(i)the relief, if any, which would have been given thereunder if this subsection had not been passed, reduced in the proportion which the part of the accounting period falling before that day bears to the whole ; and

(ii)the relief which would have been given apart from this limitation, reduced in the proportion which the remainder of the accounting period bears to the whole.

(2)Where the following conditions are satisfied with respect to a close company, that is to say,—

(a)that its activities consist wholly or mainly of the carrying on of a trade ; and

(b)that that trade consists wholly or mainly of one or more of the following, that is to say, life assurance business (within the meaning of section 323(2) of the Taxes Act) insurance business of any other class, banking, money lending, financing of hire-purchase or similar transactions, or dealing in securities ;

its income incidental to that trade shall (so far as not otherwise falling within the definition of estate or trading income in section 291(4) of the Taxes Act) be treated as estate or trading income in arriving, under section 290 of that Act, at the required standard for the purposes of section 289 of that Act (shortfall in distributions).

(3)For the purposes of subsection (2) of this section income of & company is incidental to its trade if, and only if—

(a)it is derived from investments (other than investments in a 51 per cent. subsidiary) or is interest on a debt; and

(b)any profit on the sale of the investments would be a trading receipt, and the debt, if proved to be a bad debt, would be allowed as a deduction, in computing the company's trading income for the purposes of corporation tax.

(4)Subsection (2) of this section applies—

(a)to any accounting period which ends after 30th March 1971; and

(b)to any tax chargeable under section 289 of the Taxes Act for an earlier accounting period, if the amount thereof has not been finally determined (within the meaning of section 118(4) of the [1970 c. 9.] Taxes Management Act 1970) and the company so elects by notice given to the inspector before that amount is finally determined.

(5)In relation to a loan made after 30th March 1971 subsection (3) of section 286 of the Taxes Act (exemption from taxation under that section of certain loans made to assist house purchase) shall have effect as if—

(a)paragraph (a) and, in the words preceding it, the words from “under a bona fide scheme ” to the last “close company ”, were omitted ; and

(b)for paragraph (b) there were substituted the following paragraph:—

(b)neither the amount of the loan, nor that amount when taken together with any other outstanding loans which—

(i)were made by the close company or any of its associated companies to the borrower, or to the wife or husband of the borrower, and

(ii)if made before 31st March 1971, were made for the purpose of purchasing a dwelling which was or was to be the borrower's only or main residence ; exceeds £15,000 and the outstanding loans falling within sub-paragraph (ii) above do not together exceed £10,000; and; and

(c)after the paragraphs there were added the words " but if the borrower acquires such a material interest at a time when the whole or part of any such loan made after 30th March 1971 remains outstanding the close company shall be regarded as making to him at that time a loan of an amount equal to the sum outstanding. "

(6)If shares in any company (in this subsection referred to as “the first company ”) are at any time after 30th March 1971 held on trust for a fund or scheme approved under section 208 or 222 of the Taxes Act (superannuation funds and retirement schemes) or for an exempt approved scheme as defined in Chapter II of Part II of the [1970 c. 24.] Finance Act 1970, then, unless the fund or scheme is established wholly or mainly for the benefit of persons who are, or are dependants of, employees or directors or past employees or directors of—

(a)the first company ; or

(b)an associated company of the first company ; or

(c)a company which is under the control of any director or associate of a director of the first company or of two or more persons each of whom is such a director or associate; or

(d)a close company ;

the persons holding the shares shall, for the purposes of section 282(4) of the Taxes Act (company not treated as close company if under control of company which is not a close company) be deemed to be the beneficial owners of the shares and, in that capacity, to be a company which is not a close company.

(7)This section shall be construed as if it were included in Chapter III of Part XI of the Taxes Act.

26Double taxation relief for underlying tax

(1)Part XVIII of the Taxes Act (double taxation relief) shall be amended as follows.

(2)For section 508 (extension of relief to United Kingdom and third country taxes) there shall be substituted the following section:—

508(1)Where a company resident outside the United Kingdom (in this section referred to as “the overseas company ”) pays a dividend to a company resident in the United Kingdom (in this section referred to as “the United Kingdom company ”) and the overseas company is related to the United Kingdom company, then, for the purpose of allowing credit under any arrangements against corporation tax in respect of the dividend, there shall be taken into account, as if it were tax payable under the law of the territory in which the overseas company is resident,—

(a)any United Kingdom income tax or corporation tax payable by the overseas company in respect of its profits; and

(b)any tax which, under the law of any other territory, is payable by the overseas company in respect of its profits.

(2)Where the overseas company has received a dividend from a third company and the third company is related to the overseas company, then, subject to subsection (4) below, there shall be treated for the purposes of subsection (1) above as tax paid by the overseas company in respect of its profits any underlying tax payable by the third company, to the extent that it would be taken into account under this Part of this Act if the dividend had been paid by a company resident outside the United Kingdom to a company resident in the United Kingdom and arrangements had provided for underlying tax to be taken into account.

(3)Where the third company has received a dividend from a fourth company and the fourth company is related to the third company, then, subject to subsection (4) below, tax payable by the fourth company shall similarly be treated for the purposes of subsection (2) above as tax paid by the third company; and so on for successive companies each of which is related to the one before.

(4)Subsections (2) and (3) above are subject to the following limitations—

(a)no tax shall be taken into account in respect of a dividend paid by a company resident in the United Kingdom except United Kingdom corporation tax and any tax for which that company is entitled to credit under this Part of this Act; and

(b)no tax shall be taken into account in respect of a dividend paid by a company resident outside the United Kingdom to another such company unless it could have been taken into account under the other provisions of this Part of this Act had the other company been resident in the United Kingdom.

(5)For the purposes of this section a company is related to another company if that other company—

(a)controls directly or indirectly, or

(b)is a subsidiary of a company which controls directly or indirectly,

not less than 10 per cent. of the voting power in the first-mentioned company.

(3)In section 498(4) for the words from " not less than 25 per cent.“to ”of the Commonwealth territories“there shall be substituted the words ” not less than 10 per cent. of the voting power in the company paying the dividend ".

(4)In section 507, in subsection (1), for the words " 25 per cent.“there shall be substituted the words ” 10 per cent. " and subsections (2) and (3) shall be omitted.

(5)This section has effect with respect to dividends paid (within the meaning of section 527(3) of the Taxes Act) on or after 1st April 1971.

27Business entertaining expenses

(1)In subsection (8)(b) of section 411 of the Taxes Act (which limits expenses on gifts for which deductions may be made) for “£1 ” there shall be substituted “£2 ”.

(2)This section applies to expenses incurred after 5th April 1971.

28Reserves of marketing boards and certain other statutory bodies

(1)The following section shall be substituted for section 348 of the Taxes Act (which relates to the tax treatment of sums paid into or withdrawn from the reserve funds of marketing boards):—

348Reserves of marketing boards and certain other statutory bodies.

(1)Where a body established by or under any enactment and having as its object, or one of its objects, the marketing of an agricultural product or the stabilising of the price of an agricultural product is required, by or under any scheme or arrangements approved by or made with a Minister of the Crown or government department, to pay the whole or part of any surplus derived from its trading operations or other trade receipts into a reserve fund satisfying the conditions specified in subsection (2) below, then, in computing for the purposes of tax the profits or gains or losses of the body's trade—

(a)there shall be allowed as deductions any sums required as aforesaid to be paid by the body into the reserve fund out of the profits or gains of the trade, and

(b)there shall be taken into account as trading receipts any sums withdrawn by the body from the fund, except so far as they are required as aforesaid to be paid to a Minister or government department, or are distributed to producers of the product in question or refunded to persons paying any levy or duty.

(2)The conditions to be satisfied by the reserve fund are as follows:—

(a)that no sum may be withdrawn from the fund without the authority or consent of a Minister of the Crown or government department, and

(b)that where money has been paid to the body by a Minister of the Crown or government department in connection with arrangements for maintaining guaranteed prices, or in connection with the body's trading operations, and is repayable to that Minister or department, sums afterwards standing to the credit of the fund are required as aforesaid to be applied in whole or in part in repaying the money, and

(c)that the fund is reviewed by a Minister of the Crown at intervals fixed by or under the scheme or arrangements in question, and any amount by which it appears to the Minister to exceed the reasonable requirements of the body is withdrawn therefrom.

(3)In this section, references to a Minister of the Crown or government department include references to a Minister or department in Northern Ireland, and references to producers of a product include references to producers of one type or quality of a product from another.

(2)This section applies to accounting periods ending on or after 6th April 1971.

CHAPTER IISub-Contractors in Construction Industry

29Deductions on account of income tax from payments to certain sub-contractors in construction industry

(1)Where a contract relating to construction operations is not a contract of employment, but—

(a)one party to the contract is a sub-contractor (as defined in subsection (2) below); and

(b)another party to the contract (in this section referred to as the contractor) either is a sub-contractor under another such contract relating to all or any of the construction operations or is a person to whom this paragraph applies;

this section shall apply to any payments which after 5th April 1972 are made under the contract by the contractor to the subcontractor or a person nominated by him, unless the subcontractor or, if the payments are made to a person nominated by him, that person as well as the sub-contractor is a company or is excepted from this section by virtue of section 30 of this Act.

(2)A party to a contract relating to construction operations is a sub-contractor if, under the contract,—

(a)he is under a duty to the contractor to carry out the operations, or to furnish his own labour or the labour of others in the carrying out of the operations; or

(b)he is answerable to the contractor for the carrying out of the operations by other persons, whether under a contract or under other arrangements made or to be made by him.

(3)Paragraph (b) of subsection (1) of this section applies to the following persons, that is to say,—

(a)any person carrying on a business which includes construction operations;

(b)any local authority ;

(c)any development corporation or new town commission;

(d)the Commission for the New Towns ;

(e)a housing association, a housing trust, a housing society, the Scottish Special Housing Association, the Northern Ireland Housing Trust and the Northern Ireland Housing Executive;

but a person carrying on a business is not included in paragraph (a) above by reason only that, in the course of that business, he erects buildings for the use or occupation of himself or persons employed by him.

(4)On making a payment to which this section applies the contractor shall deduct from it a sum equal to 30 per cent. of so much of the payment as is not shown to represent the direct cost to any other person of materials used or to be used in carrying out construction operations to which the contract under which the payment is made relates; and the sum so deducted shall be paid to the Board and shall be treated for the purposes of income tax—

(a)as not diminishing the payment; but

(b)as being income tax paid in respect of the profits or gains of the trade, profession or vocation of the person for whose work the contractor makes the payment.

(5)The Board shall make regulations with respect to the collection and recovery, whether by assessment or otherwise, of sums required to be deducted from any payments under this section and for the giving of receipts by persons receiving the payments to persons making them; and those regulations may include any matters with respect to which regulations may be made under section 204 (pay as you earn) of the Taxes Act.

(6)References in the preferential payments provisions to sums due on account of tax deductions for any period shall be construed as including references to any amounts due from any person in respect of deductions required to be made by him under this section.

(7)In section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalty for failure to furnish information, etc.) the following shall be added in the second column of the Table:

Regulations under section 29 of the Finance Act 1971.

(8)Regulations under this section shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

30Exceptions from section 29

(1)A person is excepted from section 29 of this Act if a certificate under this section is in force—

(a)in respect of him ; or

(b)in respect of a firm in which he is a partner ;

but is excepted by virtue of paragraph (b) above in relation only to contracts under which the firm is a sub-contractor (as defined in section 29(2) of this Act).

(2)Where the Board are satisfied, on the application of any person, that he is carrying on a business which consists of or includes the carrying out of construction operations and that he has a permanent place of business in the United Kingdom and either—

(a)that, in respect of any period ending within the three years preceding his application, he has been required to make a return of his income or requested to supply to the inspector accounts of, or other information about, his business and that in respect of all such periods he has complied with any obligation imposed on him under the Taxes Acts and with any such request; or

(b)if no such obligation was imposed on him and no such request was made in respect of any such period, that there is reason to expect that he will comply with any such obligation or request in respect of other periods;

they shall issue to him a certificate excepting him from section 29 of this Act.

(3)An application under subsection (2) of this section may be made on behalf of a firm and a certificate issued on such an application shall be in the name of the firm.

(4)The Board may, at any time, cancel a certificate under this section if it appears to them that it was issued on information which was false or that by reason of a change of circumstances they would refuse an application for such a certificate if made by the person to whom, or on behalf of the firm to which, the certificate was issued or that that person or firm has permitted it to be misused; and may by notice in writing require that person or firm to deliver it to the Board within the time specified in the notice.

(5)A person aggrieved by the refusal of an application for a certificate under this section or by the cancellation of such a certificate may, by notice in writing given to the Board within thirty days after the refusal or cancellation, appeal to the General Commissioners or, if he so elects in the notice, to the Special Commissioners; and the jurisdiction of the Commissioners on such an appeal shall include jurisdiction to review any relevant decision taken by the Board in the exercise of their functions under this section.

(6)If any person, for the purpose of obtaining a certificate under this section, whether for himself or for another,—

(a)makes any statement, or furnishes any document, which he knows to be false in a material particular; or

(b)recklessly makes any statement, or furnishes any document, which is false in a material particular;

he shall be liable on summary conviction to a fine not exceeding £500.

(7)The Board may make regulations—

(a)prescribing the period for which certificates under this section are to be issued and the form of such certificates and of applications therefor;

(b)providing for the renewal of such certificates ;

(c)providing for the issue, renewal or cancellation of such certificates by inspectors on behalf of the Board;

(d)requiring the production of such certificates in such circumstances as may be specified in the regulations; and

(e)requiring the keeping of records and the giving of receipts by persons holding such certificates;

and any such regulations may make different provision for different circumstances.

(8)Regulations under this section shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

(9)In section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalty for failure to furnish information etc.) there shall be added—

(a)in the first column of the Table, the words “section 30(4) of the Finance Act 1971 ” ; and

(b)in the second column of the Table, the words “regulations under section 30(7) of the Finance Act 1971 ”.

31Interpretation of Chapter II

(1)The following provisions of this section shall have effect for the interpretation of this Chapter.

(2)Local authority ” means—

(a)in relation to England and Wales, the council of a county, borough, urban district or rural district, the Common Council of the City of London, the Greater London Council or the Council of the Isles of Scilly;

(b)in relation to Scotland, a town council, a county council or the joint county council of a combined county; and

(c)in relation to Northern Ireland, the council of a county, county or other borough, or urban or rural district.

(3)Development corporation ” has the same meaning as in the [1965 c. 59.] New Towns Act 1965 or the [1968 c. 16.] New Towns (Scotland) Act 1968, “housing association ” has the same meaning as in the [1957 c. 56.] Housing Act 1957, the [1966 c. 49.] Housing (Scotland) Act 1966 or section 12 of the [1946 c. 4 (N.I.).] Housing and Local Government (Miscellaneous Provisions) Act (Northern Ireland) 1946, “housing trust” has the same meaning as in the Housing Act 1957, “housing society ” has the same meaning as in Part I of the [1964 c. 56.] Housing Act 1964, and “new town commission ” has the same meaning as in the [1965 c. 13 (N.I.).] New Towns Act (Northern Ireland) 1965.

(4)The preferential payments provisions ” means section 30 of the [1952 c. 33.] Finance Act 1952, section 287 of the [1960 c. 22 (N.I.).] Companies Act (Northern Ireland) 1960 and section 1(1) of the [1964 c. 32 (N.I.).] Preferential Payments (Bankruptcies and Arrangements) Act (Northern Ireland) 1964.

(5)The Taxes Acts means the Income Tax Acts and the Taxes Management Act 1970.

(6)Construction operations” means operations of any description specified in Part I of Schedule 5 to this Act, not being operations of any description specified in Part II of that Schedule; and references to construction operations shall be taken—

(a)except where the context otherwise requires, as including references to the work of individuals participating in the carrying out of such operations ; and

(b)as not including references to operations carried out or to be carried out otherwise than in the United Kingdom or in the territorial waters of the United Kingdom.

(7)The Treasury may by order made by statutory instrument—

(a)include in Part I of Schedule 5 to this Act any description of operations as to which they are satisfied that it is a normal activity of the construction industry and that its inclusion in that Part of the Schedule is necessary for achieving the object of section 29 of this Act;

(b)include in Part II of that Schedule any description of operations as to which they are satisfied that it cannot properly be considered a normal activity of the construction industry and ought to be excluded from Part I of that Schedule.

(8)An order under this section shall not have effect unless a draft thereof has been laid before and approved by the Commons House of Parliament.

CHAPTER IIIMethod of Charging Income Tax for 1973-74 and Subsequent Years

32Income tax charged at basic and other rates

(1)Income tax shall be charged—

(a)in respect of any income not falling within paragraph (b) below, at such rate, to be known as the basic rate, as Parliament may determine ; and

(b)in respect of so much of an individual's total income as exceeds such amount as Parliament may determine, at such higher rate or rates as Parliament may determine ;

and where an individual's total income includes investment income and that investment income exceeds such amount as Parliament may determine, income tax shall also be charged in respect of the excess at such additional rate or rates as Parliament may determine.

(2)Section 9(1) of the Taxes Act (earned income relief) shall cease to have effect.

(3)For the purposes of this section, and of any provision made in pursuance of this section, investment income is any income other than earned income, but subject to subsection (4) of this section; and references in the Income Tax Acts to income chargeable as investment income are references to income chargeable at the additional rate or rates mentioned in subsection (1) of this section.

(4)Where income derived by an individual from a trade, profession or vocation is earned income and—

(a)the proceeds of sale of any investments ; or

(b)a debt, if proved to be a bad debt;

would be taken into account in computing the profits or gains of that trade, profession or vocation, income from those investments or interest on that debt is not investment income for the purposes mentioned in subsection (3) of this section.

33Personal reliefs

(1)Sections 6 (relief for small incomes), 9(2) and (3) (old age relief) and 193 (travelling expenses due to war) of the Taxes Act shall cease to have effect.

(2)Relief to which a person is entitled under any provision mentioned in the first column of the following Table shall, instead of being given by a deduction from tax of a sum equal to tax (at the standard rate) on the amount specified in the second column of that Table, be given by a deduction of the amount specified in the third column of that Table from his total income.

TABLE
Provision of Taxes ActAmount on which tax deductedAmount to be deducted from total income
££
s. 8 (personal relief)
(1)(a) (married)465600
(1)(b) (single)325420
(2) (wife's earned income)325 or, if less, seven-ninths of amount of wife's earned income420 or, if less, amount of wife's earned income
s. 10 (children)
(3)(a) (over 16)205265
(b) (11-16)180235
(c) (under 11)155200
s. 12 (housekeeper)75100
s. 13 (relative taking charge of younger brother or sister)75100
s. 14 (additional relief for widows, etc., with children)100130
s. 16 (dependent relative)
(1) (other than single woman)75100
(2) (single woman)110145
s. 17 (daughter's services)4055
s. 18 (blind person)
(1) (one person blind)100 reduced by seven-ninths of tax-free disability payments130 reduced by tax-free disability payments
(2) (both spouses blind)200 reduced by seven-ninths of tax-free disability payments260 reduced by tax-free disability payments

(3)Sections 19 to 21 (premiums on life policies) of the Taxes Act shall be amended as follows:—

(a)in section 19(1) for the words “two-fifths of the standard rate” and “at the standard rate ” there shall be substituted respectively the words “one-half of the basic rate ” and “at the basic rate ” and in the proviso for “£25 ” there shall be substituted “£20 ”.

(b)section 19(8) shall be omitted ;

(c)in section 20(3) and (5) for the words “standard rate ”, wherever they occur, there shall be substituted the words “basic rate ”;

(d)in section 20(4) for the words from “exceed ” to the end there shall be substituted the words " exceed the claimant's total income as reduced by any deductions made under this Chapter. ";

(e)in section 21(4) for the words “two-fifths of the standard rate ” there shall be substituted the words “one-half of the basic rate ”.

(4)In section 24(1) of the Taxes Act (reduction in reliefs on account of family allowances)—

(a)the words “from tax ” shall be omitted ;

(b)for the words “sections 8 and 10 to 19 ” there shall be substituted the words “sections 8 to 18 ”, and

(c)for the words from “by an amount” to “£42 ” there shall be substituted the words “by £60 ”.

(5)For section 25 of the Taxes Act there shall be substituted the following section:—

25Effect on relief of charges on income.

(1)Where any of the claimant's income is income the income tax on which (at the basic rate) he is entitled to charge against any other person, or to deduct, retain or satisfy out of any payment, he shall not be entitled to relief under this Chapter in respect of that income, except to the extent, if any, that the relief would exceed tax at the basic rate on that income.

(2)Notwithstanding subsection (1) above relief under section 19 or section 20 of this Act may be given to the extent that the deduction from tax provided for thereby can be made from so much of the income tax with which the claimant is chargeable as exceeds what would be the amount thereof if all income tax were chargeable at the basic rate to the exclusion of any other rate.

34Effect of deductions

(1)Where deductions reduce a person's total income and the order in which they are made or in which income of different descriptions is reduced thereby may affect his liability to income tax the deductions shall be made and treated as reducing income in accordance with the following provisions of this section.

(2)Subject to any express provisions of the Income Tax Acts, any deductions allowable in computing a person's total income or to be made from a person's total income shall be treated as reducing income of different descriptions in the order which will result in the greatest reduction of his liability to income tax.

(3)Deductions from total income under Chapter II of Part I of the Taxes Act shall be made after any other deductions and shall not affect the amount to be taken as a person's total income for the purposes of section 7 (relief for persons over 65) or 21 (limit on relief for certain premiums etc.) of the Taxes Act nor the amount determining whether a person is entitled to relief under section 16 (dependent relatives) of that Act or by how much relief under that section is reduced.

(4)Deductions from total income under Chapter II of Part I of the Taxes Act shall, in the first instance, be disregarded in determining what income is chargeable as investment income and what income is not so chargeable; and shall then be treated as reducing the income not so chargeable before reducing any income so chargeable.

35Abolition of certain provisions relating to surtax

Sections 31 (relief where income for longer period is received in one year) 32 (relief in case of purchases cum dividend) and 35 (expenses of Crown servants abroad) of the Taxes Act shall cease to have effect.

36Construction of references in Income Tax Acts to deduction of tax

Any provision of the Income Tax Acts requiring, permitting or assuming the deduction of income tax from any amount (otherwise than in pursuance of section 204 of the Taxes Act (pay as you earn)) or treating income tax as having been deducted from any amount, shall be construed as referring to deduction of income tax at the basic rate in force for the relevant year of assessment; and for this purpose the relevant year of assessment shall be taken to be (except where otherwise provided)—

(a)if the amount is an amount payable wholly out of pro fits or gains brought into charge to tax, the year in which the amount becomes due;

(b)in any other case, the year in which the amount is paid.

37Consequential amendments and repeals

(1)The enactments mentioned in Schedule 6 to this Act shall have effect subject to the amendments specified therein.

(2)The enactments mentioned in Part II of Schedule 14 to this Act are hereby repealed to the extent specified in the third column of that Part.

38Commencement of Chapter III and transitional provisions

(1)The preceding provisions of this Chapter shall have effect for the year 1973-74 and subsequent years of assessment; and accordingly the amendments and repeals made by those provisions (including those mentioned in section 37 of this Act) shall not be taken to affect tax for an earlier year of assessment or the doing of anything in relation to tax for such a year.

(2)The transitional provisions contained in Schedule 7 to this Act shall have effect.

39Basic rate for 1973-74

The basic rate for the year 1973-74 shall be 30 per cent., unless Parliament otherwise determines.

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