MEMORANDA SUBMITTED BY INLAND REVENUE
1. TAX LAW REWRITE PROJECT
This note summarises the background to the Inland
Revenue's Tax Law Rewrite project and briefly outlines the main
features of the project team's approach to the work.
2. In December 1995 the Inland Revenue presented
a report to Parliament on the scope for simplifying the UK tax
system. The main recommendation was that UK direct tax legislation
should be rewritten in clearer, simpler language.
3. This recommendation was warmly welcomed,
both in Parliament and in the tax community. After further work
on important practical issues and a period of preliminary consultation,
the then Chancellor of the Exchequer announced in his November
1996 Budget speech that the Inland Revenue would propose detailed
arrangements for a major project to rewrite direct tax legislation
in plainer language. We did so in Tax Law Rewrite: Plans for
1997 published in December 1996.
4. Our overall aim is to rewrite all (or
most) of the United Kingdom's existing primary direct tax legislation
to make it clearer and easier to use, without changing or making
less certain its general effect.
5. The Tax Law Rewrite is run on project
lines. Our project team currently comprises almost 40 people,
including five tax professionals recruited on fixed term contracts
from the private sector. Four multi-disciplinary rewrite teams
work on particular areas of tax legislation. There is also a drafting
team headed by a senior Parliamentary Counsel on loan from the
Office of Parliamentary Counsel, together with a small policy
and project support team.
6. A Steering Committee chaired by
the Rt Hon the Lord Howe of Aberavon CH, QC provides strategic
guidance to the project. It ensures that the project is meeting
its objectives of clarity and user friendliness, and is taking
full account of private sector concerns. This Committee brings
together a wide range of talents and experience, with members
drawn from both Houses of Parliament, the judiciary, the legal
and accountancy professions, consumer interests and business.
It meets regularly and its minutes are published on the Internet.
7. There is also a standing Consultative
Committee, whose role is to ensure continuous consultation
on the rewritten law with all the main private sector interests.
Chaired by the Project Director, it consists of a core group of
the main representative bodies in the tax professions, business
and consumer interests. Project team members and, where appropriate,
Inland Revenue officials dealing with the subject matter being
discussed, also attend its meetings. In addition, there is a group
of specialist representative bodies who receive all the Committee's
papers but attend meetings only when a subject relevant to their
interests is being discussed. This Committee's minutes are also
published on the Internet.
8. We are committed to proceeding with our
work on the basis of full consultation at every stage of the process.
As we develop draft clauses, we involve
Inland Revenue specialists (and, where appropriate, interested
parties outside the Department) and produce "work in progress"
papers for consideration by our Committees.
In the light of comments from both
Committees and further work within the project, we refine the
draft clauses and work up Exposure Drafts for public consultation.
These contain a general commentary and a more detailed clause-by-clause
commentary. Near final drafts are considered by both Committees
We publish these Exposure Drafts
for written comments.
Usually we publish a response document,
summarising the comments received from formal consultation and
our response to these points. This provides feedback to all those
who have commented.
Finally we publish draft rewrite
Billswith a commentaryfor a final round of formal
consultation before introducing them in Parliament for enactment.
9. All this consultation places heavy demands
on those whom we consult. We are very grateful to them for the
time and resources they have been prepared to devote in order
to give us their comments. Their input has been invaluable, and
it will remain so as the project progresses.
10. We use a number of techniques when rewriting
legislation. These are all different ways of meeting our paramount
objective of making the legislation easier for the reader to understand,
while preserving its technical accuracy.
11. By far the most useful of these is to
establish the best structure for the present purpose of the legislation
(as opposed to its original purpose). This process involves the
detailed analysis of all the existing legislation on a particular
topic, as well as any relevant extra statutory concessions and
other non-statutory material. We then reconstruct the propositions
in the most logical order. This initial analysis is usually much
harder and more time-consuming than was first expected.
12. This reordering at a detailed level
is complemented at a higher level by the reordering of material
within the Acts and between Acts. Our working assumption remains
that the rewrite will in the end result in the following main
13. We use colloquial English wherever we
can, adopting shorter sentences in the active, rather than passive,
voice. We replace archaic expressions with modern ones, taking
care not to change the law inadvertently by rewriting words or
expressions that have a well understood meaning. We harmonise
definitions across the Acts where possible, and then make it easier
for the reader to find defined terms. We group similar rules together
in one place, and make greater use of signposts to guide the reader
to other relevant provisions. And we continue to explore other
techniques for making legislation more accessiblemethod
statements, formulae and, where appropriate, tables.
14. To achieve our overall aim our rewritten
legislation has to be not only clear, but also technically accurate.
It must reproduce the effect of the existing legislation, except
where we can make minor changes to improve the legislation still
further. The project team is responsible for the overall accuracy
of the rewritten legislation. Accuracy is assured largely by exposing
the draft clauses to the close scrutiny of a series of internal
and external experts through our extensive consultation processes.
15. Minor changes in law or in approach
are called "proposed rewrite changes" in our Exposure
Drafts. Typically they would involve correcting small errors,
enacting an extra statutory concession or dropping material which
is no longer necessary. We aim at every stage of the consultative
process to identify clearly all such changes and to highlight
any issues which may arise. When a Rewrite Bill is introduced
in Parliament, minor changes in the law are written up in an annex
to the Explanatory Notes accompanying the Bill. Some of the points
flagged up in Exposure Drafts as proposed rewrite changes involve
textual changes which we do not think change the legal effect
of the provisions. These are written up in another annex.
16. Our consultation from time to time reveals
suggestions for policy change that go beyond our remit. We aim
to record these suggestions when responding to our consultation,
and we pass all of them on to our Revenue colleagues to consider
further and, where appropriate, to inform Ministers. With them,
we continue to look for opportunities to further improve and modernise
our tax system.
17 January 2001
2. SUMMARY OF CHANGES MADE BY THE CAPITAL
DISTRIBUTION OF CHANGES BETWEEN PARTS OF
|Part of Bill
||How many changes||Other remarks
|Part 2||Plant and machinery allowances
||31||One change (10) also applies in Part 5.
|Part 3||Industrial buildings allowances
||9||One change (34) also applies in Part 10.|
Another (38) also applies in each of Parts 4 to 10.
Another (40) also applies in Parts 4 to 6, 9, 10 and 12.
Another (39) also concerns a change in Part 6.
|Part 4||Agricultural buildings allowances
|Part 5||Mineral extraction allowances
|Part 6||Research and development allowances
|Part 7||Know-how allowances
||2||These changes also apply to patent allowances (and one (54) is similar to a change (8) in Part 2).
|Part 8||Patent allowances
|Part 9||Dredging allowances
|Part 10||Assured tenancy allowances
|Part 12||Supplementary provisions
|Sch.3||Transitionals and savings
PART 2 OF
1. Clauses 15(1)(f) and 252: Mining concerns etc dealt
with in section 55 of the Income and Corporation Taxes for 1988
(ICTA) and plant and machinery allowances
This corrects a previously unnoticed glitch in the legislation
which could mean that some section 55 concerns are not, strictly
speaking, entitled to allowances for plant and machinery. It brings
the legislation into line with practice.
2. Clause 23(3): Expenditure on buildings and structures,
etc, which is unaffected by exclusions from what can be plant
This simplifies some complex provisions identifying what
can be treated as plant or machinery. If anything, the simplification
extends the scope for obtaining plant and machinery allowances.
3. Clause 23(5): Meaning of "caravan"
This legislates an ESC which gives "caravan" an
extended meaning for the purpose of entitlement to plant and machinery
4. Clause 26(1)(b): Demolition costs
This ensures that expenditure on demolition of plant or machinery
which was last in use for the purposes of a qualifying activity
can qualify for plant and machinery allowances. Under existing
law, demolition expenditure only qualifies if the plant or machinery
is in use for those purposes at the time of demolition.
5. Clause 27(1)(b): Expenditure on thermal insulation,
safety measures and double relief
This simplifies the legislation by aligning similar tests
for obtaining plant and machinery allowances for expenditure on
thermal insulation of industrial buildings or on various safety
measures, including personal security.
6. Clause 29(5) and (6): Fire safety (Northern Ireland)
This legislates part of an Extra-statutory concession (ESC)
relating to obtaining plant and machinery allowances in respect
of expenditure on fire safety measures in Northern Ireland.
7. Clause 48: Legislation used to determine whether a
business is small or medium-sized for purposes of entitlement
to first-year allowances
Northern Ireland legislation is not properly referred to
for the purposes of certain first-year allowances; this change
8. Clause 58: Allocation of expenditure to pools
This brings the legislation into line with practice by giving
the taxpayer the flexibility to allocate expenditure to a pool
for a chargeable period after that in which the expenditure is
incurred. It also removes the need for formal elections.
9. Clause 60(3): More than one disposal event
This brings the legislation into line with practice by ensuring
that once expenditure on plant or machinery has been pooled the
taxpayer is not liable to bring a disposal value into account
in respect of more than one disposal event in respect of that
10. Clauses 61, Table, item 5 and 402(5): Disposal value
and relevant receipts where plant or machinery used for mineral
exploration and access is abandoned
This changes the disposal value (from market value to compensation
etc money) where plant or machinery used for mineral exploration
and access is abandoned. (Essentially the same change is made
in Part 5 in connection with pre-trading expenditure.)
11. Clause 62: General limit on amount of disposal value
This ensures that the "cap" on the disposal value
is based on qualifying expenditure rather than capital expenditure.
The effect is that the cap could be lower in cases involving connected
12. Clause 63(1) and (2): Nil disposal value for certain
This ensures that there is a "nil" disposal value
(instead of "no disposal value") for gifts to educational
establishments, charities and heritage bodies. The effect is essentially
taxpayer favourable, and reflects existing practice.
13. Clause 63(2): Relief for gifts to educational establishments
This brings provisions about gifts to educational establishments
into line with provisions about gifts to charities and heritage
bodies. It abolishes requirements that the taxpayer (1) must have
claimed plant and machinery allowances on the gift and (2) must
put in a claim to take advantage of the special disposal value
14. Clause 64: Case where no disposal value need be brought
This ensures that the taxpayer is not required to bring a
disposal value into account if he or she has not used the expenditure
in a tax claim. There is an exception for connected persons cases
which is designed to prevent tax leakage.
15. Clause 65 (and clause 19): Final chargeable periods
(and, in particular, final chargeable period for special leasing)
This ensures that a person is entitled to a balancing allowance
in respect of expenditure on plant or machinery in certain circumstances
where this is not at present entirely clear.
16. Clause 68(3): Hire-purchase contracts, etc
This changes the disposal value (from market value to relevant
capital sums) where plant or machinery being acquired under a
hire-purchase or similar contract is disposed of before it is
brought into use.
17. Clause 70(2) to (5): Plant or machinery required to
be provided under terms of lease
This clarifies the positions of lessor and lessee where plant
or machinery has been provided under the terms of a lease, and
the lease ends. It spells out what has been taken to be the meaning
of some very compressed wording in the existing legislation.
18. Clause 80(2): Vehicles provided for purposes of employment
This extends the availability of allowances for employees
(etc) in respect of cars (etc) to bring them into line with the
availability of deductions in respect of travelling expenses under
section 198 of ICTA.
19. Clause 98(1) and (2): Long-life assets: monetary limit
relief applied to all qualifying activities
The lower rate (6 per cent) for writing-down allowances for
long-life asset expenditure does not apply to expenditure below
the monetary limit. This change applies the monetary limit relief
to any employees and office holders, etc who have long-life asset
20. Clause 109(3): Application of 10 per cent rate to
pool for expenditure on plant and machinery used partly for purposes
other than those of the qualifying activity
There is a lower rate for writing-down allowances (10 per
cent) where plant or machinery is used for certain kinds of leasing
to non-residents. This change applies that rate in cases where
the plant or machinery is used only partly for the purposes of
the qualifying activity.
21. Clause 129: Election to use appropriate non-ship pool
This enables a shipowner to opt to use the appropriate non-ship
pool by an "election" instead of by giving "notice".
The main significance of this is that the shipowner can make a
supplementary election if an error or mistake in it is discovered.
22. Clause 138(1)(a): Deferral of balancing charge on
shiplimit on amount deferred
This simplifies one of the rules used to identify the limit
on how much of a balancing charge on a ship can be deferred. It
means that the limit could be lower for some taxpayers.
23. Clause 141(2): Amounts deferred as a result of disposal
events occurring at the same time as relevant disposal event
This extends slightly the circumstances in which deferred
balancing charges may be attributed to new expenditure. Greater
flexibility is likely to favour the taxpayer.
24. Clause 155(2)(b): Notices given by successors to shipowner's
This enables a successor to a shipowner's qualifying activity
to give notice attributing a deferred amount to new expenditure.
It is a logical extension of the ability that the successor already
has under the existing law to vary an attribution made by the
25. Clause 161(4)(a): Pre-trading expenditure on mineral
exploration and access
This puts beyond doubt that, in the context of pre-trading
expenditure on mineral exploration and access, plant and machinery
allowances cannot be obtained for revenue expenditure.
26. Clause 172: Adjustment of second part of section 51(1)
of the Capital Allowances Act (CAA 1990)
This removes a rule that could be read as preventing anyone
at all from claiming an allowance in respect of a fixture if more
than one person is treated as being the owner of the fixture.
27. Clause 229: Section 25(6) of CAA 1990
This ensures that, in an anti-avoidance case, the expenditure
that an assignee of the benefit of a hire-purchase or similar
contract is treated as having incurred is not unduly restricted.
28. Clause 237: Additional VAT liabilities, first-year
allowances and change of circumstances
This deals explicitly with the effect of certain changes
of circumstances occurring between the time when a person initially
incurs expenditure giving rise to a first-year allowance and the
time when an additional VAT liability is incurred.
29. Clause 239: Limit on disposal value where additional
VAT rebate made
This has the effect that a lower disposal value may be required
to be brought into account where more than one additional VAT
rebate is made and one of them accrues after an ordinary disposal
event has occurred in respect of the plant or machinery.
30. Clause 265(3): Property treated as sold to person
succeeding to qualifying activity
This prevents a successor from being treated as having bought
plant or machinery at market value if the plant or machinery was
not owned by the predecessor immediately before the succession.
It reflects the way the legislation has been operated in practice.
31. Clause 267(2)(a) and (3): Effect of election for continuity
on succession to qualifying activity
This makes clear that where a continuity election is made,
the time at which the plant or machinery is treated as sold is
the time of the succession. It also slightly extends the range
of plant and machinery in relation to which a continuity election
can be made.
PART 3 OF
32. Clause 278: Buildings used by more than one licensee
This makes clear that a building can be an "industrial
building" (giving rise to allowances) even if one of the
licensees is an undertaking carried on by way of trade (rather
than a trade proper).
33. Clause 284: Roads on industrial estates etc
This extends the availability of industrial buildings allowances
for roads in business parks (and similar areas) in enterprise
zones. It also extends slightly the availability of industrial
buildings allowances for roads on industrial estates outside enterprise
34. Clauses 287 and 496: Acquisition of interest as a
result of incurring expenditure on construction
This extends the availability of industrial buildings allowances
(and assured tenancy allowances) in cases where expenditure is
incurred on construction and there is an interval between the
completion of the construction and the acquisition of the interest
in the building. It reflects the way the legislation has been
operated in practice.
35. Clause 305(1): Commercial buildings in enterprise
This makes clear that initial allowances are available for
all commercial buildings in enterprise zones, and not just for
those occupied for the purposes of qualifying trades. It reflects
the way that the legislation was originally intended to operate
and how it has been operated in practice.
36. Clauses 306(4), 352(2) and 354(6): Miscellaneous changes
consequential on Change 35
This ties up some loose ends which arise once it is made
clear that initial allowances are available for all commercial
buildings in enterprise zones.
37. Clause 307(4): Withdrawal of initial allowances
This extends a provision for making assessments and adjustments
of assessments so that it applies in both cases where initial
allowances are withdrawn under the clause. It is simpler than
the standard fall-back provisions (in the Taxes Management Act
(TMA) 1970 and the Finance Act (FA) 1998).
38. Clauses 309(2), 372(3), 418(6), 441(3), 458(4), 472(4),
487(6) and 507(2): Claim for reduction in amount of allowances
This is a group of changes which makes clear that the taxpayer
can claim less than the full amount of allowances. It brings the
legislation into line with practice.
39. Clauses 335(1) and 441(1): Writing off research and
development allowances for industrial buildings allowances (IBA)
Where an allowance and a disposal value arise in the same
chargeable period in respect of the same expenditure, Part 6 now
gives a net R&D allowance (rather than an allowance and a
charge). This makes no difference in Part 6. But there is a knock-on
effect on Part 3the expenditure on which a person may obtain
an industrial buildings allowance may be reduced by a smaller
amount (ie the net R&D allowance).
40. Clauses 356(1), 369(4) and (5), 370(3), 384(1), 412(2),
438(5), 439(4), 440(3), 485(2), 530(1) and 562(3): Just and reasonable
This is a group of changes which brings into line the wording
used for making apportionments so that they all refer to a "just
and reasonable" apportionment, in contrast to the existing
law, where some of the provisions refer merely to what is "just".
PART 4 OF
41. Clause 361(1)(a): Agricultural buildings
This alters the wording used to describe the buildings in
respect of which agricultural buildings allowances are available.
This is so that the legislation works at the technical level in
relation to intensive rearing of livestock and fish and short
rotation coppicing (which are recognised as "husbandry"
for the purposes of these allowances) where strictly speaking
the buildings might not be "farm buildings".
42. Clause 368(2) and (3): New lease of whole or part
of agricultural land
This ensures that entitlement to agricultural buildings allowances
will pass to a new tenant rather than to the landlord where the
new tenant takes on a lease of part of the agricultural land as
well as where the new tenant takes on a lease of the whole of
43. Clause 370(1)(d): Capital sum paid for relevant interest
before first use of agricultural building
This puts beyond doubt that, where a person buys the relevant
interest in land before an agricultural building is first used,
allowances are available only if the buyer incurs capital (as
opposed to revenue) expenditure.
44. Clauses 381(2)(c) and 383, Table, item 4: "Ceases
to exist as such" and "ceases altogether to be used"
This corrects a mismatch in two provisions in the existing
law which are meant to interlock, by changing a balancing event
so that it occurs where an agricultural building ceases altogether
to be used rather than where it ceases to exist as such.
45. Clause 386: Calculation of residue of qualifying expenditure
This ensures that balancing charges are included in the calculation
of the residue of qualifying expenditure. It increases the residue
and therefore the availability of allowances. It brings the legislation
into line with practice.
46. Clause 387: Overall limit on balancing charge
This puts beyond doubt that the limit on a balancing charge
includes allowances which are available but not yet made. (It
would be odd if the taxpayer could lower the limit by delaying
a claim for an allowance.)
PART 5 OF
47. Clauses 400, 403, 407, 408, 409, 414 and 415: The
condition that, for mineral extraction allowances, expenditure
must be incurred for the purposes of a mineral extraction trade
This repeats in various clauses a requirement that expenditure
be incurred for the purposes of a mineral extraction trade, but
omits it in relation to "restoration expenditure". It
is the omission of the requirement that is significant. Restoration
expenditure is post-trading expenditure and so will not necessarily
be incurred for the purposes of a mineral extraction trade.
48. Clauses 404(5)(b), 422(4)(b) and 424(5)(b): "Existing
permitted development" in the case of land outside the UK
This ensures that there will continue to be a workable test
of what is "existing permitted development" for land
outside the UK now that the existing test has been rendered potentially
unworkable as a result of devolution.
PART 6 OF
49. Clauses 442(3) and (4) and 449: Research and development
allowances: limiting balancing charges by reference to unclaimed
This ensures that a person who claims only part of an R&D
allowance does not suffer a balancing charge where the disposal
value brought into account is not more than his unclaimed allowance.
(See change 38.)
50. Clause 443, Table, items 1 and 2: Disposal value for
asset representing allowable research and development expenditure
This ensures that only net amounts and capital
compensation are taken into account in calculating the disposal
value for an asset representing allowable R&D expenditure.
51. Clause 444(3)(a) and (4): Chargeable period for which
a disposal value is to be brought into account for research and
This concerns an unusual case where a person ceases to own
an asset representing allowable R&D expenditure (or the asset
is destroyed) before the chargeable period for which the
allowance would be made. It requires a disposal value to be brought
into account for that period.
52. Clause 445(1): Research and development allowances
and pre-trading demolition costs
This is about the demolition of an asset representing allowable
R&D expenditure before the commencement of the trade by reference
to which the expenditure is allowable. It ensures that the demolition
costs can be taken into account (to reduce the disposal value
and, in some cases, to give a further allowance).
53. Clause 448(5): Pre-trading additional VAT rebates
in respect of allowable research and development expenditure
This concerns a case where an additional VAT rebate in respect
of allowable R&D expenditure accrues before the commencement
of the trade by reference to which the expenditure is allowable.
It requires a disposal value to be brought into account for the
chargeable period for which the allowance would be made.
PART 7 OF
54. Clauses 460 and 474: Allocation of expenditure to
know-how and patent pools
This brings the legislation into line with the approach taken
in Part 2 (see Change 8). It gives the taxpayer the flexibility
to allocate expenditure to a pool for a chargeable period after
that in which the expenditure is incurred.
55. Clauses 462(2) and 476(3): Only capital sums to be
included in proceeds of sale
This ensures that only capital proceeds of sale are
brought into account as a disposal value on the sale of know-how
or patent rights.
PART 8 OF
56. Clause 471(6): Final chargeable period for non-trade
A balancing allowance in respect of non-trade patent expenditure
is currently available only for the chargeable period in which
the last of the patent rights comes to an end. This ensures that
a balancing allowance arises either for that chargeable period
or for the chargeable period in which the last of the rights is
wholly disposed of.
PART 9 OF
57. Clause 486(1): Preliminary dredging expenditure
This extends the availability of dredging allowances in respect
of one kind of pre-trading expenditure, by making them available
as soon as the trade is carried on, rather than making them available
only once premises are occupied.
PART 11 OF
58. Clauses 535 and 536: Contributions to research and
This enables a person who receives a contribution to research
and development expenditure to obtain allowances in respect of
the contribution in certain circumstances. At present this is
59. Clauses 536(5) and 537(4): Contributions, Part 2 and
the meaning of "trade"
This makes clear that provisions relating to contributions
apply to all the "qualifying activities" in Part 2 except
employments and offices. The general effect is that a recipient
cannot obtain allowances under Part 2 in respect of a contribution
from someone carrying on one of these qualifying activities but
the contributor can do so.
60. Clause 538(3): Single asset pools for contributions
to expenditure on plant and machinery
This makes clear that a person entitled to allowances under
Part 2 in respect of a contribution has a "single asset pool"
for the contribution rather than a "class pool".
PART 12 OF
61. Clause 545(1) and (2): Omission of section 434E(1)(b)
This simplifies the definition of "investment asset"
in connection with provisions about allowances for companies carrying
on life assurance business. It brings the legislation into line
with the way it was intended to operate and has been operated
62. Clauses 558(5), 559(5) and 577(2)(b): Permanent discontinuance
etc of a property business
This deals with missed consequentials on reforms relating
to Schedule A businesses and overseas property businesses.
63. Clause 564(4): Procedure for determination of questions
affecting tax liability of two or more persons and section 152B(8)
of CAA 1990
A reorganisation of material here has the indirect effect
of picking up missed consequentials on the insertion of section
152B(8) of CAA 1990.
64. Clause 576(1): The Inland Revenue and tax inspectors
The definition of "the Inland Revenue", when read
with various other clauses, ensures that certain functions which
are currently exercisable by inspectors are exercisable by an
officer of the Board.
65. Paragraph 1 of Schedule 2: Claims for postponed first-year
allowances in respect of ships
This deals with a case where a person is entitled to a first-year
allowance in respect of a ship, postpones it, and then claims
the postponed allowance (or part of it). It extends the rules
about partnership returns to these claims to call in postponed
66. Paragraph 98(3) of Schedule 3: Reduced writing-down
allowance for patent allowances on pre-1 April 1986 expenditure
This has the effect that reduced writing-down allowances
on pre-1 April 1986 patent expenditure are proportionately increased
or reduced if the chargeable period for which they are given is
more or less than a year. This is likely to have little effect
in practice since the provisions giving allowances on such expenditure
will soon be spent.
17 January 2001
3. CAPITAL ALLOWANCES BILL: CHANGES SUGGESTED BUT NOT
1. The Committee asked about changes which were suggested
for the Capital Allowances Bill but not included in the Bill.
2. In the course of consultation on legislation various
organisations, companies and individuals suggest changes to the
legislation which are not appropriate to a Tax Simplification
Bill. Our practice is to:
record and publish suggestions for changes on
which we have not acted, either in a separate document summarising
responses or with the next draft of the legislation in question
if, as with capital allowances in 2000, we are publishing revised
clauses quickly; and
pass those suggestions on for consideration along
with other representations for changes in a Budget and Finance
3. Suggestions made in reponse to the four Exposure Drafts
on capital allowances were published in Appendix 1 to the commentary
which accompanied the draft Capital Allowances Bill published
in August 2000. This note adds to those some additional suggestions
made in response to that draft Bill.
4. The Appendix to this note sets out the changes suggested
in response to the four Exposure Drafts on capital allowances
or the draft Bill. They are grouped under the headings of the
Parts of the Capital Allowances Bill.
5. The proposed changes in the Appendix span a wide range
in terms of their potential effects on, for example, the length
and complexity of the legislation, on individual taxpayers, and
on revenues. Each was considered only so far as was necessary
to establish that it would not be appropriate to make the change
in the Capital Allowances Bill. In this we were guided by both
the remit given to the project at the outset and the views expressed
by the Steering Committee, by the Consultative Committee and by
others in response to Exposure Drafts and the draft Bill.
6. We would usually consider appropriate changes which
improve the legislation. This might be because the change:
makes the legislation shorter, simpler, clearer,
more certain or more consistent with other legislation.
incorporates extra-statutory concessions;
codifies judgements of the courts;
corrects points overlooked in the course of consolidation
removes an anomaly which is patently unintended
confirms the intended and accepted interpretation
of the legislation; or
fills a gap in the legislation.
7. We would not consider appropriate to a Tax Simplification
Bill changes which:
make the legislation more complex;
contradict the clear intention when the legislation
lead to changes beyond the scope of the Bill in
question to the tax system more generally;
involve substantially more or less allowances;
have more than negligible effects on tax revenues;
are or are likely to be contentious.
8. For many changes, and especially those suggested but
not made, there may be arguments both for and against making them.
It is then a matter of the balance of benefits and disadvantages.
9. It may assist the Committee to illustrate this by
reference to specific examples.
10. Two of the changes in the Appendix might lead to
major simplification of the capital allowances legislation. These
(j) simpler legislation for industrial buildings allowances
for buildings in enterprise zones: there are some relatively lengthy
and complex provisions for expenditure on buildings in enterprise
zones to provide for the special initial allowances at 100 per
cent and the optional alternative of writing-down allowances at
25 per cent a year; and
(m) removing the separate legislation for agricultural
buildings allowances leaving such buildings to qualify (or not)
for industrial buildings allowances. This would remove Part 4
(some 11 pages) from the Capital Allowances Bill (subject to any
11. But both would involve policy issues affecting substantial
amounts of tax relief and numbers of taxpayers:
the legislation for buildings in enterprise zones
gives people much faster tax relief than the general 4 per cent
rate of industrial buildings allowances on a much wider range
of buildings. This is a valuable difference. So, as ever, a key
issue is drawing the line between buildings and expenditure which
qualify and those which do not. Simpler legislation would inevitably
mean moving that boundary with winners and losers, less certainty,
effects on yield, or a mixture of all of those; and
getting rid of the separate legislation for agricultural
building allowances would mean that some people who currently
get allowances for agricultural buildings would cease to do so.
There would also be compulsory balancing allowances and charges
which at present are optional. The separate legislation for agricultural
buildings was introduced (in its current form in 1986) precisely
because the rules for industrial buildings were felt not to fit
the particular needs of that sector. To take just one aspect,
a farmer can carry on getting agricultural buildings allowances
on a barn which is converted to a shop.
12. Another type of change is illustrated by item (a).
This would extend relief for gifts to (broadly) educational establishments,
charities and certain heritage bodies to a wider range of donors,
mainly investment companies, employments and offices. (This is
discussed in detail in Note 18 in Annex 2 to the explanatory notes
which accompany the Bill.) However, the legislation in the Income
and Corporation Taxes Act 1988 (ICTA) does not apply only for
capital allowances. It also applies to gifts of trading stock.
In addition, the relief provided by section 83A of ICTA was introduced
by section 55 of the Finance Act 1999 and debated then. Extending
the scope of the relief as suggested would therefore be a change
in policy, to recent legislation, which would introduce differences
between the scope of the capital allowances legislation and the
legislation in ICTA.
13. An example of another type of change is item (d)
in the Appendix. This suggests legislation for large numbers of
items of plant or machinery:
each of which is a short-life asset for the purposes
of plant and machinery allowances and so requires a separate single
asset pool; but
are held in large numbers and cannot practicably
be identified and tracked individually. For example returnable
containers or cutlery.
14. In these cases the practice allows simpler records
and computations of plant and machinery allowances. It does not
change the entitlement to allowances or liability to charges.
Legislation to set out all the possible forms of the simpler calculations
would be complex and long; and even then probably not cope with
all possible circumstances. So we judged it would not be appropriate
to impose it.
15. Finally some changes in the Appendix were suggested
towards the end of 2000 so it was not possible to consider them
fully in time for the Bill. An example is (k) in the Appendix
(a statutory definition of a member of his family or household).
This is a term which is used and defined in ICTA. There would,
on the face of it, be benefits in using the same definition for
capital allowances. But the point was raised by only one person;
the definitions in ICTA are themselves being rewritten for the
second Tax Simplification Bill; and there is no evidence that
the lack of a statutory definition causes uncertainty in practice.
So this point is left for consideration for a later Tax Simplification
Bill or Finance Bill.
16. There is rarely one, single reason for not making
the changes listed in the Appendix. And the fact that the change
is not made does not necessarily mean that it was felt to be intrinsically
22 January 2001