House of Lords - Explanatory Note
Income Tax (Earnings And Pensions) Bill - continued          House of Lords

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Paragraphs 79 and 80

3737.     These paragraphs, which relate to clause 536 and 537 respectively, reflect the fact that the amendments made to the EMI code by Schedule 14 to FA 2001 have effect only after the passing of that Act.

Paragraph 81

3738.     This paragraph ensures that the revised wording of clause 540 will work satisfactorily in connection with options granted before 6th April 2003.

Paragraph 82

3739.     This paragraph reflects changes in statutory references in clause 541 (effects on other income tax charges). The changes apply to the provision that sets out the relief in the calculation of a charge on conditional and convertible shares.

Paragraph 83

3740.     This paragraph ensures that the new sub-paragraph 41(6) of Schedule 5 applies to replacement options whenever granted.

Paragraph 84

3741.     This paragraph provides for continuity in the definition of "employee" for the purposes of Chapter 11 of Part 7 of this Bill (employee benefits trusts).

Part 8: Approved profit sharing schemes

Paragraph 85

3742.     This paragraph ensures that the requirement for trustees to notify a participant of the facts relating to his tax liability will have effect after 5th April 2003 in a modified form to reflect the new language introduced in this Bill.

Paragraph 86

3743.     This paragraph preserves the capital gains tax advantages that are available where the trustees of an approved share incentive plan acquire shares from the trustees of an approved profit sharing scheme. It is derived from paragraph 103 of Schedule 8 to FA 2000 and is not being rewritten in Schedule 2 because of the phasing out of APS schemes (see the notes relating to paragraph 26 of Schedule 6 to the Bill).

Paragraph 87

3744.     An individual who participates in any of the share schemes etc dealt with in Schedules 2 to 5 of this Bill must not have a material interest in the company in question. This paragraph provides that, in calculating whether or not such an individual has such a material interest, the interest of the trustees of any approved profit sharing scheme in any shares in the company which have not been appropriated to an individual are to be disregarded, as are any rights exercisable by the trustees as a result of that interest. The provision made by this paragraph has been placed in this Schedule because approved profit sharing schemes are being phased out (see section 49 of FA 2000 and the notes relating to paragraph 26 of Schedule 6 to the Bill).

Part 9: Social security income

Paragraph 88

3745.     This paragraph has effect if, in relation to certain provisions (listed in sub-paragraph (3)), the repeals made by the Tax Credits Act 2002 have not come fully into force.

Part 10: PAYE

Paragraph 89

3746.     This paragraph derives from part of section 203(10) of ICTA which provides part of the powers for PAYE regulations to deal with electronic filing. Sections 132 and 133 of FA 1999 introduced new powers to provide for use of electronic communications. As a consequence part of section 203(10) will be repealed by Schedule 20 to FA 1999 when a Treasury order is made under section 133(4) of that Act. Clause 684(2), item 5, anticipates this repeal. This paragraph preserves the position until the order is made.

Part 11: Consequences for corporation tax

Paragraphs 90 to 92

3747.     These paragraphs explain how this Bill will have effect for the purposes of corporation tax.

3748.     A company's accounting period affected by the provisions of this Bill may straddle the beginning of the tax year 2002-03. Paragraph 91 provides that in such a case, the company may elect for the law as it stood before 6th April 2003 to apply for the duration of that straddling accounting period.

3749.     Most transitional provisions made by this Schedule operate by reference to 6th April 2003 (the beginning of the tax year 2003-04) which is the date on which the Bill will first have effect for income tax purposes. Paragraph 91 provides that, in a case where this Bill applies for a company's accounting period that begins before 6th April 2003, those transitional provisions will instead operate by reference to the beginning of that accounting period.

3750.     Paragraph 92 provides the one exception to this: the existing provisions about corporation tax deductions in relation to SIPs, SAYE option schemes and CSOPs (Part 12 of Schedule 8 to FA 2000 and section 84A of ICTA) will continue to operate until the provisions of this Bill come into force on 6th April 2003, regardless of when the company's accounting period begins.


3751.     This Schedule contains repeals and revocations. Part 1 of the Schedule lists the enactments repealed, and Part 2 the subordinate legislation revoked.


3752.     The Bill will not require any additions to previously planned expenditure. Revision of guidance for users and for staff will be undertaken as part and parcel of the process of improving such material and keeping it up to date in response to new legislation and other changes. The minor changes in the law in the Bill are expected to have negligible effect on tax revenues.


3753.     The Bill will not require any increase in the number of staff in the Inland Revenue or other departments.


3754.     A regulatory impact assessment of the effects of the Bill is available at or from Simon Williams, Tax Law Rewrite Project, Inland Revenue, Room 831, Bush House, South West Wing, London WC2B 4RD (telephone +44 (20) 7438 7921).

3755.     In summary the Bill is expected to benefit four groups of people: tax practitioners, taxpayers, employers and the Inland Revenue. The benefits can broadly be summarised as follows:

  • less time should have be expended deciding what the law is, and fewer errors caused by misunderstanding of the law;

  • there should be fewer issues on which time and money has to be spent getting specialist advice;

  • there should be fewer queries from clients to their advisers and from advisers or taxpayers to the Inland Revenue. In consequence there should be fewer discussions and disagreements with the Inland Revenue about the meaning of legislation and this should lead to less litigation.

3756.     In addition:

  • practitioners and employers coming new to the legislation will find it easier to understand and learn; and

  • greater ease of use for practitioners and employers could result in lower costs both in the context of compliance and advice.

3757.     There will be some one-off costs to business: there will be retraining costs for practitioners and commercial publishers, and software suppliers will need to update their products.


3758.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined in section 1 of that Act). The Lord McIntosh of Haringey has made the following statement:

    "In my view the provisions of the Income Tax (Earnings and Pensions) Bill are compatible with the Convention rights."


3759.     The Bill comes into force on 6th April 2003. Clause 724 provides for it to have effect:

  • for the purposes of income tax, for the year 2003-04 and subsequent tax years; and

  • for the purposes of corporation tax (where the provisions of this Bill are used to compute profits for corporation tax purposes of corporate office-holders), for accounting periods ending after 5th April 2003.

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Prepared: 17 February 2003