HMRC have published details of the new Income Tax Act 2007 (ITA), which came into force on 6 April 2007.
ITA rewrites most of the remaining income tax provisions in the Income and Corporation Taxes Act 1988 (ICTA). Both the Income Tax Earnings and Pensions Act 2003 (ITEPA) and the Income Tax Trading and Other Income Act 2005 (ITTOIA) feed into the core provisions rewritten in ITA (for example into the calculation of income tax liability in Part 2 of the new Act) and together they complete the project’s work on the rewrite of the income tax legislation.
In the main, ITA does not change the effect of the law but it does correct some minor anomalies and incorporates a number of extra-statutory concessions and accepted practices into the legislation.
The Act has no direct application to corporation tax, but where provisions previously applied to both income tax and corporation tax those provisions have been amended so that they now apply to corporation tax only.
A key feature of the ITA is the tax calculation. This sets out how amounts liable to income tax and eligible for relief are brought together to arrive at the measure of a person’s income tax liability. The calculation provides a focal point for not only the income tax provisions in ITA but also those in ITEPA and ITTOIA.
A significant simplification is the abolition of the concept of “charges on income” with relief for allowable payments now given as a deduction from income.
ITA continues the process of greater separation of the income tax and corporation tax codes, not least in relation to the general definitions found in Part 16 of the Act. ITA also makes necessary consequential amendments to the source legislation.
ITA is made up of 17 Parts and 4 Schedules. These are summarised as follows:
| Part | Title | Summary |
1 | Overview | Overview to the Income Tax Acts as a whole and to ITA itself. |
2 | Basic provisions | Rewrites the charges to income tax, rates of income tax and the calculation of income tax liability. |
| 3 | Personal reliefs | Rewrites personal allowances and blind person’s allowance, tax reductions for married couples and civil partners and other general provisions e.g. residence of claimants, indexation of allowances, etc. |
| 4 | Loss relief | Rewrites rules relating to trade losses, losses from property businesses, losses in an employment or office, losses on disposal of shares and losses from miscellaneous transactions. |
| 5 | Enterprise Investment Scheme | Rewrites the entitlement to tax reductions in respect of amounts subscribed by individuals for certain shares. The requirements for the investor and for the company are set out in separate chapters followed by the various supplementary provisions. |
| 6 | Venture Capital Trusts (VCT) | Rewrites the entitlement to tax reductions in respect of amounts subscribed by individuals for shares issued by VCTs.). The requirements for the investor, for the VCT and for the company invested in are set out in separate chapters followed by supplementary provisions. |
| 7 | Community Investment Tax Relief (CITR) | Rewrites the entitlement to tax reductions in respect of amounts invested by individuals in community development finance institutions. This Part also contains other CITR related provisions. |
| 8 | Other reliefs | Rewrites the relief rules for interest payments, gift aid, gifts of shares, securities and property to charities, annual payments and royalties, qualifying maintenance payments and other miscellaneous payments. |
| 9 | Special Rules about Settlements and Trustees | Brings together and rewrites the special rules that apply to settlements and trustees. It also covers the special rates for trustees' income, trustees' expenses and share incentive plans. |
| 10 | Special Rules about Charitable Trusts | Rewrites the rules that apply to gifts and payments made to charitable trusts. It also contains the rules about exemptions, claims, restrictions, non-charitable expenditure, donor transactions, approved investments and loans and carry-back of excess non-charitable expenditure. |
| 11 | Manufactured Payments and Repos | Rewrites the rules on the income tax treatment of some arrangements for the transfer of securities. It contains the rules on manufactured payments, tax credits, deemed manufactured payments, price difference under repos and powers to modify repo provisions. |
| 12 | Accrued Income Scheme | Rewrites the rules about the accrued income scheme. It covers accrued income profits and exemptions relating to interest on securities. |
| 13 | Tax Avoidance | Rewrites the rules for counteracting income tax advantages obtained by persons engaging in various transactions. It includes transactions in securities, transfer of assets abroad, transactions in land, sales of occupation income and avoidance involving trading losses. |
| 14 | Income Tax Liability: Miscellaneous Rules | Rewrites various miscellaneous rules for income tax liability. It includes the rules for limits on the liability to income tax on non-UK residents, certain rules about residence, provision about jointly held property and other miscellaneous rules for a variety of bodies. |
| 15 | Deduction of Income Tax at Source | Rewrites rules for deduction of income tax at source. In particular it includes rules about deduction by deposit-takers and building societies, deduction from certain payments of yearly interest, deduction from payments in respect of building society securities and deduction from payments of UK public revenue dividends. It also covers the exceptions for payments between companies, specific rules about unauthorised unit trusts and the rules for collection of the tax involved. |
| 16 | Definitions | Definitions of various terms and meanings of various words used in the Act. It also contains other Income Tax Acts provisions |
| 17 | Definitions for purposes of Act and final provisions | Various definitions for the purposes of the Act and final provisions. |
| Schedules | The four Schedules are:
|
ITA is the fourth Act produced by the Tax Law Rewrite project. It was preceded by:
- the Capital Allowances Act 2001 (CAA),
- the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which rewrote Schedule E; and
- the Income Tax (Trading and Other Income) Act 2005 (ITTOIA), which rewrote Schedules A, D and F for income tax.
The project plans to turn next to the rewrite of corporation tax (CT). It is expected that the CT legislation will be rewritten in two Acts. The first Act will comprise largely of charging provisions similar to those rewritten in ITTOIA for income tax. This Act should take effect from April 2009.
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