FINANCE BILL 2001
AMENDMENT TO CLAUSE 83
Page: 56
Line:20
Mr Andrew Smith
Clause 83, page 56, line 20, at end insert-
?( ) Such a direction shall not be given unless the Board have reasonable grounds for believing as respects each payment to which the direction relates that it is likely that neither of the conditions specified in section 349B will be satisfied in relation to the payment at the time the payment in made.? ?
EXPLANATORY NOTE
SUMMARY
1. The purpose of the amendment is to clarify the circumstances in which the Board may exercise its power under new s349C ICTA 1988.
DETAILS
2. This amendment concerns new s349C ICTA, which is introduced by Clause 83 and provides the Board with the power to give a direction to a company restricting its right to pay gross under the rules in new s349A. A direction given by the Board will apply to any payment of the kind specified in the direction made by the company after the direction has been given.
3. The purpose of the amendment is to clarify the circumstances in which the Board may exercise its power under new s349C. It makes it explicit that the power may only be exercised where at the time of exercise the Board regards it as likely that:
- a payment or payments will subsequently be made,
- the payer may pay gross under the rules in new s349A, but
- at the time of payment neither of the conditions in new s349B for payment gross will be satisfied
4. The Government is bringing forward this amendment in response to Opposition amendment 44 which was designed to achieve the same result but the actual wording of which would have frustrated the purpose of s349C.
BACKGROUND
5. In their responses to the Budget Day press release, some of the representative bodies expressed concern that the Revenue might use the s349C direction power indiscriminately, thus undermining the deregulatory effect of Clause 83. The ICAEW's representations suggested expanding s349C(1); their wording was identical to Opposition amendment 44.
6. This wording would have restricted the Board's power to act for the future on the basis of beliefs about present circumstances. But the whole point of the new power is to act against future payments which should not be paid gross on the basis of future circumstances.
7. It would also have restricted the Board to acting where it had a reasonable belief that the conditions for gross payment are not met, preventing action on suspected abuse where the information available was insufficient to form a reasonable belief.
NOTE FOR MINISTER (NOT FOR CIRCULATION)
SPEAKING NOTE
8. This Government amendment is intended to achieve the result aimed at in Opposition amendment 44. That amendment sought to limit the circumstances in which new section 349C may apply.
9. Section 349C is a necessary protection for the Exchequer against abuse of the gross payment rules in section 349B. It allows the Board of Inland Revenue to issue a direction to a company requiring it to deduct income tax from certain payments it makes.
10. Amendment 44 was intended to spell out that the Board should only give directions where it reasonably believed the conditions for making payment gross were not satisfied. We agree that the Board's power should be limited in this way - in fact we believe it was implicit in the wording. But we accept that this should be made explicit.
11. Nevertheless, the way amendment 44 was drafted would have frustrated the purpose of section 349C. That is why we have tabled an alternative form of wording which achieves the desired result.
12. I ask the Committee to accept this amendment.
DEFENSIVE NOTES
How is amendment 44 defective?
It focuses on whether conditions for gross payment are satisfied at the time the Revenue is deciding, not (subsequently) when the payments are made
The Revenue may believe an abuse is likely without having full information to form a reasonable belief
Why is Government bringing amendment at this late stage?
Grateful to Opposition for bringing this point to our attention
But ICAEW pointed out problem in plenty of time
We believe the limitation was implicit in the original wording
[If pressed]
We need to ensure the policy intention is set down properly.