47/98

8 April 1998

Publication of the Finance (No.2) Bill 1998

Proposals to reward work, promote enterprise and support families are contained in the Finance Bill published today.

The Bill, once enacted, will take forward the 1998 Budget measures to reform the tax and benefit system, promote fairness in tax and spending, and remove barriers to enterprise and growth for business.

Financial Secretary Dawn Primarolo said:

"The Budget set out to provide opportunities and help realise ambitions. It is a Budget giving real hope to all, especially to those whose needs have, in the past, been ignored - women, children, the disabled, and the environment. This Bill will provide the means for a fairer, more inclusive society."

The attached background notes briefly describe the clauses and schedules in the Bill. More detailed explanatory notes on clauses are available from HM Treasury (see Notes for Editors).

Notes for editors

1. Copies of the Finance Bill are on sale to members of the public at all bookshops of the Stationary Office (Tel: 0207 873 9090) from Wednesday 8 April. The price of the Finance Bill will be 19.75 Pounds.

External links

The Bill

Chapter II

Taxation of chargeable gains

Rate for trustees

Clause 118 introduces a uniform rate for the capital gains of all UK resident trusts and personal representatives of deceased persons. The rate is set at the "rate applicable to trusts", currently 34 per cent, for gains arising in 1998/99 and subsequent years (*IR18)

Taper relief and indexation allowance

Clause 119 and Schedules 20 and 21 introduce, for 1998/99 and subsequent years, a taper relief for the capital gains of individuals, trustees and personal representatives of the estates of deceased persons. The taper reduces the gain which is charged to tax according to the length of time the asset has been held on the basis of the table in the clause. The amount of taper relief also depends upon whether the asset has been held as a business asset or a non-business asset. The taper operates on net gains after the set off of losses. Schedule 20 inserts a new schedule (A1) into the Taxation of Chargeable Gains Act 1992.

Schedule A1 contains the rules for determining how long an asset is treated as having been held and whether an asset qualifies as a business asset at any time. Schedule 21 makes amendments to the existing provisions in TCGA, consequent upon the introduction of taper relief (*IR16)

Clause 120 "freezes" indexation allowance for periods after April 1998 for assets held at 1 April 1998, indexation allowance is computed up to April 1998, but not for periods thereafter. The loss of indexation allowance after April 1998 is compensated for by the tapering of the capital gain for periods for which the asset has been held after 5 April 1998 (subject to an additional 1 year for assets held prior to 17 March 1998) (*IR16)

Pooling and identification of shares etc.

Clause 121 for acquisitions of shares on or after 6 April 1998, abolishes pooling under which all acquisitions are treated as a single asset with an average cost per share. Pooling, which does not require retention of the details (cost and date) of individual share acquisitions, is inconsistent with a system which tapers the gain according to the period for which the shares have been held (*IR16)

Clause 122 introduces a new section 106A into the Taxation of Chargeable Gains Act 1992. Section 106A sets out new rules for identifying disposals of shares or securities with particular acquisitions. They include the provision to counter "bed and breakfasting" which matches disposals with acquisitions in the 30 days after disposal. The new rules apply for disposals on or after 6 April 1998 except for the bed and breakfasting rule which applies to disposals on or after 17 March 1998. (*IR16 and 21).

Clause 123 introduces the changes to the rules on existing share pools to deal with freezing of indexation. Subsection (1) introduces a new section 110A into the Taxation of Chargeable Gains Act 1992 which, for individuals etc. will allow indexation allowance to be computed on the share pool up to April 1998, but not thereafter. The existing rules (in section 110 TCGA 1 992) will, in future, apply to just the capital gains of companies. The remainder of the clause makes consequential amendments. These changes apply to disposals on or after 6 April 1998. (*IR16)

Stock dividends

Clause 124 provides revised rules for stock dividends - the receipt of a dividend by the issue additional shares rather than cash. Such shares, when issued on or after 6 April 1998, will be treated as free-standing acquisitions, not reorganisations of share capital. Any gain on a disposal of shares acquired as a stock dividend will therefore be tapered by reference to the period from that acquisition to the disposal of the shares (*IR16)

Non-residents etc.

Clause 125 provides for capital gains tax to be charged on gains made by individuals during a period of temporary residence outside the United Kingdom of less than five complete tax years. Gains made after the tax year of departure will be chargeable in the tax year when UK residence is resumed. The charge applies to individuals who leave the UK for tax residence abroad on or after 17 March 1998. However, gains on assets acquired by taxpayers whilst resident outside the UK will not be included in the new charge. (*IR20)

Clause 126 removes an exemption for gains made on the disposal of an interest by a beneficiary in a trust where his interest is in, or originates from, a trust which has ever been an offshore trust. Gains realised on the disposal of an interest in, and originating from, a trust which has always been resident in the United Kingdom will continue to be exempt from capital gains tax. As announced by the Financial Secretary in a written answer to a Parliamentary Question, this measure has effect for any disposals on or after 6 March 1998. (*IR39 and IR press release of 6 March 1998)

Clause 127 ensures that there will be no double charge to capital gains tax on gains arising to the trustees of an offshore trust as a consequence of the new charge under clause 125. It does this by reducing the gains which fall to be charged on the settlor on return to the UK after a period of temporary residence abroad by the amounts of those gains which have been charged on UK resident beneficiaries of the settlement during that period. (*IR20)

Clause 128 brings gains made by an offshore trust set up by a person who is not resident or domiciled in the UK within a charge on UK domiciled and resident/ordinarily resident beneficiaries who receive capital payments from the trust. This will apply in respect of gains realised, and capital payments made to beneficiaries, on or after 17 March 1998. (*IR39)

Clause 129 and Schedule 21 bring gains made by an offshore trust from which the settlors grandchildren, or their spouses, can benefit within a charge on the UK domiciled and resident/ordinarily resident settlor of the trust. This will apply to trusts created on or after 17 March 1998, but not to existing trusts unless, broadly, funds are added or the trust migrates. The charge will only apply in respect of gains made by the trust on disposals on or after 17 March 1998. (*IR39)

Clause 130 and Schedule 22 brings gains made by offshore trusts set up before Budget Day 1991 within a charge on the UK domiciled and resident/ordinarily resident settlor of the trust where he, members of his immediate family, or companies they control, can benefit from the trust. The clause will apply in respect of gains made after 5 April 1999, allowing a transitional period for those affected to re-organise their affairs if they so wish. The charge will not apply where the only members of the settlor s family who can benefit from the trust are children under the age of 18 unborn children or future spouses of the settlor or of the settlor s children. Schedule 22 provides rules to prevent exploitation of the transitional period, ending on 5 April 1999, provided under clause 128 in relation to trusts created before 19 March 1991. Gains made by such trusts during the transitional period will be chargeable on the UK domiciled and resident/ordinarily resident settlor of the trust as gains accruing to him or her on 6 April 1999 if the settlor, his immediate family, or companies they control, can benefit from property or income in, or originating from, the trust at the end of the transitional period. The Schedule also contains provisions to ensure that gains realised during the transitional period are not chargeable twice: for example, on both a beneficiary of the trust during the transitional period and on the settlor at the end of it.(*IR39)

Groups of companies etc.

Clause 131 provides that, where a company becomes an investment trust, any deferred capital gain or loss on assets which it has acquired in the previous 6 years under the special rules for the transfer of assets within a group of companies will be brought back into charge. This is to prevent groups of companies from exploiting the capital gains exemption for investment trusts. The clause will have effect where a company becomes an investment trust on or after 17 March 1998. (*IR34)

Clause 132 provides that there will be no deferral of the capital gain or loss when assets are transferred as part of a scheme of reconstruction or amalgamation to a Venture Capital Trust. This is to prevent companies from exploiting the capital gains exemption for VCTs. Where a company that has received assets under a scheme of reconstruction subsequently becomes a VCT, any deferred gain or loss will be brought back into charge. The clause will have effect for transfers of assets, or for companies which become VCTs, on or after 17 March 1998. (*IR34)

Clause 133 provides that the special rule which defers the capital gain or loss on the transfer of an asset within a group of companies will not apply to transfers made by or to a Venture Capital Trust. This is to prevent groups of companies from exploiting the capital gains exemption for VCTs. Where a company that has acquired an asset under this rule becomes a VCT within the following 6 years, any deferred gain or loss will be brought back into charge. The clause will have effect for transfers of assets, or for companies which become VCTs, on or after 17 March 1998. (*IR34)

Clause 134 ensures that incorporated friendly societies are within the definition of a company for the capital gains group rules. The special rule which defers the capital gain or loss on the transfer of an asset within a group of companies will not, however, apply in relation to incorporated friendly societies tax-exempt business. The clause will have effect from 17 March 1998. (*IR34)

Clause 135 and Schedule 24 restrict the losses that a company may set against capital gains that arose before it joined a group of companies. This is to prevent losses from reducing gains that have arisen on assets held in different economic ownership. The Schedule provides that capital losses that a company realises after it has entered a group may only be set against pre-entry gains to the extent that the losses arose on assets which the company, or an associated company, held at the time of entry. Special rules apply to the deemed disposals by life assurance companies at the end of each accounting period of certain holdings in unit trusts and offshore funds. The clause will have effect from 17 March 1998. (*IR34)

Clause 136 strengthens the existing rules for restricting the set-off of pre-entry capital losses when a company enters a group of companies. It provides that, where a company joins two groups of companies in the same accounting period, these restrictions will always apply to both groups. This is to prevent both the existing rules and the new rules introduced by clause 136 from being circumvented. The clause will have effect for accounting periods ending on or after 17 March 1998. (*IR34)

Clause 137 amends the existing charge to tax in certain circumstances where, following the transfer of an asset between companies in the same group, the two companies leave the group together to become members of a second group. This rule, which applies when the two groups are under common control, prevents a loss of tax where one of the companies subsequently leaves the second group. This clause widens the test of common control so that it will apply whenever it is exercised by any person or persons. The change will have effect from 17 March 1998. (*IR34)

Abolition of reliefs

Clause 138 provides for the phasing out of capital gains tax retirement relief from 6 April 1999. The thresholds for the relief - providing for full exemption on the first slice of qualifying gains and half-exemption on the next slice - will be reduced annually for the years 1999-00 to 2002-03, so that the relief will cease to be available from 2003-04. (*IR17)

Clause 139 withdraws capital gains tax reinvestment relief for acquisitions made on or after 6 April 1998, and withdraws loss relief on loans made to companies in the form of qualifying corporate bonds for loans made on or after 17 March 1998. (*IR13)

Part IV

Inheritance tax etc.

Clause 140 and Schedule 25 introduce measures intended to strengthen the rules for conditional exemption for heritage assets. For tax charges arising on or after Budget day, any claim for exemption must usually be made within two years after the transfer or other event giving rise to the tax charge. For claims for exemption made on or after the date of Royal Assent, chattels (other than those closely associated with a heritage building) must be of pre-eminent quality. For undertakings given on or after the date of Royal Assent, the option for owners to give public access to tax exempt assets only by prior appointment will cease. For existing undertakings involving public access only by prior appointment, the Inland Revenue will be able to secure extended access by agreement with the owner or with the consent of a Special Commissioner. The terms of undertakings given on or after the date of Royal Assent may later be changed with the agreement of the owner or with the consent of a Special Commissioner, and the owner may be required to disclose information about the exempt assets, for example their location and tax status. (*IR31)

Clause 141 abolishes the inheritance tax exemption for gifts and bequests to approved non-profit-making bodies, which has for practical purposes been superseded by the general tax exemption for transfers to charities. The clause will apply to transfers made on or after Budget day. (*IR31) Clause 142 introduces a two-year time limit for claiming inheritance tax relief for transfers of assets to approved trust funds for the maintenance of qualifying heritage property. The time limit may be extended by the Inland Revenue and it will apply to claims in respect of transfers made on or after 17 March 1998. (*IR31)

Clause 143 changes the Inland Revenue s own accounting procedures in order to simplify the administration, within Government, of the scheme under which certain heritage assets may be accepted in satisfaction of tax. For acceptances made on or after 1 April 1998, the change will apply to accounts rendered on or after such date as the Treasury may appoint. (*IR31 and DCMS 44/98, 17/3/98)

Part V

Other taxes

Insurance premium tax

Clause 144 and Schedule 27 Part V(1) extends the higher rate of insurance premium tax (17.5 per cent) to all taxable travel insurance contracts, with effect from 1 August 1998. Consequential repeals in Schedule 6A to the Finance Act 1994 are made in Schedule 27 Part V(1)to this Act. (C&E 9).

Clause 145 and Schedule 27 Part V(1) amends section 52A of the Finance Act 1994 [taxable intermediaries] so that, with effect from 1 August 1998, this measure, which prevents avoidance of the higher rate of insurance premium tax, applies to all insurers and intermediaries involved in the provision of travel insurance. Consequential repeals in section 52A of the Finance Act 1994 are made in Schedule 27 Part V(1) (C&E 9).

Landfill Tax

Clause 146 amends the Provisional Collection of Taxes Act 1968 to include landfill tax, so that future changes in rates can be implemented by resolution pending Royal Assent to the Finance Bill. (C&E 19) Stamp duty Clause 147 increases the rates of stamp duty for transfers of land and buildings where the price, or "consideration", exceeds 250,000 Pounds. Where the price exceeds 250,000 Pounds but not 500,000 Pounds the new rate will be 2 per cent (previously 1.5 per cent) and transfers at over 500,000 Pounds will be charged at 3 per cent (previously 2 per cent). These changes apply to instruments executed on or after 24 March, except where an instrument is executed in pursuance of a contract made on or before 17 March (Budget Day). (*IR23)

Petroleum revenue tax etc.

Clause 148 makes three technical changes to the legislation dealing with the valuation of gas for tax purposes. Gas extracted from the UK or the UK Continental Shelf, which is not disposed of at arm s length, has to be valued. All three changes correct actual or potential defects which have recently been identified in the legislation. The clause is aimed at ensuring that the legislation can continue to be interpreted in the way in which it has previously been applied by the industry and Inland Revenue and that the original objective of the legislation is met. The changes apply to past as well as future disposals. (*IR15 and IR press release of 4 December 1997)

Gas levy

Clause 149 abolishes the gas levy with effect from 1st April 1998 and reduces the rate for the levy year 1st April 1997 to 31st March 1998 from four pence per therm to three pence per therm. (*DTI P/98/208) Dumping duties Clause 150 and Schedule 27 Part V(3) repeals the Customs Duties (Dumping and Subsidies) Act 1969, and some consequential sub-sections of the 1978 Finance Act, which has been replaced by equivalent and directly applicable Community Law, and is therefore no longer required. The repeals are listed in Schedule 27 Part V(3).

Part VI

Miscellaneous and supplemental

Fiscal stability

Clauses 151 and 152 provide for a code for fiscal stability. The purpose of the code is to improve the conduct of fiscal and debt management policies by specifying the principles that shall guide their formulation and implementation and by strengthening the reporting requirements incumbent on the Government.(*HMT2).

Government borrowing

Clause 153 is a technical provision that clarifies the basis on which the Treasury can hold its own securities. This is relevant to schedule 24, a key feature of which involves the Treasury holding its own securities in the new Debt Management Account.

Clause 154 replaces the Bank of England with the Treasury, either directly or through an agent, as the authorised issuer of Treasury bills.

Clause 155 gives effect to schedule 24, establishing the Debt Management Account.

Clause 156 provides for the extension of the "free of tax to residents abroad" (FOTRA) status - which currently only applies to some gilts - to all non-FOTRA gilts with effect from 6 April 1998. (*IR27)

Clause 157 amends the statutory accounting year for which the National Savings Bank accounts for ordinary and investment deposits from a calendar year to a financial year. It also amends the date by which statements must be delivered to the Comptroller and Auditor General from the end of the following May to the end of the following August.

The European single currency

Clause 158 provides for the introduction of a general enabling power which will allow tax changes that are needed as a result of the adoption of the single currency in other Member States to be made by regulation. The enabling power will cover all taxes for which the Inland Revenue is responsible. It will provide scope to change the law to prevent unintended tax charges arising when EMU starts and to facilitate the use of the Euro by business.(IR press release of 21 January 1998)

Supplemental

Clause 159 Interpretation.

Clause 160 Repeals.

Clause 161 Short title.

Press Notices 1998 January to June Index

Part II

Value Added Tax

Clause 21 extends the VAT charge on the free disposal of goods to cases where the goods were obtained VAT-free as part of a business transfer and a previous owner was entitled to reclaim VAT on their purchase. This change is effective from 17 March 1998. (C&E 8)

Clause 22 relates to services which are treated as supplied in the United Kingdom, by virtue of an Order made on or after 17 March 1998, where those services would otherwise have been treated as supplied outside the scope of VAT. The clause counters certain tax avoidance schemes by varying the time at which certain payments, made in respect of the services described in such an Order, are deemed to have been received. It ensures that payments which are received before the commencement date specified in the Order, but which relate to services performed on or after that date, cannot be used to manipulate the rules which determine when a supply is treated as made so as to avoid VAT. (C&E 8)

Clause 23 extends the VAT Bad Debt Relief scheme to barter transactions (payment in kind). (C&E 3)

Clause 24 amends the VAT Act 1994, the main effect of which will be to enable 20 year leases of housing in Scotland to be zero-rated for VAT. (C&E 2)

Part III

Income tax, corporation tax and capital gains tax

Chapter I

Income tax and corporation tax

Income tax charge, rates and reliefs

Clause 25 This clause establishes the income tax charge for 1998/99 and sets the rates of tax at 20 per cent (the lower rate), 23 per cent (the basic rate) and 40 per cent (the higher rate). (*IR1)

Clause 26 This clause extends the Additional Personal Allowance, which can be claimed by a married man whose dependent child and totally incapacitated wife live with him, to married women in equivalent circumstances. The change is backdated to 6 April 1997. (*IR1)

Clause 27 This clause makes changes to the Married Couple s Allowance starting in 1999/2000. The rate of relief for the Married Couple s Allowance is to be reduced from 15 per cent to 10 per cent. The change also applies to the allowances linked to the Married Couple s Allowance

the Additional Personal Allowance, Widow's Bereavement Allowance and relief for maintenance payments. The extra allowances available to married couples in which one partner is 65 years old or older, or 75 or older, will be increased to maintain their current value to elderly people. (*IR1)

Corporation tax charge and rates

Clause 28 charges corporation tax for the financial year beginning 1 April 1998 and sets

the main rate of corporation tax at 31 per cent and;
the small companies rate of corporation tax at 21 per cent. It also provides for a fraction of one fortieth to be used in calculating marginal relief (which eases the transition from the small companies to the main rate). (*IR 8)
Clause 29 charges corporation tax for the financial year beginning 1 April 1999 and reduces
the main rate of corporation tax from 31 to 30 per cent and;
the small companies rate of corporation tax from 21 to 20 per cent. It also provides for a fraction of one fortieth to be used in calculating marginal relief. (*IR 8)

Corporation tax: periodic payments etc

Clause 30 permits regulations to be made changing the date on which corporation tax is due from some companies. This will cover the introduction of a modern system for corporation tax payments, under which large companies will make quarterly instalment payments of corporation tax. Its introduction will be phased-in over a four year period, starting with large companies first accounting periods covered by self assessment (that is, their first accounting periods ending on or after 1 July 1999). There will be no change for small and medium-sized companies. (*IR9)

Clause 31 and Schedule 3 abolish advance corporation tax (ACT) as regards companies dividends paid (and other distributions made) on or after 6 April 1999 and contain various amendments and repeals of existing legislation as a consequence of the scrapping of ACT. (*IR9)

Clause 32 allows regulations to be made governing the recovery by set off against companies corporation tax liabilities on profits arising after the abolition of ACT of surplus ACT built up by them prior to 6 April 1999. (*IR9)

Clause 33 enables companies to obtain tax relief for interest on tax paid late for accounting periods falling within self assessment for companies (that is, for accounting periods ending on or after 1 July 1999). (*IR9)

Clause 34 charges corporation tax on interest paid to companies on tax overpaid, or corporation tax paid too soon, for accounting periods falling within self assessment for companies (that is, for accounting periods ending on or after 1 July 1999). (*IR9)

Clause 35 and Schedule 4

permit regulations to be made altering the earliest date from which interest on overpaid corporation tax, or corporation tax paid early, is paid to companies. These regulations will complement those to be made under clause 30, and bring forward the earliest date for all companies to the date for the first instalment payment of corporation tax by large companies;
provide that interest on income tax paid to companies will be paid from the day after the end of the accounting period, instead of nine months afterwards;
allow for the recovery without assessment of interest paid to companies where subsequent events show it ought not to have been paid;
maintain existing restrictions on the amount of interest paid to companies, or the amount by which interest due from companies is reduced, that apply where reliefs are carried back, in the light of the introduction of quarterly instalment payments of corporation tax by large companies; and
give a minor relief for companies in liquidation, so that the change caused by clause 34 does not cause unnecessary administrative difficulties for their liquidators.

These changes generally apply for accounting periods

falling within self assessment for companies (that is, for accounting periods ending on or after 1 July 1999). (*IR9)

Clause 36 allows the Inland Revenue to offer groups of companies the facility to pay their corporation tax on a group-wide basis, instead of company by company. This will help large companies with the switch from 1999 to payment of their corporation tax by quarterly instalments. (*IR9)

Gilt-edged securities

Clause 37 provides for the repeal of the powers under which regulations have been made to require persons receiving gilt interest gross to make periodic returns of such interest, generally quarterly, and to account for tax on it. The purpose behind the creation of this accounting regime (introduced in January 1996) was to limit the extent to which allowing gilt interest to be paid gross would affect the PSBR by delaying receipt of the tax. However, once quarterly instalment payments of corporation tax for large companies are introduced, the regime will be no longer needed and it will therefore be withdrawn from 1 April 1999. (*IR9)

Rents and other receipts from land

Clause 38 and Schedule 5 make changes to the corporation tax rules which apply to income from property in order to bring the rules into line with changes made for income tax in the FA 1995, yet effectively preserve the flexibility of current reliefs for corporate interest and management expenses. A few minor changes have also been made to the Schedule A income tax regime in the context of the Schedule A reform. The changes for corporation tax generally take effect from 1 April 1998. Those for income tax generally take effect from the tax year 1998/99. (*IR12)

Clause 39 provides for the repeal of Section 26 ICTA 1988(land managed as one estate) and Section 27 ICTA 1988 (an associated provision on maintenance funds for historic buildings) with effect from 1 April 2001 for corporation tax and from 6 April 2001 for income tax. Following consultation on the possible withdrawal of Section 26 it was decided that Sections 26 and 27 should not be kept, but to delay the withdrawal for three years so as to minimise the impact on those who currently benefit from them. (*IR12)

Clause 40 provides for changes to Section 34 ICTA 1988 on the treatment of premiums in order to clarify the timing of the charge to tax under Schedule A in respect of amounts treated as rent under Section 34 These changes take effect for both corporation tax and income tax purposes in respect of amounts treated as received under Section 34 on or after 17 March 1998. (*IR12)

Clause 41 amends Section 98 ICTA 1988 (which deals with the inclusion of trading profits of rent from a tied house) for corporation tax in line with changes made in FA 1995 for income tax purposes. It also makes changes for income tax and corporation tax to ensure that the new Section 98 applies to receipts or expenses left in the trading computation as if those sums were receipts or expenses of a Schedule A business. In addition Section 156 TCGA (which ensures that lessors of tied premises within Section 98 will not be excluded from capital gains tax roll over relief) is amended to reflect the redrafting of Section 98. The changes take effect on or after 17 March 1998 for both income tax and corporation tax. (*IR12)

Computation of profits of trade, profession or vocation

Clause 42 provides that profits of a trade, profession or vocation must be computed for tax purposes on a basis which gives a true and fair view, subject to any adjustments permitted or required by tax law. In effect this means that the cash basis is no longer available for those carrying on a profession or vocation. The Clause has effect for the first period of account beginning after 6 April 1999. (*IR29)

Clause 43 provides that barristers (advocates in Scotland) may compute their profits for tax purposes on a cash basis (or other basis that would have been acceptable under previous Revenue practice) for periods of account ending not more than seven years after they first commence in practice. (*IR29)

Clause 44 and Schedule 6 provide for the tax consequences of a change in accounting basis. An 'uplift is calculated, broadly recognising receipts (together with trading stock and work in progress) which might fall out of account on a change of basis, less expenses which might similarly fall out of account. The uplift, if positive, is charged to tax under Case VI and, if negative, is allowed as deduction in computing the profits of the business. This calculation replaces any existing rules on the tax consequences of a change in accounting basis. The Schedule also provides for the spreading of the uplift charge where a taxpayer carrying on a profession or vocation changes from a basis that would have been acceptable under previous Revenue practice (a 'cash or 'conventional basis) to a 'true and fair view basis. The uplift charge is spread over ten years; in the first nine years the amount charged to tax is one tenth of the total uplift or10 per cent of the taxable profits of the business for that year. (*IR29)

Clause45 defines 'period of account as any period for which accounts are drawn up. (*IR29)

Clause 46 and Schedule 7 contain minor and consequential provisions and replace the words 'profits or gains in the Tax Acts by 'profits. (*IR29)

Gifts to charities

Clause 47 provides relief for traders who donate trading stock for educational projects in the world s poorest countries, by excluding it as a trading receipt. Similarly, the disposal value of used plant and machinery donated to these causes will not be taxed. (*IR4)

Clause 48 provides relief under "Millennium Gift Aid" for charitable giving by individuals to help anti-poverty and educational projects in the world s poorest countries. Gift Aid relief is extended for this purpose to single donations of ?100. It will also be available for the first time when a series of gifts amounts to ?100 in total. Gifts will get relief from the start of the scheme later this year until 31 December 2000. (*IR4)

Employee share incentives

Clause 49 provides that there will be no income tax charge on the grant of a share option to an employee or a director if the option cannot be exercised later than ten years after grant. Currently there is no tax charge if the option cannot be exercised more than seven years after grant. This change will apply to share options granted on or after 6 April 1998. (*IR36)

Clause 50 provides that, where an employee or director receives shares on terms which mean they may later be forfeited, there shall not be an income tax charge when the shares are first acquired unless the shares can still be subject to the risk of forfeiture more than five years later. In addition the clause provides for a charge to income tax when the risk of forfeiture is lifted or, if sooner, when the shares are sold. The charge will be on the market value of the shares less deductions for any payment given for the shares, and for any amounts already charged to tax. The new provisions will apply to shares awarded on or after Budget day. (*IR36)

Clause 51 provides that, where shares are received as a result of employment, and the shares subsequently convert to shares of another class, there shall be a charge to income tax on the conversion. The charge will be on the market value of the new shares, less deductions for any amounts charged to tax when the shares were first received and for any payment made for the shares. The new charge will apply to conversions of shares received on or after Budget day. (*IR36)

Clause 52 introduces a requirement to supply the Inland Revenue with details of shares subject to forfeiture, received by an employee or director receives, when the risk of forfeiture is lifted or the shares are disposed of, and when shares received by an employee or director convert to another class of shares. The details must be submitted by the employer and, if different, the person providing the shares. (*IR36)

Clause 53 introduces provisions defining certain terms in Clauses 50 to 52, relating to the acquisition by an employee or director of shares subject to forfeiture, or convertible shares. (*IR36)

Clause 54 provides that where an employee or director receives shares subject to the risk of forfeiture, the acquisition cost for CGT purposes will be the amount paid for the shares, plus any amount charged to income tax when the risk of forfeiture is lifted, or the shares are sold. The clause also provides that any amount charged to income tax, when shares received by an employee or director convert to shares of another class, shall be added to the acquisition cost for CGT purposes. These changes will apply to disposals of shares acquired on or after Budget day. (*IR36)

Construction industry workers

Clause 55 provides that, from 6 April 1998, labour agencies who supply workers to the construction industry will normally be required to operate PAYE on payments they make to construction workers in the same way as for other workers whose services they supply (*IR30; IR Press Releases of 9 February 1998 and 25 September 1997)

Clause 56 sets out transitional measures for the change introduced by clause 55. These measures are intended to provide construction workers with some flexibility in relation to the impact which the change to PAYE may have on their ongoing construction activities. (*IR30; IR Press Releases of 9 February 1998 and 25 September 1997)

Clause 57 and Schedule 8 introduce various amendments to the new construction industry tax scheme. These provide a fairer basis for Government Departments and other non-construction bodies to be required to operate the scheme. Partnerships or companies will be able to adduce all construction income for one of the qualifying tests for gross payment certificates. Contractors will be able to send information electronically to the Inland Revenue's strategic IT partner. All existing gross payment certificates will be made invalid from the day when the new scheme commences. The clause and schedule will be given effect from 1 August 1999. (IR Press Release of 5 February 1998)

Payments and other benefits in connection with termination of employment etc.

Clause 58 and schedule 9 provide for payments and other benefits, in connection with termination of employment or change in terms of employment, to be taxable for the year in which they are received - rather than being treated as income of the year of termination or change, regardless of when they are received. The proposals apply to all such payments and benefits taxed under Section 148 of the Income and Corporation Taxes Act 1988 (ICTA).(*IR5)

Benefits in kind

Clause 59 provides for increases in the company car fuel scales. These scale charges apply where fuel is provided for private use in a company car. The clause provides that from 6 April 1998 the petrol scale charges are increased by 20 per cent over and above the usual increases in line with pump prices including fuel duty. The diesel scale charges are further increased to align them with those for petrol cars of the same engine capacity. This measure is intended to discourage employers from providing and employees from accepting free fuel so that more company car drivers face the full cost of the fuel they use for private motoring. (*IR6)

Clause 60 provides for the extra cost of enabling cars to run on road fuel gases to be disregarded when calculating the company car benefit charge. The clause provides that from 6 April 1999 the extra cost of adapting or manufacturing a car to run on road fuel gases (compressed natural gas or liquid petroleum gas) is not included in the calculation of the car benefit income tax charge. This measure means that employees will not be faced with higher company car benefit charges where their cars are capable of running on cleaner and greener road fuel gases. (*IR6)

Clause 61 and Schedule 10 simplify the tax treatment of employees' travelling and subsistence expenses. The changes mean that, from 6 April 1998, employees will be able to get tax relief for the full cost incurred in travelling in the performance of their duties or to get to or from a temporary workplace. It will not be necessary for employees to offset any savings they make through not undertaking their ordinary commuting journey. (IR press release of 8 April)

Profit-related pay

Clause 62 and Schedule 11 introduce a measure to prevent exploitation of the provisions to phase-out the income tax relief for profit-related pay (PRP). The Schedule prevents certain employees, who are in a registered PRP scheme, from obtaining a higher tax relief limit for a longer period by becoming a member of another scheme on or after 17 March 1998. It applies where the scheme employer of the two schemes is the same person or where the employers are connected. (*IR37)

Foreign earnings deduction

Clause 63 provides that the 100 per cent deduction for earnings from employment carried out wholly or partly abroad during a qualifying period of 365 days or more (the Foreign Earnings Deduction or FED) will be withdrawn for all but seafarers with effect from 17 March 1998. The definition of seafarers is clarified to exclude explicitly those employed on off-shore installations for oil/gas exploration or extraction. (*IR33)

PAYE: non-cash benefits etc.

Clause 64 requires that, where taxable income has, between 2 July 1997 and 5 April 1998, been provided to an employee in the form of an assignment of a trade debt and PAYE has not been accounted for , the employer must do so on or before 19 April 1998. (*IR32)

Clause 65 requires an employer to operate PAYE when taxable income is provided to an employee in the form of an asset which can be readily converted to cash. The clause provides a comprehensive definition of a readily convertible asset. Such assets include rights over a money debt, assets held "in bond" and assets which are likely to give rise to a right to obtain money. They also include assets for which trading arrangements are likely to come into existence in the future where those arrangements arise from an arrangement or understanding in place when the asset was awarded. The clause also extends the definition of trading arrangements and provides that PAYE must be operated on the best estimate that can reasonably be made of the income on which the employee is likely to be chargeable to tax in respect of the provision of the asset.(*IR32)

Clause 66 is designed to counter avoidance PAYE. It provides that PAYE must be operated where taxable income is provided by the enhancement of the value of an asset that the employee already owns and which, in its enhanced state, is an asset that can be readily converted to cash. The amount on which PAYE must be operated is the amount specified in Clause 65. (*IR32)

Clause 67 is designed to counter PAYE avoidance. It provides that where the exercise of a share option by an employee gives rise to a Schedule E tax liability, and the shares obtained can readily be turned to cash, PAYE must be operated. (This does not apply to the acquisition of shares on the exercise of an option granted under an Inland Revenue approved scheme or, in most cases, on the exercise of an option granted before 27 November 1996.) PAYE must also be operated where an income tax charge is imposed by Clauses 50-51 and the relevant shares can be readily converted to cash. The Clause also requires the operation of PAYE where a charge to tax under Schedule E arises on payments to employees, whether in cash or in assets that can readily be converted to cash, for giving up or not exercising a share option. (*IR32)

Clause 68 requires employers to operate PAYE where taxable income is provided to an employee in the form of a voucher which can be readily converted to cash, or which can be exchanged for an asset which can be readily converted to cash. Employers are also required to operate PAYE where a credit token (such as a credit card) provided to an employee is used to obtain an asset which can readily be converted to cash. PAYE must be operated at the time when the voucher is received, or the credit token used, by the employee. (*IR32)

Clause 69 ensures that where a worker brought within the tax rules for employees by the agency tax provisions is provided with taxable income in the form of an asset that can be readily converted to cash the agency is obliged to operate PAYE. The clause also provides that where an employee works for someone in the UK but is employed and paid by someone overseas the person in the UK for whom the work is done must operate PAYE in respect of any taxable income in the form of an asset which can be readily converted to cash.(*IR32)

For Clauses 65-69 the obligation to account for PAYE from 6 April 1998 takes effect on Royal Assent.

The enterprise investment scheme and venture capital trusts

Clause 70 Schedule 12 introduce one of the changes announced at the time of last Summer's Budget, which is intended to improve the targeting of the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) scheme by excluding some lower-risk activities.

These activities are:

farming and market gardening;
forestry and timber production;
property development;
operating or managing hotels or
comparable establishments; and
operating or managing nursing or residential care homes.

The new exclusions will apply to EIS shares issued on or after Budget Day (17 March 1998). For VCTs, the changes have effect from Budget Day in determining whether any shares and securities held by a VCT form a qualifying holding. They do not apply to shares and securities acquired with money raised before Budget Day. (*IR13)

Clause 71 introduces another of the targeting measures for the EIS announced at the time of last year s Budget. It excludes from the scheme arrangements that protect or guarantee the individual s investment and or set up disposal arrangements for the benefit of the investor.

Where any of these arrangements exist before or at the time the shares are issued, investors will not be eligible for the tax reliefs available under the scheme. This change will apply to shares issued on or after 2 July 1997. (*IR13)

Clause 72 introduces two measures announced in last Summer s Budget which are aimed at sharpening the focus of the VCT scheme. The measures work by extending the conditions which a fixed proportion of the investments made by a VCT must ; already satisfy if investors are to benefit from the available tax reliefs so that the investment must not include guaranteed loans and securities and at least 10 per cent of the total investment in any company must be in ordinary, non- preferential shares. Both changes will apply for accounting periods ending on or after 2 July 1997, subject to the exclusion of shares and securities acquired with money raised by the issue of VCT shares before 2 July 1997. (*IR13)

Clause 73 makes two small changes in the definitions of "eligible shares" and "qualifying subsidiary" for the purposes of the VCT scheme (in line with equivalent changes in the EIS). The changes have effect for the purposes of determining whether shares or securities are, at any time on or after 6 April 1998, part of a VCT s qualifying holdings. (*IR13)

Clause 74 and Schedule 13 amends the Enterprise Investment Scheme (EIS) and the Business Expansion Scheme (BES). The Schedule is in four parts. Part I makes changes to the EIS income tax provisions, including raising from ?100,000 to ?150,000 the annual limit for investment on which an individual can qualify for income tax relief. ; Part II amends the capital gains tax rules which apply for shares which qualify for EIS income tax relief. Part III substantially revises the rules which allow chargeable gains to be deferred where investments are made in EIS companies, incorporating many of the features of reinvestment relief. ; Most of the changes in these parts take effect for shares issued on or after 6 April 1998.

Part IV makes changes to the income tax and capital gain tax rules for the BES to align them with the new EIS rules which apply where shares are disposed of on or after 6 April 1998. (*IR13)

Individual savings accounts etc.

Clause 75 extends to individual savings accounts the powers currently available to make regulations in respect of personal equity plans. It also removes a power which requires a minimum holding period for investments and extends the powers to permit regulations for charging or recovering tax in connection with life insurance policies held within an account. (*IR2)

Clause 76 allows tax credits on dividends paid on UK equities between 6 April 1999 and 5 April 2004 to be payable to investors in respect of investments held in a personal equity plan or an individual savings account. It also permits regulations to be made which will preserve entitlement to a payable tax credit to investors who become non-resident after taking out a PEP or a new account. (*IR2)

Clause 77 allows regulations to be made for the individual savings account in connection with life insurance policies within the account and life insurers acting as managers for the life insurance component of the account. The regulations cover in particular exempting life insurers from tax on the investment return from business relating to the new account the payment of tax credits to them in respect of equities used to back policies in the account and the requirements for life insurers which are not resident in the UK. (*IR2)

Clause 78 prevents new tax-exempt special savings accounts (TESSAs) from being opened after 5 April 1999. (*IR2)

Relief for interest and losses etc.

Clause 79 deals with the rules which determine whether individuals can qualify for income tax relief on interest for loans used to acquire shares in close companies. It ensures that the rules will have the same effect whatever relief is claimed under the new unified Enterprise Investment Scheme (EIS). The modification will apply for shares acquired on or after 6 April 1998 where the person who acquires them, or his or her spouse, makes a claim for deferral relief in respect of those shares under the scheme. (*IR13)

Clause 80 amends the rules which allow individuals and investment companies to set capital losses on shares in unlisted qualifying trading companies against their taxable income. Under the new rules, which apply for shares issued on or after 6 April 1998, a company will be a qualifying trading company for the purposes of the relief if its activities are such that it could be a qualifying company for the purposes of the Enterprise Investment Scheme (EIS). In addition, the clause provides for the rules identifying which shares are disposed of to be brought in line with the corresponding EIS rules for disposals made on or after 6 April 1998. (*IR13)

Clause 81 corrects a drafting error in the group relief rules for consortiums that were included in the last Finance Act. The change is effective from 2 July 1997, which is the same as for those group relief rules. It will ensure that they work fairly, and as intended. (*IR41)

Clause 82 corrects an unintended effect of rules for certain types of losses that are incurred by property investment companies and others. The losses concerned are "loan relationship deficits" which occur when a company pays more by way of interest and other expenses relating to debt than it receives by way of interest and other profits relating to debt.

Capital allowances

Clause 83 This Clause makes first year capital allowances available to small and medium-sized businesses on investment in machinery and plant in the year ending 1 July 1999 at the rate of 40 per cent. (*IR10)

Insurance, insurance companies and friendly societies

Clause 84 and Schedule 13 provide that a gain on a policy of life insurance (and similar policies) held in a UK trust can be taxed as income of the trustees. A gain on a policy of life insurance etc. held in a foreign trust (or any entity that fulfils the same function as a trust) may be taxed as income of a UK resident to the extent that he or she receives a benefit from it. These charges will only arise if the gain is not taxable as income of the settlor. Previously, if the settlor was dead or non- resident no one was generally taxable due to a loophole in the legislation. Consequential changes are made to the rules for apportioning gains when two or more persons have an interest in a policy. The new rules apply to gains arising on or after 6 April 1998 except in relation to policies held in trust before Budget day, and not enhanced subsequently, where the settlor was dead before that day. (*IR38)

Clause 85 requires certain non-UK life insurers to have a tax representative based in the UK. The provision only applies to non-UK insurers who carry on a business which consists of or includes the provision of services under policies of insurance in the UK otherwise than through a branch or agency here. The representative will be responsible for providing information to the Inland Revenue about the chargeable event gains made by policy holders and will be personally liable if the correct information is not provided. The measure will take effect from Royal Assent but the first date by which an insurer has to have a tax representative will be fixed in regulations. The date will not be earlier than 1 April 1999. This will allow insurers sufficient time to make the necessary arrangements.. (*IR38)

Clause 86 provides that a gain on a policy of life insurance that is part of the 'Overseas Life Assurance Business of a UK insurer should be taxed at an individual s marginal rate. An individual may only take out one of these policies when he or she is residing outside the UK. The insurance company is not liable to tax in respect of the income and gains arising on the assets which back this type of policy. So, it is not appropriate to treat the policy holder as if basic rate tax on the gain has already been paid. (*IR38)

Clause 87 allows the Treasury to make regulations imposing an annual charge to tax on what is known as a 'personal portfolio bond (PPB). The regulations may also define these PPBs in detail. They are a type of life insurance policy (or similar policy) where the benefits are linked to a portfolio of assets that are personal to the holder. This type of bond can be used to defer or avoid tax. The provision will take effect from Royal Assent but the date of the first annual charge will be fixed in regulations and will be no earlier than 6 April 1999. This will allow PPB holders plenty of time to consider the detail of the regulations and to surrender the bond before the first charge arises, if they so choose. (*IR38)

Clause 88 provides for the payment of tax credits to friendly societies of 10 per cent in respect of dividends paid between 6 April 1999 and 5 April 2004 on UK equities held for the purposes of their tax exempt life assurance business. This is one of the measures to encourage savings and recognises the special role that friendly societies perform in encouraging small savings. (*IR2)

Clause 89 extends the period during which provisional repayments of income tax and payments of tax credits to life insurers in respect of their pension business can be recovered if they turn out to be excessive. The extension allows tax assessments that recover excess repayments to be made after the normal time limits if there is a delay in settling the insurer s tax affairs. This will prevent insurers from receiving an unintended and inappropriate benefit.

Pensions

Clause 90 Schedule 15 introduces provisions to strengthen the effectiveness of existing measures for deterring abuse of the pensions tax reliefs by certain small occupational pension schemes. The schedule extends the scope of the 40 per cent tax charge on scheme assets that applies when a scheme ceases to be tax approved and improves the arrangements for enforcing collection of this tax. This will include making controlling directors who are members of the scheme responsible for paying the tax due if the scheme administrator fails to pay. The Schedule also overrides the rules of schemes that are required to have an Inland Revenue approved independent trustee. It will normally no longer be possible for the independent trustee to be removed unless immediately replaced. The provisions of Schedule 14 generally apply from Budget Day. (*IR35)

Clause 91 makes small changes to the treatment of benefits received under a non-approved retirement benefits scheme to align more closely these rules and new rules applying to benefits received in connection with termination of employment. (*IR5)

Clause 92 introduces powers to make regulations relating to restrictions on the Board of Inland Revenue s discretion to approve a personal pension scheme. The provisions will apply when such regulations are made and the effect will be to require existing approved personal pension schemes to adopt the new tax approval conditions. This will bring the arrangements for controlling the benefits, investments and administration of personal pension schemes into line with those for occupational pension schemes. (*IR35)

Clause 93 introduces a 40 per cent tax charge on the value of assets attributable to personal pension arrangements which have their tax approval withdrawn on or after 17 March 1998. (*IR35)

Clause 94 will give the Inland Revenue improved information powers to examine the tax affairs of approved personal pension schemes and approved arrangements within those schemes. It brings the personal pensions regime into line with that applying to approved occupational pension schemes in this respect and will enhance the Revenue s ability to check compliance with the tax rules. (*IR35)

Clause 95 provides that, where the Inland Revenue is authorised to give a notice to the scheme administrator of a personal pension scheme, but there is at the time no administrator for that scheme (or no administrator who can be traced), the notice may be served on the person who established the personal pension scheme or that person s successor. (*IR35)

Clause 96 clarifies the identity of the person on whom notices of assessment may be served in respect of the various special tax charges applying to certain payments made by tax approved occupational and personal pension schemes. This clarification is deemed always to have had effect. In addition the clause confirms that these tax charges do not come within self-assessment. This aspect of the clause is backdated to the start of self- assessment.

Futures and options

Clause 97 applies a charge to tax on income under Case VI of Schedule D to certain transactions in futures and options which are structured in such a way as to produce a guaranteed return on the amount laid out. These returns are effectively equivalent to interest on an investment, but because futures and options are involved they would otherwise fall to be taxed only as capital gains, if at all. Last year s Finance Act applied this charge to transactions where the future or option contract was closed out before maturity. But a similar result can be obtained by allowing the futures contract to run to delivery or by exercising the option, and the clause extends the anti-avoidance rule so that it will apply in these circumstances as well. It takes effect from 6 February 1998, the day it was announced. (IR press release of 6 February 1998)

Securities

Clause 98 provides for the reduction of existing basic rate charges under the Accrued Income Scheme (AIS) to the lower rate of tax. The AIS acts to ensure that, when interest bearing securities are transferred, the buyer and seller are taxed only on the amount of interest which accrued during their period of ownership. The clause removes an anomaly which has existed in the AIS concerning the rate of charges and reliefs for basic and lower taxpayers, so that for these taxpayers, charges will be made and relief given at the same rate as interest.(*IR27)

Clause 99 provides for the repeal of two outdated provisions concerning the taxation of gilts, which provide for the deferral of profits and losses arising in connection with some specific types of gilt exchange for certain financial traders. Following the introduction of the 1996 loan relationships legislation these separate provisions are no longer needed. The clause also clarifies the scope of a related provision, which deals with exchanges of securities held as working capital. (*IR27)

Clause 100 confirms that payers and recipients of manufactured dividends (that is, payments representative of dividends and other distributions on UK equities) will no longer have to account for the equivalent of ACT on any manufactured dividend paid on or after 6 April 1999. The clause also contains measures designed to prevent tax avoidance via stock loans or repos (sale and repurchase agreements) which involve manufactured dividends paid by a borrower or interim holder on or after 6 April 1999, including cases where those manufactured dividends are representative of either real or manufactured dividends paid on or after the date of publication of the Finance Bill. (*IR9)

Double taxation relief

Clause 101 provides for amendments to the existing special rules contained in section 798 Income and Corporation Taxes Act 1988 which expressly prevent banks and other financial traders getting excessive relief against United Kingdom tax for foreign tax paid on overseas interest earned by them in the course of a trade. The revised rules extend the current restriction on interest to certain dividends earned by such traders and also cover, in some circumstances, similar income of their associates. (*IR40)

Clause 102 provides for amendments to the existing rules for adjusting for foreign tax the amount of the income to which the special rules in section 798, as amended by clause 101, apply. The amendments take account of the extension of these special rules for interest to cover certain dividends.(*IR40)

Clause 103 provides for amendments to the existing definition of "financial expenditure" as it applies for the purpose of the restrictions on the double taxation relief available to banks and other financial traders. It closes a loophole otherwise allowing taxpayers to minimise the restriction and updates the range of expenditure covered to take account of additional ways in which taxpayers raise funds. (*IR40)

Clause 104 provides for amendments to the rules which complement the restrictions on the double taxation relief available to banks and other financial traders by preventing the restrictions being side-stepped as a result of arranging for the interest to be received by an overseas subsidiary. The amendments take account of the extension of the current rules for interest to cover certain dividends. (*IR40)

Clause 105 introduces a requirement that taxpayers who have claimed relief for foreign tax must notify the Inland Revenue if there is an adjustment to the amount of foreign tax and this results in the amount of relief claimed becoming excessive. The obligation applies to adjustments made on or after Budget day. (*IR28)

Transfer pricing, FOREX and financial instruments

Clause 106 and Schedule 16 provide for new rules intended to modernise the transfer pricing legislation by bringing it within self assessment and more closely into line with the internationally agreed formulation of the arm s length principle in the OECD Model Tax Convention. The Government s purpose is that the legislation should be applied more fairly and consistently the changes follow extensive consultations with business. The Schedule contains a new basic pricing rule which is to be construed in accordance with the OECD Model and Guidelines. It also provides rules of interpretation and definitions, sets out certain exemptions, provides for compensating relief to prevent double taxation subject to certain conditions, and makes special provision for sales of oil, companies involved in UK oil and gas extraction and about appeals, while leaving undisturbed the existing rules for foreign exchange gains and losses and financial instruments, and for computing capital allowances and balancing charges, and capital gains and allowable losses, arising from transactions between connected persons. The new rules apply for chargeable periods ending on or after the appointed day for CTSA (1 July 1999). (*IR25)

Clause 107 removes the requirement for a direction to be made by the Board of Inland Revenue before certain anti- avoidance provisions can apply. The provisions concern the foreign exchange gains and losses legislation and the financial instruments legislation. The result is that when companies complete their tax returns they will need to consider whether the provisions apply.

Clause 108 requires that the Board of Inland Revenue give their sanction before certain adjustments to computation of profits or losses can be made by officers of the Board. The purpose of the clause is to provide a statutory mechanism to ensure that enquiries in the areas concerned are monitored centrally by the Inland Revenue. This mechanism replaces the Board s direction procedures contained in the existing legislation. (*IR25)

Clause 109 requires an officer of the Board to give a notice to any person who appears to the officer to be entitled to make a claim under paragraph 6, Schedule 28AA, informing him that he may make such a claim or appear and be heard before the Commissioners in any appeal proceedings relating to the adjustment in connection with which the claim is or may be made. (*IR25)

Controlled foreign companies

Clause 110 strengthens the definition of activities potentially covered by the CFC rules. It removes an anomaly in the definition of "intellectual property" by making clear that the definition is illustrative, and by including the holding of trademarks and know-how within the listed examples. It also changes the definition of "banking or any similar business" to make more specific what is covered. The clause applies to CFC accounting periods beginning on or after 17 March 1998. (*IR24)

Clause 111 and Schedule 17 amend the CFC rules to bring them within Corporation Tax Self Assessment (CTSA). Bringing the rules into self-assessment will mean that they operate more fairly and effectively to prevent tax avoidance. To help keep compliance costs to business to the minimum necessary, the Schedule introduces a number of amendments to focus the rules more clearly on significant cases. The provisions are the outcome of extensive consultations with business. The changes apply to UK company accounting periods ending on or after the appointed day for CTSA. (*IR24)

Changes in company ownership

Clause 112 is directed at schemes whereby a company is sold in circumstances which lead to default on the payment of corporation tax properly due from it. The clause permits the Inland Revenue to recover from the previous owners of a company tax unpaid for subsequent periods if it was reasonable to infer from the terms of the transfer and the surrounding circumstances that it was unlikely the company would meet a tax liability which could have been foreseen at the time of the change of ownership. The provision applies to changes of ownership occurring on or after 2 July 1997 when the intention to legislate against these schemes was announced. (IR press release of 17 February 1998)

Clause 113 gives the Board of Inland Revenue a specific power to facilitate the gathering of information in relation to schemes of the kind described above. Where there has been a change in ownership of a company and the previous owner may be liable for unpaid tax under the proposals in Clause 112 or under legislation enacted in 1994 a person may be required to provide information which appears relevant either to determining the company s liability to tax or the extent to which the vendors may be required to pay that tax. (IR press release of 17 February 1998)

Clause 114 makes various consequential amendments as a result of the measures in clauses 112 and 113, including a provision which applies the interest rules to the tax assessed under Clause 112 as if the tax were payable by the transferred company. (IR press release of 17 February 1998)

Corporation tax self-assessment

Clause 115 and Schedules 18 and 19 set out the legislation on self assessment for companies, which applies for accounting periods ending on or after 1 July 1999. Much of the legislation needed has already been enacted in previous Finance Acts, but bringing both the old and the new provisions together in one Schedule allows them to be reordered in a more logical way. Techniques developed in the Tax Law Rewrite Project have been used to express all these provisions as plainly as possible.

Clause 115 and Schedule 18 include provisions dealing with:

the tax return to be made by the company
procedures for amending and enquiring into the return.

Revenue determinations and assessments

claims, including claims to group relief and capital allowances.

Schedule 19 contains the minor and consequential amendments needed to introduce self assessment for companies. (*IR11)

Telephone claims etc.

Clause 116 allows the Inland Revenue to accept claims to tax relief by phone as well as in writing to provide easier access and better service for taxpayers. (*IR42)

Clause 117 enables the Inland Revenue to make Regulations governing the way electronic information can be proved to have been exchanged with employers to help modernise the way the Revenue does business. (*IR42)

2. Copies of the Explanatory Notes will be available to Members of Parliament in the usual way through the Vote Office and the Libraries of the House.

3. The public may purchase copies of the Explanatory Notes from HM Treasury. Please contact the Public Enquiry Unit (Tel: 0207 270 4558/4860/4870) to arrange collection. The price of the Explanatory Notes is 10.00 Pounds.

4. Payment for the Explanatory Notes can be arranged on collection from the Treasury. Please make cheques payable to "HM Treasury Votes Cash Accounts". Please note only cheques or cash accepted.

5. Press enquiries on details of the Bill should be made as follows:

Direct taxes	Inland Revenue Press Office 0207 438 6692/6706/7327
Indirect taxes (eg VAT) and excise duties other than Vehicle Excise Duty	Customs and Excise Press Information Office 0207 865 5468/5471
Vehicle Excise Duty	HM Treasury Press Office 0207 270 5238
Gas Levy	Department of Trade and Industry Press Office 0207 215 6403/5962/5969

Part I

Excise duties

Alcoholic liquor duties

Clause 1 increases the rate of excise duty charged on beer with effect from 1 January 1999. (C&E 5) Clause 2 reduces the rate of excise duty charged on low strength sparkling wine and made-wine and increases the rate of excise duty charged on sparkling cider and perry with effect from 6pm 17 March 1998. (C&E 6)

Clause 3 increases the rate of excise duty charged on all wines and made-wines of a strength not exceeding 22 per cent except those for low strength sparkling wines and made-wines (which are the subject of clause 2), with effect from 1 January 1999. (C&E 5)

Clause 4 increases the rates of excise duty charged on standard and strong cider, with effect from 1 January 1999. (C&E 5)

Clause 5 and Schedule 27, Part I (1) simplifies the law governing the refund of excise duty on duty paid beer for export or removal to ship s stores, known as drawback. It repeals section 42 of the Alcoholic Liquor Duties Act 1979 (ALDA 1979) which is duplicated, with the exception of shipment as stores, by provisions made in The Excise Goods (Drawback) Regulations 1995. The repeals are listed in Schedule 27 Part I(1). (C&E 15)

Hydrocarbon oil duties

Clause 6 and Schedule 27 Part I(2) alters the time of the imposition of the charge to excise duty on imported and on UK produced oil to the time when the oil is imported into, or produced in, the UK. The repeals are listed in Schedule 27 Part I(2). (C&E16)

Clause 7 increases the effective rates of excise duties on most hydrocarbon oils with effect from 6pm on 17 March 1998. (C&E 17)

Clause 8 provides for a new definition of ultra low sulphur diesel with effect from 6pm on 17 March. (C&E 17)

Clause 9 provides for revenue safeguards against the mixing of Ultra Low Sulphur Diesel (ULSD) with other less environmentally friendly heavy oils after duty has been paid at the differing rates. (C&E 17)

Tobacco products duty

Clause 10 increases the rates of excise duties on most tobacco products (cigarettes, cigars, other smoking tobacco and chewing tobacco) with effect on 1 December 1998. (C&E 7)

Gaming duty

Clause 11 substitutes a new Table for the Table of gaming duty rates in the Finance Act 1997, section 11(2). The new Table contains lower gross gaming yield thresholds on which the various rates of duty are chargeable and increases the top rate of duty from 331/3 per cent to 40 per cent. It also increases the gaming duty which is charged on unregistered gaming from 331/3 per cent to 40 per cent. (C&E 12)

Amusement machine licence duty

Clause 12 substitutes a new table of rates for the table at section 23 of the Betting and Gaming Duties Act 1981 (the Act). It increases the cost of a 12 month licence for Amusement with Prizes and Jackpot gaming machines. (C&E 13)

Clause 13 amends the category of excepted machines (i.e. those which are exempt from the requirement to have an amusement machine licence) so that prize machines which are not gaming machines are exempt if they are thirty-five-penny machines. (C&E 13)

Clause 14 introduces a new category of excepted machine i.e. machines which are exempt from the requirement to have an amusement machine licence. The excepted machines are multi-play video machines where the cost for a single player to play one game alone does not exceed 35 pence and the cost for two or more players to play a game simultaneously does not exceed 50 pence per player. (C&E 13)

Air passenger duty

Clause 15 provides for an aircraft operator who is liable to be registered for APD, but does not have any business or other fixed establishment in the UK, to appoint a fiscal representative for administrative purposes only (an "administrative representative"). It also provides that the administrative representative shall not be liable for payment of APD on condition that the aircraft operator provides security for duty. (C&E 14)

Vehicle Excise Duty

Clause 16 and Schedule 1 provides for reduced rates of Vehicle Excise Duty (VED) for certain vehicles (lorries and buses) that have been modified so as to cause less
Clause 17 modifies the exemption from Vehicle Excise Duty for old vehicles by applying it to vehicles constructed before 1st January 1973, instead of vehicles more than 25 years old. This clause will have effect on the passing of the Act.

Clause 18 extends the powers of the Secretary of State under section 22 of the Vehicle and Excise Registration Act 1994 to make regulations relating to the registration of vehicles to include provision for the issue of nil licences, for the payment of a fee for such licences, and to require the making of declarations and the furnishing of particulars where a nil licence ceases to be in force. A nil licence is a document resembling a vehicle licence and issued for a vehicle exempt from duty.

Clause 19 amends the 1994 Act in relation to a person who takes out a vehicle licence and pays the duty on it by means of a cheque which is subsequently dishonoured. In addition to enabling the Secretary of State to require such a person to return the licence, the clause will require him to pay a sum of money for the period during which he held the licence. Failure to do either will be an offence.

Assessments

Clause 20 and Schedules 2 and 27 Part I(5) extends the excise assessment provisions with effect from a date to be announced, following Royal Assent. Persons assessed have a right to a review of the assessment, and have a right of appeal to a VAT and Duties Tribunal against the outcome of a review. The repeals are listed in Schedule 27 Part I(5) and take effect from the same date. (C&E 4)