The rewrite of the remaining Income Tax comes into force on 6 April 2005

In 2003, all of the primary legislation for income tax on earnings (formerly known as Schedule E) was rewritten into the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), as part of the government's program to rewrite UK legislation into easier to understand English.

When that had been completed, the next area to be rewritten was the remaining income tax legislation relating to trading, property and investment income, which are the remaining income tax Schedules A, D and F. (Schedules B and C were abolished in 1988 and 1996 respectively.) The full Bill was published in Parliament on 1 December 2004. It should complete its Parliamentary stages and receive Royal Assent by March 2005. It is due to become law from 6 April 2005.

The former Schedule E is now income tax on employment income. The changes to terminology for Schedules A, D and F are:

• Schedule A is now income tax on property
  
  
• Schedule D is now income tax on trade profits (or, in fuller terms, profits of a trade, profession or vocation)
  
  
• Schedule F is now income tax on investment income.
  
  

As with ITEPA, the new Act does not change tax policy. There are, however, a large number of minor changes and clarifications of the law and these are detailed in the supporting documentation.

In general terms, the Bill has no direct impact on the operation of payroll and the taxation of benefits in kind. Some of the clauses in the new Bill which are of some relevance are:

• 4 - the charge in ITEPA on employment income has priority over the charge on profits of a trade
  
  
• 36 - no deduction is allowed in calculating the profits of a trade for an employee's remuneration unless it is paid to the employee within 9 months of the period of account. Remuneration is treated as being paid under the provisions of ITEPA.
  
  
• 45-47 - set out the circumstances in which a deduction for business expenses and gifts are permitted in calculating the profits of a trade. In general, if a deduction is permitted, no deduction is permitted against earnings for income tax purposes (ITEPA ss.356-358).
  
  
• 53 - defines the NICs that may be deducted in calculating the profits of a trade, namely secondary Class 1 NICs, Class 1A NICs and Class 1B NICs
  
  
• 69 - a deduction in calculating the profits of a trade is allowed for a payment for restrictive undertakings that is treated as earnings of an employee for income tax purposes (ITEPA ss.225,226)
  
  
• 72 - a deduction in calculating the profits of a trade is allowed where an employer pays the agent's charges for distributing monies donated by employees under a payroll giving scheme (ITEPA ss.713,714)
  
  
• 73 - a deduction in calculating the profits of a trade is allowed for counselling and outplacement expenses (in the context of termination of employment), but only if the conditions defined in ITEPA s.310 are met
  
  
• 74 - at present a deduction in calculating the profits of a trade for the costs of retraining courses (in the context of termination of employment) is only permitted if the employee is exempt from a tax charge because the prescribed conditions are met. That link is now removed, so a deduction against the profits of a trade no longer depends on whether or not the conditions for tax exemption are met in the case of the employee's liabilities to income tax.
  
  
• 163 - when an intermediary (within the IR35 rules) makes a deemed employment payment, the deduction in calculating the profits of a trade is limited to the amount of the payment. The deduction is given for the period in which the payment is treated as being made.

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Source:
www.inlandrevenue.gov.uk/rewrite/index.htm