ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL History
The history of these provisions starts in 1894, when extra-statutory arrangements were first introduced under which building societies accounted annually for income tax at a composite rate. These arrangements became statutory in 1951 and regulations included various exceptions (eg for pension funds).
In FA 1984 a similar composite rate tax (CRT) scheme with quarterly accounting was introduced for retail bank deposits. This triggered changes to the building society rules in 1985, to bring them onto a similar quarterly scheme and to widen the range of exceptions. But, whereas bank interest was either paid gross or net of CRT, any building society payments which were not within CRT, or specifically allowed to be paid gross, had to be paid net of basic rate tax.
From April 1991, CRT was abolished in favour of deduction of sums representing basic rate income tax. So far as the building society provisions were concerned, this was achieved simply by requiring deduction of sums representing basic rate tax from payments other than those which could be paid gross. The possibility of re-engineering the provisions more fundamentally, along the lines now proposed, was considered but did not prove possible at the time.
Since then, a number of further additions have been made to the categories of payment that can be made gross, in particular going beyond exempt bodies to embrace companies (in 1992). Differences of scope between the regimes are now very small.