ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 120: Limit on liability to income tax of non‑UK resident companies: omission of disregard of any relief to which a company is entitled by virtue of arrangements having effect under section 788 of ICTA: section 815
This change omits section 151(1)(a)(ii) of FA 2003.
Section 151(1) of FA 2003 provides that:
“The income tax chargeable for a year of assessment on the total income of a company that is not resident in the United Kingdom is limited to the sum of the following amounts—(a)the amount of tax that, apart from this section, would be chargeable on that total income if—(i)the amount of that income were reduced by the amount of any income to which this section applies, and(ii)there were disregarded any relief to which that company is entitled by virtue of arrangements having effect under section 788 of the Taxes Act 1988 (double taxation relief), and(b)the amount of tax deducted from so much of any income to which this section applies as is income the tax on which is deducted at source.”
Section 151 of FA 2003 replaced section 129 of FA 1995. There was no disregard in section 129 of FA 1995 similar to that in section 151(1)(a)(ii) of FA 2003. The replacement of section 129 of FA 1995 by section 151 of FA 2003 was not intended to make any change in the law except so far as a change was necessary following the change from “branch or agency” to “permanent establishment” introduced by section 148 of FA 2003.
It appears that section 151(1)(a)(ii) of FA 2003 was included by analogy with section 128(1)(a)(ii) of FA 1995. That sub‑paragraph, however, only disregards reliefs under Chapter 1 of Part 7 of ICTA to which an individual is entitled, including any such reliefs to which an individual is entitled under that Chapter by virtue of a double taxation arrangement. The principal reliefs under that Chapter are personal allowance, blind person’s allowance and married couple’s allowance. The only other reliefs under that Chapter are life assurance premium relief and relief for payments securing annuities.
For an individual, only the personal and other reliefs mentioned above are disregarded in calculating the limit, not all reliefs to which the individual is entitled as a result of a double taxation arrangement.
For companies, the position should be the same. This means that there are no reliefs which should be disregarded, because a company is not entitled to any of those personal and other reliefs. If the reliefs to which the company was entitled as a result of a double taxation arrangement were disregarded, the limit on liability to income tax for the company could be higher, which could be to the company’s disadvantage.
The provisions of sub‑paragraph (ii) have, therefore, been omitted from the rewrite of section 151(1)(a) of FA 2003 in section 815(4), on the basis that they are inappropriate.