ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL Introduction
This change is about the approach adopted in rewriting the provisions about those annual payments and patent royalties which constitute charges on income. It also concerns the approach adopted in the parallel provisions about deemed payments by trustees of unauthorised unit trusts.
The change replaces the present approach to charges on income (which owes its origins to the historic concept of alienation of income) with a deduction in calculating net income, coupled with provision for deduction of tax at source from the payments involved. The tax deducted will be collected either as a specific element of the payer’s tax liability under Self Assessment, or by separate assessment.
This change of approach is fundamental in principle. It changes the structure and simplifies the inner workings of the legislation, greatly reducing the extent to which these provisions, which only concern a very narrow range of payments, have a cross cutting impact across the legislation as a whole. And, by aligning the approach to patent royalties with that for annual payments, it removes the need for complex provisions about the interactions between charges on income and terminal loss relief.
But it does not affect the overall amount of tax anyone pays, and involves only very limited administrative change.