ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 158: Tax calculation: recovery of excess double taxation relief: Schedule 1 (section 804 of ICTA and paragraph 11 of Schedule 20 to FA 1994)
This change alters the way that excess double taxation relief is clawed back under section 804(5B) of ICTA and paragraph 11(3) of Schedule 20 to FA 1994.
As a result of the rules for allowing credit for overseas tax against an overlap profit, section 804(5B) of ICTA provides that in certain circumstances an excess amount of credit relief has to be identified. The taxpayer is then “treated as having received in that year a payment chargeable to income tax of an amount such that income tax on it at the basic rate is equal to the excess”. So having identified an amount of tax, it is then converted to an amount of income. Section 804(6) of ICTA provides that the amount of income is not treated as income for any other purpose.
This provision is about the recovery of excess tax credit relief. It would work much more naturally if it simply provided for an amount of income tax to be charged. And it would then be no longer necessary to have the special rule in section 804(6). Accordingly, section 804(5B) of ICTA is amended to provide for an amount of income tax to be brought into charge and section 804(6) is omitted.
Paragraph 11 of Schedule 20 to FA 1994 provides corresponding rules for businesses affected by the transitional provisions for facilitating self-assessment. Paragraph 11(3) is amended in the same way and paragraph 11(7) is omitted.