ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL Effects of alignment
There are a number of circumstances in which payments by building societies made after deduction under the source legislation will no longer need to have sums representing income tax deducted.
This is a taxpayer-favourable change in cash flow terms, but does not affect final liability to tax. It could also, in some circumstances, mean the taxpayer has to complete a self-assessment return. But these effects could arise under the source legislation if a taxpayer used a deposit-taker rather than a building society.
In tandem with this, the basis on which building societies may treat investments as relevant is aligned to that for deposit-takers. This:
	reduces the range of cases in which building societies will need to obtain declarations specifically for tax purposes; and
	means that many of the provisions in regulation 4(1) of the building society regulations, which identify specific gross payment categories, will no longer be needed (in particular, regulations 4(1)(d), (f), (g), (k), (p), (q) and (r)).
As a result of the alignment, the following remaining differences of scope between the two regimes are removed:
	The gross payment categories for non-UK residents are defined by reference to the beneficial owner. For building societies, this means that the payment will not need to be made directly to the non-UK resident beneficiary in order for it to be made gross.
	Payments made to non-UK resident individuals (or Scottish partnerships) under regulation 4(1)(a) of the building society regulations will only be made gross where all the persons (or, in the case of a Scottish partnership, the partners) entitled to the payment are not UK resident, in line with HMRC practice.
	Payments to overseas non-corporate bodies (eg a Delaware Limited Liability Partnership) not within regulation 4(1)(a) or 4(1)(g) of the building society regulations will be made gross if all of the partners are not ordinarily UK resident.
	Payments made by building societies to partnerships (including limited liability partnerships) which are either partnerships of companies or partnerships between individuals and companies are in practice subject to deduction of sums representing income tax. This is because there is no specific gross payment category for payments made to partnerships involving companies (although it is possible that regulation 4(1)(g) of the building society regulations might allow payments made to partners which are companies to be made gross). Following alignment to the deposit-taker regime (section 481(4) of ICTA), such payments will no longer be subject to deduction of sums representing income tax.
	Payments made by building societies to Scottish partnerships where one or more of the partners are companies will be made gross under the rewritten legislation. Under the source legislation, such payments are made after deduction of a sum representing income tax as there is no gross payment category in the building society regulations to allow for the payment to be made gross (and regulation 4(1)(g) of the building society regulations will not apply as the payment cannot be described as being made to the company).
	Payments made by building societies to unapproved pension schemes (including funded unapproved retirement benefit schemes), are technically subject to deduction of sums representing tax simply because they are not listed in regulation 4. But HMRC practice is to allow such payments to be made gross, and the alignment will bring the legislation into line with this.
	Payments made by building societies to joint accounts where the holders are not all from one of the four categories of person to whom the deposit-taker regime applies will no longer be subject to deduction of sums representing income tax. (Such a case is theoretical as it is understood that building societies do not in practice permit joint accounts of such a kind.)
	Payments made by building societies to non-UK resident trustees of a discretionary or accumulation settlement will be made gross. Regulation 4(1)(bb) of the building society regulations refers to trustees of a discretionary or accumulation trust. This change in terminology brings the building society regime into line with the deposit-taker regime, which was amended by Schedule 13 to FA 2006.