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 53: EIS: Interest and Self Assessment: section 239
This change omits provisions that do not fit with Self Assessment in relation to charging interest on assessments. The omitted provisions are sections 306(9) and 307(6)(a) and (aa) and (7) of ICTA.
Section 306(9) of ICTA says:
“For the purposes of section 86 of the Management Act (interest on overdue tax), tax charged by an assessment—(a)shall be regarded as due and payable notwithstanding that relief from the tax (whether by discharge or repayment) is subsequently given on a claim for the relief; but(b)shall, unless paid earlier or due and payable later, be regarded as paid on the date of the making of the claim on which the relief is given;and section 91 of that Act (effect on interest of reliefs) shall not apply in consequence of any discharge or repayment for giving effect to the relief.”
Apart from immaterial differences, section 306(9) of ICTA is the same as section 61(7) of FA 1981 (the provision from which it originates). FA 1981 was enacted approximately 15 years before Self Assessment came into force.
In 1981 it was standard practice for separate Schedular assessments (often estimated) to be made by HMRC (then the Inland Revenue). At that time, parts of the income tax liability of an individual for a single year could have different due and payable dates. Different due dates could arise because:
	of the Schedule under which parts of the individual’s total income fell; and
	of the date that each part of that total income was (separately) assessed by the HMRC.
HMRC would typically make an assessment to income tax and issue a notice of that assessment to the individual showing when the assessed tax was due and payable. Interest on overdue income tax was determined by reference to the date on which the assessed tax was due and payable under the assessment.
The individual might later claim that, say, relief under Chapter 2 of Part 4 of FA 1981 (relief for investment in new corporate trades, but referred to in this note as BSS (business start-up scheme) relief) should be given. If satisfied that relief was due, HMRC might:
	send the individual notice of an amended assessment incorporating BSS relief; and
	repay the amount, if any, that had been paid by the individual in relation to the original notice of assessment but which was no longer due under the amended assessment.
HMRC were therefore heavily involved in making assessments to income tax and in giving effect to claims for relief against that tax. That meant HMRC knew from their records when:
	an assessment to income tax had been made and notice of it given to the individual;
	a claim for relief against income tax had been made;
	a revised assessment had been made to give effect to the relief; and
	a repayment had been made as a result of the revised assessment.
It is significant that section 61(1)(a) of FA 1981 then prevented claims for BSS relief during the tax year to which they related (an in-year claim). This rule meant that BSS relief was not allowed in the form of a PAYE coding adjustment either.
This prevention of in-year claims in turn raised issues related to the possibility of different payment dates existing for parts of an individual’s income tax liability by reason of Schedular assessing. For instance, Schedule A assessments for a tax year normally had a payment date in the tax year (an in-year payment date). It would have been inconsistent to prevent in-year claims to relief and yet allow some individuals to achieve the same effect as an in-year claim by claiming BSS relief against, say, Schedule A assessments that had in-year payment dates.
That potential inconsistency was overcome by section 61(7) of FA 1981 providing that, despite section 91 of TMA (effect on interest of reliefs), interest would continue to be charged on tax due under an assessment until the date that a claim for BSS relief was made to HMRC.
The rule against making in-year claims was relatively short-lived. In relation to the relief in Schedule 5 to FA 1983 (business expansion scheme - BES) which replaced BSS relief, the rule was not reproduced in paragraph 13(1) of Schedule 5 (claims). And paragraph 13(7) of Schedule 5 even contemplated BES relief being given in the form of a PAYE coding adjustment.
Self Assessment made significant changes to the system that had applied in 1981. Three such changes are mentioned here:
	the individual now makes most assessments as part of the individual’s tax return;
	tax payment dates no longer vary with the type of income involved; and
	much less HMRC involvement is required for claims as they can form part of the individual’s self-assessment.
Section 306(9) of ICTA has not been rewritten, as it is not readily compatible with Self Assessment. Omitting this provision will result in claims for EIS relief being treated in the same way for Self Assessment as any other claim. In principle, this part of the change is favourable to taxpayers as section 91 of TMA may operate to relieve them of liabilities to interest that were not previously relievable. In practice, this change is expected to have no impact.
Section 307(6)(a) and (aa) and (7) of ICTA say:
“(6)In its application to an assessment made by virtue of this section, section 86 of the Management Act (interest on overdue tax) shall have effect as if the relevant date were—(a)in the case of relief withdrawn by virtue of section 289(6) or 299B(1)—(i)so far as effect has been given to the relief in accordance with PAYE regulations, 5th April in the year of assessment in which effect was so given;(ii)so far as effect has not been so given, the date on which the relief was granted;(aa)in the case of relief withdrawn by virtue of section 289(1)(c) or (d), the date on which the relief was granted;(7)For the purposes of subsection (6) above the date on which the relief is granted is the date on which a repayment of tax for giving effect to the relief was made or, if there was no such repayment, the date on which the inspector issued a notice to the claimant showing the amount of tax payable after giving effect to the relief.”
Section 62(6) and (7) of FA 1981 had rules about charging interest on a withdrawal of BSS relief by a separate assessment (later assessment) made after BSS relief had been given against an earlier assessment (original assessment). In most cases interest ran from the date of the event that caused the later assessment to be made.
But in one case (avoidance), the withdrawal of BSS relief was in broad terms intended to restore the position to the same as if the relief had never been given. In that case, the later assessment could not simply provide for interest to run from the normal date on which interest would have been chargeable under the original assessment. That was because interest might have been charged in relation to the original assessment up to the date that BSS relief was claimed (see earlier discussion on section 61(7) FA 1981). The later assessment had to take account of such a possibility.
So a concept of “the date on which the relief is granted” was defined and used as the date from which interest would be charged in this case. That concept naturally used typical pre-Self Assessment actions of HMRC issuing a notice of assessment giving effect to the claim or making a repayment of income tax to give effect to the claim.
Section 307(6)(a) and (aa) of ICTA set out the cases in which withdrawal of EIS relief is intended, broadly, to restore the position to the same as if the relief had never been given. And the pre-Self Assessment concept of “the date on which the relief is granted” lingers on in section 307(7) of ICTA. This concept does not fit with Self Assessment.
With the omission of section 306(9) of ICTA (see earlier) the reason for the provisions in section 307(6)(a) and (aa) and (7) of ICTA cease to exist. So the rules in section 307(6)(a) and (aa) and (7) have not been rewritten either.
This means there will be no special rule about assessments that withdraw relief in the cases set out in section 307(6)(a) and (aa) of ICTA (avoidance: pre-arranged exits and time limit for use of money). Such assessments will be dealt with under Self Assessment in the same way as any other assessments.
In principle this part of the change is unfavourable to taxpayers as it will prevent them contending that the legislation is deficient in such a way that interest should not be charged in relation to matters contemplated by section 307(6)(a) and (aa). But it is unlikely that such cases will be met.