Weekly Tax Briefing

To the superficial observer, the most obvious feature of the rewritten legislation is its length – the Tax Law Rewrite Group, in sharp contrast to traditional drafters of tax law, has preferred clarity to compression, and so the draft Bill runs to many pages. However, this length is a consequence of the features which the Tax Law Rewrite group has sought to capture. The Tax Law Rewrite group is aiming to produce clearer, more user-friendly tax legislation incorporating:

• a new, more logical structure;
• shorter sentences;
• better use of definitions;
• modern language;
• better signposts; and
• similar rules grouped together.

The Rewrite project is intended to clarify tax law, rather than reforming it, and so the Capital Allowances Bill should make no material changes to the underlying tax system. However, it would be a mistake to dismiss the Tax Law Rewrite as a mere exercise in cosmetics. The rewritten law should be easier to understand (once tax professionals have overcome its initial unfamiliarity) and therefore easier to apply. This should reduce compliance and administration costs for taxpayer and Revenue alike.

Substantive benefits can be expected too. Tax law has developed piecemeal over the decades, and is more an accumulation than a synthesis of the reforms of successive Chancellors. Tortuous drafting has allowed anomalies to arise and remain unnoticed and undisturbed; the Rewrite process is bringing them out into the daylight. This year’s Finance Act includes several deregulatory changes to the capital allowances regime promoted by the Tax Law Rewrite group.

The Inland Revenue has requested comments on the draft Bill by 2October 2000. For further information, or assistance in making representations, please speak to your usual KPMG tax contact.

The Accounting Standards Board (ASB) has issued UITF Abstract 25 ‘National insurance contributions on share option gains’. Applying FRS 12, UITF25 requires provision to be made for national insurance contributions on outstanding unapproved share options that are expected to be exercised.

UITF 25 requires the provision to be allocated over the period from the date of grant to the end of the performance period. From that date to the date of actual exercise the provision should be adjusted by using the current market value of the shares. Where there is no performance period full provision should be made immediately.

Under the Child Support, Pensions and Social Security Act, which received Royal Assent on 28 July 2000, employer’s national insurance contributions on unapproved share options can be recovered from or transferred to the employee (with the employee’s consent). Where there is an agreement between employer and employee under which the employee agrees to reimburse all or part of the employer’s national insurance contributions, the net charge may be shown in the profit and loss account. Where there is a joint election by employer and employee under which the liability is formally transferred to the employee there is no liability to appear in the employer’s accounts and, of course, no charge to the profit and loss account. The form of joint election and the accompanying arrangements must be agreed in advance with the Inland Revenue. If the arrangements are changed or if different arrangements are needed for different options, these too will need to be agreed in advance with the Inland Revenue.

To the extent that employer’s national insurance contributions are passed to employees and do not appear as a charge to the profit and loss account, clearly no corporation tax relief is available. Where a company does continue to bear employer’s national insurance contributions, other things being equal, tax relief should be available for the charge to profit and loss account computed as required by UITF 25.

For further information on the tax and accounting treatment and on the drafting and structuring of elections and transfers of liability, please speak to your usual KPMG tax contact.

The Inland Revenue is engaged in a variety of consultation exercises besides the draft Capital Allowances Bill. The topics under consideration include the following.

Comments by 11 August 2000.

Comments by 11 August 2000.

Comments by 30 August 2000.

For further information, or assistance in making representations, please speak to your usual KPMG tax contact.

See article.

Discussions at official level are to be held shortly about a protocol to the tax treaty between the United Kingdom and Indonesia.

In consequence of changes in the Finance Act to the definition of a group, the circumstances in which the Treasury gives consent for certain transactions involving non-resident companies have been amended.