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CLAUSE 85: LIFE INSURANCE COMPANIES AND FRIENDLY SOCIETIES: PROVISIONAL REPAYMENTS

SUMMARY

1.                  This clause brings to an end the provisional repayment rules in Schedule 19AB ICTA 1988.  These currently set out a scheme for in-year repayments of income tax relating to pension business written by insurance companies and friendly societies.  As a result of the removal by clause 83 of withholding tax from the vast majority of payments received by life assurance companies, these in year repayment rules become redundant.

2.                  Some provisional repayment rules will be retained for tax credits referable to the life or endowment business of a friendly society that is exempt from tax under Section 460 ICTA 1988 and the individual savings account (ISA) business of insurance companies and friendly societies.  Provisional repayments will cease completely when there are no longer any tax credits available for payment.  This applies to distributions made on or after 6 April 2004.

DETAILS OF THE CLAUSE

3.                  Subsections (1) and (2) ensure that Schedule 19AB ICTA 1988 ceases to have effect in relation to income tax borne by deduction from payments received after 30 September 2001.  For payments received after this date provisional repayment claims for income tax will no longer be available.

4.                  Subsection (3) retains the provisional repayment regime for tax credits referable to the tax exempt business of friendly societies and the ISA business of insurance companies and friendly societies.  This is needed because tax credits in respect of distributions made on or before 5 April 2004 remain payable as far as they are referable to those types of business.

5.                  Subsection (4) allows any regulations that fall to be made to modify the existing regulations about tax credits to set out the text of Schedule 19AB as modified for ISA business and friendly society tax exempt business.  It would otherwise be difficult to see exactly what the regulations did, because of all the modifications and changes that have been made in the past.

6.                  Subsection (5) ensures that Schedule 19AB, as modified, does not apply to tax credits in respect of distributions made on or after 6 April 2004.

BACKGROUND

7.                  Schedule 19AB ICTA 1988 currently allows life assurance companies and friendly societies to claim provisional repayments of some of the income tax borne by deduction from the income they receive.  Provisional repayments are available for income tax borne by deduction from income that is referable to pension business, ISA business and friendly societies tax exempt business.  This means that where a claim is made, an amount on account of the ultimate entitlement to repayment of income tax can be paid before the accounting period ends and a company tax return is submitted.  This clause ends these provisional repayments for income tax borne by deduction from payments received after 30 September 2001.  The provisional repayments are no longer needed because clause 83 of this Finance Bill reduces the circumstances in which income tax is deducted from payments to companies and there will be very little income tax to be repaid in future

8.                  Tax credits in respect of distributions referable to ISA business or the life or endowment business of a friendly society that is exempt from tax under Section 460 ICTA 1988 remain payable to the company or society.  This applies to distributions made on or before 5 April 2004.  This clause retains the provisional repayment regime in Schedule 19AB as far as these tax credits are concerned until that date.