From 15 September 2016, the government has the necessary statutory power to deduct income tax for the tax year 2016-17. But what about the period from 6 April to 14 September?
This is interesting…
Income tax in the United Kingdom (UK) was first introduced in 1799 by William Pitt the Younger to fund preparation for the Napoleonic Wars. Over the years, it was abolished, reintroduced, abolished and reintroduced again by Sir Robert Peel in 1842. Of course, the tax system has changed considerably but one constant has remained. It has always been regarded as a temporary tax lasting one tax year. This means that the government loses the power to deduct income tax from taxpayers on 5 April annually and has to seek statutory “permission” to apply tax in the following tax year.
The annual Budget statement contains many things, not least the tax measures and changes for the coming tax year. Importantly for payroll, it sets the annual income tax bands and rates, all of which are laid out in a single bill – the annual Finance Bill. This is the bill by which the government is seeking the statutory permission to impose income tax for another tax year. However, the measures in this bill are not actually legally binding until the bill receives royal assent. The Finance Bill 2016 received royal assent on 15 September 2016 and can now be called the Finance Act 2016. So, from 15 September 2016, the government has the necessary statutory power to deduct income tax for the tax year 2016-17.
So, what about the period from 6 April to 14 September?
There is a handy piece of legislation called the Provisional Collection of Taxes Act 1968 (PCTA)! This act provides the government with the interim authority for the collection of taxes between the time the bill is laid and enacted. However, the original wording of the act said that any request to deduct tax for the following year would expire on 5 August of the following tax year. Essentially, this meant there was a short legislative window between the time the Finance Bill was first presented to the time by which parliament had to approve it. If the time between bill and act passed 5 August, the Exchequer would, theoretically, have to return to taxpayers all revenues collected under the temporary authority given by PCTA.
On the surface, it appeared to me as though the government had lost the power to deduct income tax. However, the 2011 Budget announced that the then coalition government would change the PCTA “to maintain the government’s ability to collect income tax and certain other taxes and duties on a provisional basis following changes to the parliamentary timetable”. This timetable change was the result of the Fixed Term Parliaments Act 2011 which led to the annual parliamentary sessions now running from spring of one year to spring of the next.
In short, the PCTA changes mean that:
• a bill, eg the Finance Bill 2016, can be formally “carried over” from one session to another or reintroduced within 30 days of the next session, and;
• in order to allow for the required parliamentary scrutiny, there is now a period of seven months during which the interim collection powers of the PCTA continue to have effect.
That change to 1960s legislation passed me by! It’s a nuisance as I was looking forward to a bit of a windfall.