§ Mr. Wrigglesworthasked the Chancellor of the Exchequer what representations he has received about the introduction of some form of tax reserve scheme.
§ Mr. Joel BarnettA number of the main representative bodies, representing both the professional bodies and the commercial world, have made representations to my right hon. Friend the Chancellor, asking for the introduction of some form of tax reserve scheme. They have suggested that a facility of this kind would complement the new provisions in Clause 43 of the current Finance Bill for the charge to interest on unpaid tax. In particular, it could enable a taxpayer who wished to provide for a potentially large tax liability, but was unable at that stage to quantify it precisely, to avoid on the one hand a significant charge of interest on tax arrears, and on the other hand the cost of a potential overpayment of tax. Thus, a facility of this kind would go a long way to ease the most difficult of the problems which some of the bodies felt could otherwise arise under the new provisions in the Finance Bill.
My right hon. Friend has accordingly decided to introduce a new form of deposit, to be evidenced by certificates which will be known as certificates of tax deposit. The new scheme will differ in some important respects from earlier schemes for tax reserve certificates and tax deposit accounts. The detailed prospectus will be issued by the Treasury this autumn.
Certificates of tax deposits will be available to taxpayers generally— that is, to individuals, partnerships and firms, and companies. They will be available against tax generally, that is, including income tax— other than PAYE and tax deducted from payments to sub-contractors— corporation tax, including ACT, 257W capital gains tax, capital transfer tax and petroleum revenue tax. Deposits will earn interest for a maximum of six years, by contrast with the two-year maximum under the old tax reserve certificate scheme.
The rate of interest on new deposits will be published by the Treasury from time to time by notice in the London Gazette. It will be calculated by reference to the rate payable on a comparable investment with the Government. For the first two years the interest rate will be that applying on the date of deposit; for the second two years, it will be the rate on the second anniversary of that date; and for the third period of two years, the rate on the fourth anniversary. If the deposit is used to pay tax, that tax will be treated as paid on the date on which it would normally be due or, if later, on the date the deposit was made. Interest will not run beyond the normal due date of tax. It will be paid gross and will be taxable in the ordinary way.
Taxpayers will be able to maintain their deposits and tender them in payment of tax at any time, whether or not the six-year period of interest has expired. Alternatively a deposit may be withdrawn for cash at any time, but in that event a reduced rate of interest will be payable.
An initial purchase of certificates may be made in a sum of not less than £2,000, compared with the £5,000 minimum for the earlier scheme of tax deposit accounts, which replaced the tax reserve certificates scheme in 1973, and was itself terminated in 1974. Further deposits may be made in amounts of not less than £500, but only if the taxpayer's current deposit exceeds £2,000 or, with the further deposit, will exceed £2,000.