Building Societies (Hansard, 21 June 1991)

§ Mr. Peter Bottomley
To ask the Chancellor of the Exchequer if he will estimate the accumulated net receipts of income tax from building societies since 1985–86 and the amount affected by clause 50 of the Finance Bill 1991.

§ Mr. Maples
Accumulated net income tax receipts from building societies for the six years 1985–86 to 1990–91 were £18,097 million, excluding those subsequently repaid as a result of decisions by the courts. Of these, an estimated £227 million would be repaid if clause 50 were not enacted.

§ Mr. Peter Bottomley
To ask the Chancellor of the Exchequer in calculating the composite rate of tax for building societies and banks, for each year since 1985–86, if the Inland Revenue took account of the extra payments of income tax subject to clause 50 of the Finance Bill 1991.

§ Mr. Maples
Changes in the timing of tax payments by building societies, reflecting changes in collection arrangements of the kind introduced by the Building Society Regulations 1986, the subject of clause 50, had no bearing on the level at which composite rate was set. However, from societies as a whole there was slightly less income tax due for the financial year 1986–87 than would have been due if the timing arrangements had been left unchanged.

§ Mr. Peter Bottomley
To ask the Chancellor of the Exchequer if he will estimate the contributory effects of changes in(a) interest rates, (b) volume, (c) tax rates and (d) the switch from the accrual basis to paid basis of receipts of tax on sums extinguishing liability to tax of building societies comparing 1985–86 with 1986–87 and 1986–87 with 1987–88 and 1985–86 with 1988–89.

§ Mr. Maples
I regret that the information could not be provided without disproportionate cost.
354W

§ Mr. Peter Bottomley
To ask the Chancellor of the Exchequer what he estimates the cash flow effects to be of change from accrual to paid basis of extinguishing net tax liability of building society investors.

§ Mr. Maples
About £110 million less income tax was received in 1986–87 under the quarterly payment system than would have been due under the old system. However, under the new system, instalment payments amounting to £35 million were due in later years. The new system also affected cashflow within the tax year, by bringing forward the average date at which income tax was payable.

§ Mr. Peter Bottomley
To ask the Chancellor of the Exchequer taking the expected net receipts of income tax from a building society as an index of 100, what are the index estimates of the maximum and minimum additional payments, consequent on the Finance Act 1986 change retrospectively validating the 1985 regulations, assuming the enactment of clause 50 of the Finance Bill 1991, taking account of the effects of the range of society year end and payment dates.

§ Mr. Maples
Payments due in a year may be advanced or retarded under the new system introduced by the 1986 building societies legislation. At one extreme would be a hypothetical society with an accounting period ending on the first day of the tax year, 6 April, and crediting interest to investors wholly on a monthly basis on the last day of each month. For that society, income tax due on the 11 months' interest credited on 30 April 1985 to 28 February 1986, less that which had accrued in the first six days of April 1985, would be due in four instalments on the 14 March of the 1986–87 to 1989–90 tax years; tax would also be due in each of those tax years in respect of the 12 monthly creditings made between 31 March to 28 February. Taking income tax due for payment under the old system as an index of 100 for the four years together, tax due in those four years under the new system would be 122.5.
At the other extreme would be a hypothetical society with an accounting period coinciding with the tax year, and crediting interest to investors wholly on an annual basis, on 1 March. For that society, no payment of income tax under the new system would be due in the 1986–87 tax year, except in respect of interest on accounts closed up to 28 February 1987. The 1987–88 payment would be slightly less than in a full year. Taking tax due for payment under the old system as an index of 100 for the four tax years 1986–87 to 1989–90, tax due under the new system, if no accounts were closed, would be 72.5.