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Tax Law Rewrite

Category Technical Articles
AuthorTechnical Department
It was in former Chancellor Kenneth Clarke’s 1996 Budget speech that he likened rewriting the United Kingdom’s tax legislation to ‘translating War and Peace into lucid Swahili’. With this the Tax Law Rewrite project began.

Article by Keith Gordon, a director of ukTAXhelp Ltd and a member of the Rewrite team that produced the Capital Allowances Act 2001, published in the March 2002 issue of Tax Adviser.


It was in former Chancellor Kenneth Clarke’s 1996 Budget speech that he likened rewriting the United Kingdom’s tax legislation to ‘translating War and Peace into lucid Swahili’. With this the Tax Law Rewrite project began.

It is generally acknowledged that the original five-year timescale was extremely optimistic, but it was only once the detailed analysis had been undertaken that the enormity of the task became apparent.

This month sees the first anniversary of the enactment of the project’s first legislation – the Capital Allowances Act 2001. However, taxpayers will not need to wait until 2006 before the next act to be published. During the previous five years an enormous amount of detailed research was undertaken and now the results are beginning to show. An employment, pensions and social security income Bill is due out this autumn and it is hoped that this will become law in early 2003. Later that year, there will be published a trading, property, investment, savings and foreign income Bill due to become law in early 2004.

Changes to the law

As will be obvious to anyone who has dealt with tax law, there are occasional anomalies that can only be put down to historical accident. One of the advantages of the Rewrite Project, is that it is not totally constrained by the current legislation when putting forward its rewritten version. Whenever it is thought appropriate (and such decisions will be approved by the committees), minor changes to the law will be proposed as part of the rewrite package (for example, legislating for extra-statutory concessions). (More significant changes are properly the remit of the House of Commons in a Finance Bill.) Such changes could be made to realign the law with practice (often filling a gap that no-one had noticed before the research carried out as part of the rewrite). Alternatively, the change could represent a revision of Inland Revenue policy that had not previously justified amendment in a Finance Act.

In the end, the Capital Allowances Act 2001 contained 66 changes in the law, which were explained in a detailed annex to the explanatory notes that accompanied the clauses through its passage through Parliament. The notes also included 68 pages containing details of 78 aspects of the legislation that did not constitute a change in the law, but where it was felt a detailed explanation was helpful. These annexes formed the basis of the discussions of the select committee appointed to scrutinise the Bill.

A selection of the changes made as a result of the rewrite of the capital allowances legislation can be found in the appendix to this article.


Although the work of the project is necessarily detailed, it is not working in an ivory tower. The 30-strong project currently employs five tax professionals from the private sector (a solicitor, two chartered accountants and two chartered tax advisers) on fixed-term contracts. According to the Revenue’s website, their experience and perspective is seen as ‘vital’ to the project.

However, overseeing the project’s work are two committees – the Consultative Committee and the Steering Committee.

The Consultative Committee is made up of representatives from the tax professions as well as business and industry. Because of the wealth of experience held by the members, the Consultative Committee is able to advise on developments proposed by the project – in particular, ideas on how to restructure provisions and any proposed policy changes.

The Steering Committee is made up of members from both Houses of Parliament, the legal and accountancy professions, business and consumer interests. Under the chairmanship of Lord Howe – the former Conservative Chancellor – the Steering Committee provides strategic guidance to the project as well as ensuring that the project meets its objectives of clarity and user-friendliness and that it takes full account of private sector concerns.

Minutes of the meetings of the committees can be obtained via the internet at:

However, the project also consults widely. For example, the Capital Allowances Act 2001 was preceded by four Exposure Drafts (October 1998, April and July 1999 and February 2000) and a draft Bill (in July 2000). These showed the proposed rewritten legislation together with a detailed commentary outlining the approach taken by the project and highlighting the changes.

Quick gains

There are collateral advantages too. The new drafting style used extensively in the project’s work has been used increasingly in Finance Acts. For example, anyone who looks at Finance Act 1998, Sch. 18 or at Finance Act 2000, Sch. 8 and 14 will see the benefits of shorter sentences and well-laid out provisions. Unlike the more traditional drafting methods, they seek to do just one thing at a time. Not only does this make comprehension easier, but whenever changes need to be made, as occasionally they do, any amending legislation can also be easier both to draft and to read.

Recent developments

At the end of 2001, the project issued its twelfth exposure draft – the third on income from employment, pensions and social security. Copies can be obtained from Inland Revenue Information Centre, Bush House, South West Wing, Strand, London WC2B 4RD or by sending an e-mail to Alternatively, they can be downloaded from the Revenue website at

That document contains 179 suggested changes to the law and should be added to the 146 changes that were proposed in the previous two exposure drafts (numbers 6 and 11) that contained clauses on employment income. Consultation on the latest exposure draft is open until 28 March 2002. It is proposed that there will be one final round of consultation in the summer before a Bill is presented to Parliament in the autumn.

A few of the changes proposed by the rewrite of the Sch. E legislation are shown in the appendix below.

Following a request by its Consultative Committee, the Project is also working on the pay as you earn (PAYE) regulations. These are due to be laid before Parliament by Autumn 2003 (so as to come into force in April 2004), and will no doubt be subject to consultation over the next 18 months. And an exposure draft on savings income is due out at the end of March.

The wide body of support

The Project enjoys support for its work across the political divide and amongst the tax community. This non-partisan approach has helped it to deliver one act successfully and should allow it to continue to deliver more in due course.


The following are examples of changes proposed or made under the auspices of the Tax Law Rewrite Project.

Cheap car pool (capital allowances)

For many businesses, the requirement to maintain a pool for cars costing less than £12,000 was unpopular. However, it remained on the statute book. The rewrite of the capital allowances legislation provided the ideal opportunity for the policy to be reconsidered. Being a relatively significant change, it was introduced via the Finance Bill 2000. This enabled the changes left for the rewrite bill to be kept to those which were relatively minor.

Gifts of plant and machinery to employees (capital allowances)

It is a fairly common occurrence for employers to make gifts of used cars to their employees – for example if the company is considering changing its remuneration packages. However, the legislation concerning the employer’s capital allowances was not straightforward.

Had the employee paid a nominal sum for the car, say £1, the employer could have received a balancing allowance equal to the previous tax written-down value (less the £1). It would have been expected that, if the transfer of the vehicle had been an outright gift, a similar balancing allowance would have been available to the employer. However, under the strict letter of the Capital Allowances Act 1990, no balancing allowance would have been possible and the employer (arguably) would have had to continue writing down the expenditure at 25 per cent each year. This strict interpretation was not usually followed in practice and the rewritten legislation ensures that a balancing allowance is available in these circumstances. As this was a relatively minor change, it was made in the rewrite bill itself.

Beneficial accommodation (Schedule E)

If an employee has the benefit of accommodation provided by their employer, a tax charge will arise unless the employee falls within one of the exemption categories in Income and Corporation Taxes Act 1988 (ICTA 1988), s. 145.

There is an associated exemption limiting the tax charge of related benefits (for example heating and lighting) under s. 163. The limit is equal to 10 per cent of the employee’s other emoluments.

However, the ten per cent limit only applies to employees within of ICTA 1988, Pt. V, Ch. II (employees earning at least £8,500 and directors). So a lower paid employee would be subject to the full tax charge on any heating (for example) costs met by the employer, whereas a higher-paid colleague in (otherwise) identical circumstances would have their tax charge capped.

The Project’s second Bill proposes to extend the ten per cent to all employees (see Exposure Draft 6, cl. 4.7.20, p. 172–173).

Replacement cars (Schedule E)

There are regulations – Income Tax (Replacement Cars) Regulations 1994 (SI 1994/778) – that deal with the calculation of the Sch. E car benefit if the employee’s car is temporarily replaced (for example whilst the main car is being serviced). One clear improvement is the proposal to rewrite these provisions within the main body of the legislation on car benefits so that they are more visible to readers.

The rules in the regulations apply if, inter alia, the replacement car is of a similar quality to the replaced car, which in turn is defined as ‘ … neither materially better nor materially worse in quality than the replaced car.’

However, in practice, cars that are materially worse than the replaced car qualified for the special rules. As a result, there is a proposal to reflect this in the rewritten law (see Exposure Draft 12, Vol. 1 p. 46–47).

Technical Department
020 7235 9381

March 2002 by Keith Gordon


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