Budget Notes

BN51 INDIVIDUAL SAVING ACCOUNTS AND OTHER SAVING ACCOUNTS: REDUCING THE ADMINISTRATIVE BURDEN

Who is likely to be affected?

1. This measure will affect:

•    Individual Saving Account (ISA) managers who make quarterly statistical ISA reports to HM Revenue & Customs (HMRC);

•    financial institutions that receive applications from:

•    ISA investors;

•    UK non-taxpayers for payment of interest gross; and

•    individuals not ordinarily resident in the UK for payment of interest gross.

General description of the measure

Quarterly statistical reports

2. This measure will remove the requirement for ISA managers to submit quarterly returns of statistical information to HMRC (detailing subscriptions received) on and after 6 April 2008. Instead, ISA managers will make an annual statistical return detailing subscriptions received after the end of each tax year. The requirement on ISA managers to make an annual 'market value' return will remain.

Retention of application forms

3. The requirement for ISA managers to retain the copy of an investor's application for an ISA will also cease. Similarly, financial institutions who operate the Tax Deduction Scheme for Interest (TDSI) will no longer have to retain applications from investors for:

•    gross payment of interest by UK non-taxpayers (Form R85); and

•    gross payment of interest by not-ordinarily resident individuals (Form R105).

4. Instead, ISA managers and financial institutions that choose not to retain forms will be required to record the information contained in the application and a send a written copy of confirmation to the customer. The original application can then be destroyed.

Changes to Regulations

5. The existing regulations which cover the operation of the TDSI will be consolidated.

6. A number of changes to the ISA Regulations will be made to remove obsolete references and update other references.

Operative date

7. For ISAs, these changes will have effect on and after 6 April 2008. For TDSI, the changes will have effect later in the year on and after a date to be determined in regulations made by the Commissioners for HM Revenue and Customs.

Current law and proposed revisions

ISA Returns of Statistical Information

8. Under the ISA Regulations, managers are required to make a quarterly return of statistical information to HMRC's Savings Schemes Office within one month of 5 July, 5 October, 5 January and 5 April in each tax year. The returns are made on form ISA 25(Stats) and provide cumulative details of ISA subscriptions.

9. Managers also have to make an annual return of statistical information within 60 days of the end of the tax year. The annual return (made on the form ISA 14(Stats)) provides details of the market values of the qualifying investments held in ISAs. This type of return is described as a 'market value' return.

10. The ISA Regulations will be amended so that on and after 6 April 2008 HMRC will cease collecting quarterly statistics and will, instead, collect a single 'subscription return' at the end of the tax year, which HMRC will use to publish annual subscription statistics. Managers will still be required to make an annual 'market value return' within 60 days of the end of the tax year.

Removing the requirement to retain copies of applications

11. Under the ISA Regulations, managers are required to retain either paper forms or electronically scanned copies of an investor's written ISA application. On and after 6 April 2008, ISA managers will have the option of treating a written application in the same way as they would a non-written one. The manager would transfer all of the details from the written application form onto their systems, send a written confirmation of the declaration to the investor and retain a record that the confirmation has been sent. The ISA manager could then destroy the signed application.

12. Financial institutions that operate TDSI are required to retain either paper forms or electronically scanned copies of the application to receive gross payment of interest from UK non-taxpayers or not-ordinarily resident individuals. Financial institutions will be given the option of treating a written application in the same way as they would a non-written one (for example, an application by telephone or via the internet). The financial institution would transfer all of the details from the written application form onto their systems, send a written confirmation of the declaration to the saver and retain a record that the confirmation has been sent. The financial institution could then destroy the signed application.

Consolidation of the regulations that cover the TDSI

13. The existing regulations which cover the operation of the Tax Deduction Scheme for Interest (1990/2231 (Building Society Regulations), 1990/2232 (Deposit-taker Regulations), 1992/10 (Building Society Audit Regulations) and 1992/12 (Deposit-taker Audit Regulations)) will be consolidated into a single set of regulations to be laid later in the year. These regulations will include the change to give financial institutions who operate TDSI the option of treating a written application in the same way as they would a non-written one.

Minor drafting changes to the ISA regulations

14. There are a number of minor drafting changes being made to the ISA regulations. These changes are to remove obsolete references and to update legislative references following the Tax Law Rewrite Acts. These changes will have no impact on individuals or providers.

Further advice

15. If you have any questions about these changes, please contact David Ensor on 020 7147 2838 (email: david.ensor@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk