Distributed to:
All non-charitable Registered Social Landlords except co-ownership societies, and local authorities and auditors

Summary:
Provides guidance on the planned reduction of Tax Relief Grant paid under Section 54 of the Housing Act 1988, and announces the issue of a Determination enabling the Corporation to recover this grant in certain circumstances.



This circular updates circular F3 - 31/87 and F3 - 32/95

1 Introduction

1.1 Section 54 of the Housing Act 1988 enables the Secretary of State to make discretionary grants to relieve Registered Social Landlords (RSLs) of tax incurred in respect of their social housing activities as defined in Corporation circular F3 - 31/87. Its provisions do not apply to co-operative societies approved for the purposes of Section 488 of the Income and Corporation Taxes Act 1988.

1.2 On 21 November 1996 the Department of the Environment (DOE) announced a planned timetable for reductions in tax relief grant (TRG) payments to eligible RSLs. The text of the DOE Press Release is reproduced at Annex 1.

1.3 This circular explains how the planned reductions will operate in practice. The Corporation administers payment of this grant on behalf of the Department of the Environment who have agreed the contents of this circular.

1.4 The contents of this circular should be brought to the attention of your auditors.

1.5 The Housing Corporation does not provide tax advice.


2 Planned reductions in the rates of payments

Tax incurred:	Planned rate of payment
up to 31 March 1997	100%
between 1 April 1997 and 31 March 1998	75% of the first £50,000 and 50% on the rest
between 1 April 1998 and 31 March 1999	50% of the first £25,000 and 25% on the rest
from 1 April 1999 onwards	0%

3 Conditions attached to payments of tax relief grant from 1 April 1997

3.1 No change has been made to the eligible activities defined in Corporation Circular F3 - 31/87.

3.2 An 'on account' claim must be submitted if an RSL cannot submit a final TRG claim to the appropriate Corporation regional office within nine months of its financial year end. It is not necessary to submit a 'nil' on account TRG claim. In the exceptional circumstances where the 'on account' or final claim cannot be submitted within this timetable, the Corporation must be advised within that nine months. The RSL must state reasons for the delay, the estimated date when the TRG claim will be submitted and an estimate of the amount of TRG which will be claimed .

3.2 'On account' TRG claims may not be submitted until seven and a half months after the financial period end, in accordance with circular F3 - 32/95 which remains unchanged.

3.3 The final TRG claim for any financial period must be submitted to the Corporation within three months of the final assessment. Final claims will not be accepted beyond that deadline.

3.4 For any one assessment period, the 'on account' and final TRG claims will be paid at the same rate, as set out at section 2 above. Any refunds from the Inland Revenue should also be repaid to the Corporation at the rate applicable to the year of assessment.

3.5 Where the Inland Revenue re-opens an assessment, any further payment of tax will be eligible for TRG at the rate applicable to that assessment period. Similarly any resulting refund of tax will result in a refund of TRG at the rate applicable to that assessment period.


4. Treatment of financial period not ending on 31 March.

4.1 During the period of this planned reduction in the rate of relief, any RSL with a financial period end other than 31 March will be paid TRG on a pro rata basis, and this method will also apply to any financial period other than for twelve months. The following example is for financial years ending 31 December.

Year end 31 December 1997, eligible tax payable of £160,000

Tax should be split on pro rata basis of 3/12ths up to 31 March 1997 = £40,000, and 9/12ths from 1 April 1997 to 31 December 1997 = £120,000

TRG calculation:
1.1.97 to 31.3.97 - 100% on £40,000 = £40,000
1.4.97 to 31.12.97 - 75% on first (9/12ths of £50,000) £37,500
= £37,500 at 75% = £28,125
1.4.97 to 31.12.97 - 50% on balance = £120,000 - £37,500
= £82,500 at 50% = £41,250

Total TRG for year ended 31.12.97 £109,375


Year end 31 December 1998, eligible tax payable of £160,000

Tax should be split £40,000:£120,000 as above

TRG calculation
1.1.98 to 31.3.98 - 75% on first (3/12ths of £50,000) £12,500
= £12,500 at 75% = £ 9,375
1.1.98 to 31.3.98 - 50% on balance = £40,000 - £12,500 = £27,500 at 50% = £13,750
1.4.98 to 31.12.98 - 50% on first (9/12ths of £25,000) £18,750
= £18,750 at 50% = £ 9,375
1.4.98 to 31.12.98 - 25% on balance = £120,000 - £18,750
= £101,250 at 25% = £25,312.50

Total TRG for year ended 31.12.98 £57,812.50


Year end 31 December 1999, eligible tax payable of £160,000

Tax should be split £40,000:£120,000 as above

TRG calculation
1.1.99 to 31.3.99 - 50% on first (3/12ths of £25,000) £6,250
= £6,250 at 50% = £ 3,125
1.1.99 to 31.3.99 - 25% on balance = £40,000 - £6,250
= £33,750 at 25% = £ 8,437.50

Total TRG for year ended 31.12.99 £11,562.50

5. Tax Relief Grant (Repayment) Determination 1996

5.1 Enclosed with this circular is a copy of the Tax Relief Grant (Repayment) Determination 1996. Section 54 of the Housing Act 1988 already gives the Corporation powers of recovery when it learns that tax relieved by grant was not chargeable e.g. upon a tax refund. This determination formally sets out other circumstances in which the Corporation may recover tax relief grant.

6. Enquiries

6.1 Please direct enquires on this circular to the Financial Supervision section at the regional office that normally processes your Tax Relief Grant claim.


Annex 1 - Department of the Environment Press Release dated 21 November 1996

TAX RELIEF GRANT FOR HOUSING ASSOCIATIONS

Housing Minister David Curry today announced the planned timetable for reduction in tax relief grant payments to non-charitable associations.

In answer to a Parliamentary Question from Mr. Nigel Waterson MP (Eastbourne), Mr. Curry said

"We published a consultation paper on 31 July setting out our proposals for the progressive reduction in tax relief grant payments to non-charitable housing associations. 88 responses were received.

Many associations said they needed more time to plan how to respond to the progressive reduction of tax relief grant and to effect any necessary changes. I accept this concern and recognise that associations need adequate time to accomplish a smooth change. I therefore propose that we continue to pay tax relief grant claims at the current norm of 100% during 1997/98, in respect of associations' tax liabilities up to and including 1996/97.

Another theme of the responses was that associations would appreciate a degree of certainty about future rates of payment. While I should not wish unreasonably to restrict future discretion in this matter, it seems to me helpful to give a clear steer to associations as to our future plans so that they can make appropriate arrangements. I therefore plan that, in future years, payments will be on a sliding scale. In 1998/99, in respect of tax liabilities during 1997/98, we plan to pay 75% of the first £50,000 of eligible claims, then 50% of the rest. In 1999/00, in respect of tax liabilities during 1998/99, we plan to pay 50% of the first £25,000 of eligible claims, then 25% of the rest.

The Government believes that public resources for social housing should be allocated directly towards meeting priority needs in ways which produce good value for money. The Government is not convinced that the continued availability of tax relief grant would help to achieve this. We therefore remain committed to its abolition when an appropriate legislative opportunity arises. In the meantime, although the statutory discretion to pay tax relief grant will remain, the Government would normally expect that, following the planned reductions outlined above, associations will take steps to manage without tax relief grant payments."