This week the Inland Revenue published a draft Income Tax (Earnings and Pensions) Bill. This marks the start of the final round of consultation on the Tax Law Rewrite Project's rewritten legislation on income from employment, pensions and social security.

The Project started 5 years ago and aims to make our tax law clearer and easier to use, adopting colloquial English where possible and shorter sentences in the active rather than passive voice. For example, s. 648A (1) of ICTA 1988 (Personal Pensions: Annuities: charge under Schedule E) presently reads:

"Subject to subsection (2) below, where funds held for the purposes of an approved personal pension scheme are used to acquire an annuity -

1. the annuity shall be charged to tax under Schedule E and section 203 shall apply accordingly;
2. the annuity shall not be charged to tax under Case III of Schedule D."

This is to be replaced simply by clause 585 (Annuities) of the Draft Bill:

"This section applies to any annuity acquired using funds held for the purposes of an approved personal pension scheme." The following para 586 (Income chargeable) states: "If section 585 applies, tax is charged on the full amount of the annuity received in the tax year." (See more below on the further significance of this.)

Rewrite Bills are not consolidation Bills. This Bill certainly makes extensive changes to existing tax legislation (extending up to the Finance Bill 2002), but does not consolidate in the way that the Pensions Schemes Act 1993 combined and replaced most of the earlier social security statutes concerning occupational and personal pensions. It is a quite separate exercise from the various "Simplification" reviews which are due to report shortly.

The Draft draws particular attention to 89 rewrite changes which either were not included in any of the previous Exposure Drafts or are significantly different from what was proposed previously. These are categorised as either

1. changes in approach but not in the underlying law (eg explicit clarification of for which tax year various amounts are to be treated as earnings; this addresses a notorious area of uncertainty in tax, namely whether the receipts or remittance basis applies to the emoluments.);
2. changes to the law and policy (mostly concerning employment income); and
3. changes to the law but not to policy. For example, when approved personal pension schemes were introduced in 1988, the annuities were taxed under Schedule D Case III.

   From 6 April 1995, PP annuities have had tax deducted on a PAYE basis instead, bringing PPs into line with occupational pensions in this respect (this change did not apply to s.226 contracts). However, ICTA 1988 s.648A (1), quoted above, makes no reference to the basis of assessment; although in practice the Tax Return Guide asks for a return of the annuities received. Therefore the new clause 586 (see above) is introduced to charge PP annuities on the amount received in the tax year.

A small amount of material has been identified as unnecessary and therefore to be removed from the statute book: unfortunately, hardly any of this refers to pension income.

The consultation material comprises three volumes totalling 1,257 pages. Perhaps in an effort to attract the attention of others besides proven aficionados of tax law, the authors have highlighted just 107 questions on which they particularly want your views.