Income Tax (Earnings and Pensions) Act 2003

2003 Chapter 1

An Act to restate, with minor changes, certain enactments relating to income tax on employment income, pension income and social security income; and for connected purposes.

[6th March 2003]

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

Part 1Overview

1Overview of contents of this Act

1

This Act imposes charges to income tax on—

a

employment income (see Parts 2 to 7),

b

pension income (see Part 9), and

c

social security income (see Part 10).

2

Those charges to tax have effect for the purposes of section 1(1) of ICTA (the general charge to income tax).

3

This Act also—

a

confers certain reliefs in respect of liabilities of former employees (see Part 8),

b

provides for the assessment, collection and recovery of income tax in respect of employment, pension or social security income that is PAYE income (see Part 11), and

c

allows deductions to be made from such income in respect of payroll giving (see Part 12).

2Abbreviations and general index in Schedule 1

1

Schedule 1 (abbreviations and defined expressions) applies for the purposes of this Act.

2

In Schedule 1—

a

Part 1 gives the meaning of the abbreviated references to Acts and instruments used in this Act, and

b

Part 2 lists the places where expressions used in this Act are defined or otherwise explained.

3

Part 2 of Schedule 1 does not apply to expressions used in Chapters 6 to 9 of Part 7 (share incentive plans and other arrangements for acquiring shares): separate indexes relating to these Chapters appear at the end of Schedules 2 to 5.

Part 2Employment income: charge to tax

Chapter 1Introduction

3Structure of employment income Parts

1

The structure of the employment income Parts is as follows—

this Part imposes the charge to tax on employment income, and sets out—

how the amount charged to tax for a tax year is to be calculated, and

who is liable for the tax charged;

Part 3 sets out what are earnings and provides for amounts to be treated as earnings;

Part 4 deals with exemptions from the charge to tax under this Part (and, in some cases, from other charges to tax);

Part 5 deals with deductions from taxable earnings;

Part 6 deals with employment income other than earnings or share-related income; and

Part 7 deals with share-related income and exemptions.

2

In this Act “the employment income Parts” means this Part and Parts 3 to 7.

4“Employment” for the purposes of the employment income Parts

1

In the employment income Parts “employment” includes in particular—

a

any employment under a contract of service,

b

any employment under a contract of apprenticeship, and

c

any employment in the service of the Crown.

2

In those Parts “employed”, “employee” and “employer” have corresponding meanings.

5Application to offices and office-holders

1

The provisions of the employment income Parts that are expressed to apply to employments apply equally to offices, unless otherwise indicated.

2

In those provisions as they apply to an office—

a

references to being employed are to being the holder of the office;

b

“employee” means the office-holder;

c

“employer” means the person under whom the office-holder holds office.

3

In the employment income Parts “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

Chapter 2Tax on employment income

6Nature of charge to tax on employment income

1

The charge to tax on employment income under this Part is a charge to tax on—

a

general earnings, and

b

specific employment income.

The meaning of “employment income”, “general earnings” and “specific employment income” is given in section 7.

2

The amount of general earnings or specific employment income which is charged to tax in a particular tax year is set out in section 9.

3

The rules in Chapters 4 and 5 of this Part, which are concerned with—

a

the residence and domicile of an employee in a tax year, and

b

the tax year in which amounts are received or remitted to the United Kingdom,

apply for the purposes of the charge to tax on general earnings but not that on specific employment income.

4

The person who is liable for any tax charged on employment income is set out in section 13.

5

Employment income is not charged to tax under this Part if it is within the charge to tax under Case I of Schedule D by virtue of section 314(1) of ICTA (divers and diving supervisors).

7Meaning of “employment income”, “general earnings” and “specific employment income”

1

This section gives the meaning for the purposes of the Tax Acts of “employment income”, “general earnings” and “specific employment income”.

2

“Employment income” means—

a

earnings within Chapter 1 of Part 3,

b

any amount treated as earnings (see subsection (5)), or

c

any amount which counts as employment income (see subsection (6)).

3

“General earnings” means—

a

earnings within Chapter 1 of Part 3, or

b

any amount treated as earnings (see subsection (5)),

1

This section explains what is meant by “taxable earnings” and “taxable specific income” in the employment income Parts.

2

“Taxable earnings” from an employment in a tax year are to be determined in accordance with—

a

Chapter 4 of this Part (rules applying to employees resident, ordinarily resident and domiciled in the UK), or

b

Chapter 5 of this Part (rules applying to employees resident, ordinarily resident or domiciled outside the UK).

3

“Taxable specific income” from an employment for a tax year means the full amount of any specific employment income which, by virtue of Part 6 or 7 or any other enactment, counts as employment income for that year in respect of the employment.

11Calculation of “net taxable earnings”

1

For the purposes of this Part the “net taxable earnings” from an employment in a tax year are given by the formula—

TE-DE math

where—

TE means the total amount of any taxable earnings from the employment in the tax year, and

DE means the total amount of any deductions allowed from those earnings under provisions listed in section 327(3) to (5) (deductions from earnings: general).

2

If the amount calculated under subsection (1) is negative, the net taxable earnings from the employment in the year are to be taken to be nil instead.

3

Relief may be available under section 380(1) of ICTA (set-off against general income)—

a

where TE is negative, or

b

in certain exceptional cases where the amount calculated under subsection (1) is negative.

4

If a person has more than one employment in a tax year, the calculation under subsection (1) must be carried out in relation to each of the employments.

12Calculation of “net taxable specific income”

1

For the purposes of this Part the “net taxable specific income” from an employment for a tax year is given by the formula—

TSI-DSI math

where—

TSI means the amount of any taxable specific income from the employment for the tax year, and

DSI means the total amount of any deductions allowed from that income under provisions of the Tax Acts not included in the lists in section 327 (3) and (4) (deductions from earnings: general).

2

If the amount calculated under subsection (1) is negative, the net taxable specific income from the employment for the year is to be taken to be nil instead.

3

If a person has more than one kind of specific employment income from an employment for a tax year, the calculation under subsection (1) must be carried out in relation to each of those kinds of specific employment income; and in such a case the “net taxable specific income” from the employment for that year is the total of all the amounts so calculated.

13Person liable for tax

1

The person liable for any tax on employment income under this Part is the taxable person mentioned in subsection (2) or (3).

This is subject to subsection (4).

2

If the tax is on general earnings, “the taxable person” is the person to whose employment the earnings relate.

3

If the tax is on specific employment income, “the taxable person” is the person in relation to whom the income is, by virtue of Part 6 or 7 or any other enactment, to count as employment income.

4

If the tax is on general earnings received, or remitted to the United Kingdom, after the death of the person to whose employment the earnings relate, the person’s personal representatives are liable for the tax.

5

In that event the tax is accordingly to be assessed on the personal representatives and is a debt due from and payable out of the estate.

Chapter 4Taxable earnings: rules applying to employee resident, ordinarily resident and domiciled in UK

Taxable earnings

14Taxable earnings under this Chapter: introduction

4

If that period consists of the whole or parts of two or more tax years, the part of the earnings that is to be regarded as general earnings “for” each of those tax years is to be determined on a just and reasonable apportionment.

5

This section does not apply to any amount which is required by a provision of Part 3 to be treated as earnings for a particular tax year.

17Treatment of earnings for year in which employment not held

1

This section applies for the purposes of this Chapter in a case where general earnings from an employment would otherwise fall to be regarded as general earnings for a tax year in which the employee does not hold the employment.

2

If that year falls before the first tax year in which the employment is held, the earnings are to be treated as general earnings for that first tax year.

3

If that year falls after the last tax year in which the employment was held, the earnings are to be treated as general earnings for that last tax year.

4

This section does not apply in connection with determining the year for which amounts are to be treated as earnings under Chapters 2 to 11 of Part 3 (the benefits code).

When general earnings are received

18Receipt of money earnings

1

General earnings consisting of money are to be treated for the purposes of this Chapter as received at the earliest of the following times—

Rule 1

The time when payment is made of or on account of the earnings.

Rule 2

The time when a person becomes entitled to payment of or on account of the earnings.

Rule 3

If the employee is a director of a company and the earnings are from employment with the company (whether or not as director), whichever is the earliest of—

the time when sums on account of the earnings are credited in the company’s accounts or records (whether or not there is any restriction on the right to draw the sums);

if the amount of the earnings for a period is determined by the end of the period, the time when the period ends;

if the amount of the earnings for a period is not determined until after the period has ended, the time when the amount is determined.

2

Rule 3 applies if the employee is a director of the company at any time in the tax year in which the time mentioned falls.

3

In this section “director” means—

a

in relation to a company whose affairs are managed by a board of directors or similar body, a member of that body,

b

in relation to a company whose affairs are managed by a single director or similar person, that director or person, and

c

in relation to a company whose affairs are managed by the members themselves, a member of the company,

and includes any person in accordance with whose directions or instructions the directors of the company (as defined above) are accustomed to act.

4

For the purposes of subsection (3) a person is not to be regarded as a person in accordance with whose directions or instructions the directors of the company are accustomed to act merely because the directors act on advice given by that person in a professional capacity.

5

Where this section applies—

a

to a payment on account of general earnings, or

b

to sums on account of general earnings,

it so applies for the purpose of determining the time when an amount of general earnings corresponding to the amount of that payment or those sums is to be treated as received for the purposes of this Chapter.

19Receipt of non-money earnings

1

General earnings not consisting of money are to be treated for the purposes of this Chapter as received at the following times.

2

If an amount is treated as earnings for a particular tax year under any of the following provisions, the earnings are to be treated as received in that year—

section 81 (taxable benefits: cash vouchers),

section 94 (taxable benefits: credit-tokens),

Chapter 5 of Part 3 (taxable benefits: living accommodation),

Chapter 6 of Part 3 (taxable benefits: cars, vans and related benefits),

Chapter 7 of Part 3 (taxable benefits: loans),

Chapter 8 of Part 3 (taxable benefits: notional loans in respect of acquisitions of shares),

Chapter 9 of Part 3 (taxable benefits: disposals of shares for more than market value),

Chapter 10 of Part 3 (taxable benefits: residual liability to charge),

section 222 (payments treated as earnings: payments on account of tax where deduction not possible),

section 223 (payments treated as earnings: payments on account of director’s tax).

3

If an amount is treated as earnings under section 87 (taxable benefits: non-cash vouchers), the earnings are to be treated as received in the tax year mentioned in section 88.

4

If subsection (2) or (3) does not apply, the earnings are to be treated as received at the time when the benefit is provided.

Chapter 5Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK

Taxable earnings

20Taxable earnings under this Chapter: introduction

may be deducted under that section from any taxable earnings under section 21.

23Calculation of “chargeable overseas earnings”

1

This section applies for calculating how much of an employee’s general earnings for a tax year are “chargeable overseas earnings” for the purposes of sections 21 and 22.

2

General earnings for a tax year are “overseas earnings” for that year if—

a

in that year the employee is resident and ordinarily resident, but not domiciled, in the United Kingdom,

b

the employment is with a foreign employer, and

c

the duties of the employment are performed wholly outside the United Kingdom.

3

To calculate the amount of “chargeable overseas earnings” for a tax year—

Step 1

Identify the full amount of the overseas earnings for that year under subsection (2).

Step 2

Subtract any amounts that would (assuming they were taxable earnings) be allowed to be deducted from those earnings under—

section 232 or Part 5 (deductions allowed from earnings),

section 592(7) of ICTA (contributions to exempt approved schemes),

section 594 of ICTA (contributions to exempt statutory schemes), or

section 262 of CAA 2001 (capital allowances to be given effect by treating them as deductions from earnings).

Step 3

Apply any limit imposed by section 24 (limit where duties of associated employment performed in UK).

The result is the chargeable overseas earnings for the tax year.

“associated employments” means employments with the same employer or with associated employers.

5

The following rules apply to determine whether employers are associated—

Rule A

An individual is associated with a partnership or company if that individual has control of the partnership or company.

Rule B

A partnership is associated with another partnership or with a company if one has control of the other or both are under the control of the same person or persons.

Rule C

whether or not the employment is held at the time when the earnings are received.

4

Section 28 explains what is meant by “general earnings from overseas Crown employment subject to United Kingdom tax”.

26Foreign earnings for year when employee resident, but not ordinarily resident, in UK

1

This section applies to general earnings for a tax year in which the employee is resident, but not ordinarily resident, in the United Kingdom if they are neither—

a

general earnings in respect of duties performed in the United Kingdom, nor

b

general earnings from overseas Crown employment subject to United Kingdom tax.

2

The full amount of any general earnings within subsection (1) which are remitted to the United Kingdom in a tax year is an amount of “taxable earnings” from the employment in that year.

3

Subsection (2) applies—

a

whether the earnings are for that year or for some other tax year, and

b

whether or not the employment is held at the time when the earnings are remitted;

but that subsection has effect subject to any relief given under section 35 (delayed remittances: claim for relief).

4

Section 28 explains what is meant by “general earnings from overseas Crown employment subject to United Kingdom tax”.

Employees not resident in UK

27UK-based earnings for year when employee not resident in UK

1

This section applies for determining whether general earnings are general earnings “for” a particular tax year for the purposes of this Chapter.

2

General earnings that are earned in, or otherwise in respect of, a particular period are to be regarded as general earnings for that period.

3

If that period consists of the whole or part of a single tax year, the earnings are to be regarded as general earnings “for” that tax year.

4

5

This section does not apply to any amount which is required by a provision of Part 3 to be treated as earnings for a particular tax year.

30Treatment of earnings for year in which employment not held

1

2

If that year falls before the first tax year in which the employment is held, the earnings are to be treated as general earnings for that first tax year.

3

If that year falls after the last tax year in which the employment was held, the earnings are to be treated as general earnings for that last tax year.

4

This section does not apply in connection with determining the year for which amounts are to be treated as earnings under Chapters 2 to 11 of Part 3 (the benefits code).

When general earnings are received or remitted

31Receipt of money earnings

1

General earnings consisting of money are to be treated for the purposes of this Chapter as received at the earliest of the following times—

Rule 1

The time when payment is made of or on account of the earnings.

Rule 2

The time when a person becomes entitled to payment of or on account of the earnings.

Rule 3

If the employee is a director of a company and the earnings are from employment with the company (whether or not as director), whichever is the earliest of—

the time when sums on account of the earnings are credited in the company’s accounts or records (whether or not there is any restriction on the right to draw the sums);

if the amount of the earnings for a period is determined by the end of the period, the time when the period ends;

if the amount of the earnings for a period is not determined until after the period has ended, the time when the amount is determined.

2

Rule 3 applies if the employee is a director of the company at any time in the tax year in which the time mentioned falls.

3

In this section “director” means—

a

in relation to a company whose affairs are managed by a board of directors or similar body, a member of that body,

b

in relation to a company whose affairs are managed by a single director or similar person, that director or person, and

c

in relation to a company whose affairs are managed by the members themselves, a member of the company,

and includes any person in accordance with whose directions or instructions the directors of the company (as defined above) are accustomed to act.

4

5

Where this section applies—

a

to a payment on account of general earnings, or

b

to sums on account of general earnings,

32Receipt of non-money earnings

1

General earnings not consisting of money are to be treated for the purposes of this Chapter as received at the following times.

2

If an amount is treated as earnings for a particular tax year under any of the following provisions, the earnings are to be treated as received in that year—

section 81 (taxable benefits: cash vouchers),

section 94 (taxable benefits: credit-tokens),

Chapter 5 of Part 3 (taxable benefits: living accommodation),

Chapter 6 of Part 3 (taxable benefits: cars, vans and related benefits),

Chapter 7 of Part 3 (taxable benefits: loans),

Chapter 8 of Part 3 (taxable benefits: notional loans in respect of acquisitions of shares),

Chapter 9 of Part 3 (taxable benefits: disposals of shares for more than market value),

Chapter 10 of Part 3 (taxable benefits: residual liability to charge),

section 222 (payments treated as earnings: payments on account of tax where deduction not possible),

section 223 (payments treated as earnings: payments on account of director’s tax).

3

If an amount is treated as earnings under section 87 (taxable benefits: non-cash vouchers), the earnings are to be treated as received in the tax year mentioned in section 88.

4

If subsection (2) or (3) does not apply, the earnings are to be treated as received at the time when the benefit is provided.

33Earnings remitted to UK

1

This section explains what is meant for the purposes of this Chapter by general earnings being remitted to the United Kingdom.

2

If general earnings are—

a

paid, used, or enjoyed in the United Kingdom, or

b

transmitted or brought to the United Kingdom in any manner or form,

they are to be treated as remitted to the United Kingdom at the time when they are so paid, used or enjoyed or dealt with as mentioned in paragraph (b).

3

If, in the case of an employee who is ordinarily resident in the United Kingdom, general earnings are used outside the United Kingdom to satisfy a UK-linked debt, they are to be treated as remitted to the United Kingdom at the time when they are so used.

This is subject to subsection (5)(b).

4

In subsection (3) “UK-linked” debt, in relation to an employee, means—

a

a debt for money lent to the employee in the United Kingdom, or for interest on money so lent, or

b

a debt for money lent to the employee outside the United Kingdom and received in the United Kingdom, or

c

a debt incurred for satisfying—

i

a debt falling within paragraph (a) or (b), or

ii

another debt falling within this paragraph.

5

In the case of a debt (within subsection (4)(b) or (c)) for money lent to the employee outside the United Kingdom—

a

it does not matter whether the money lent is received in the United Kingdom before or after the general earnings are used to satisfy the debt, but

b

if the money lent is not received in the United Kingdom until after the general earnings are used to satisfy the debt, the general earnings are to be treated as remitted to the United Kingdom at the time when the money lent is received there (instead of at the time provided in subsection (3)).

6

In subsections (4) and (5) any reference to money lent being received in the United Kingdom includes a reference to its being brought there.

7

Section 34 (further provisions about UK-linked debts) applies for the purposes of subsections (3) to (5).

34Earnings remitted to UK: further provisions about UK-linked debts

1

This section applies for the purposes of the provisions of section 33 which relate to general earnings that are used to satisfy a UK-linked debt.

2

General earnings are to be treated as used to satisfy a debt for money lent to a person (“the borrower”) if conditions A and B are met.

3

Condition A is that the earnings are dealt with in such a way that the lender holds money or property representing the earnings on behalf of or on account of the borrower in such circumstances that it is available to the lender to satisfy or reduce the debt (by set-off or otherwise).

4

Condition B is that under an arrangement between the borrower and the lender—

a

the amount for the time being owed by the borrower to the lender, or

b

the time at which the debt is to be wholly or partly repaid,

if it consists of general earnings received in two or more tax years, so much of the amount as was received in each of those years is to be treated as taxable earnings from the employment in that year.

If more than one year is specified, the election must indicate the amount which is to be treated as taxable earnings in each of those years.

6

However the amount of the delayed remittances which the claimant elects to be treated as taxable earnings in a particular tax year must not exceed—

BE-PC math

where—

BE is the amount of blocked earnings of the claimant for that year from the employment, and

PC is the amount of remittances treated as taxable earnings from the employment in that year as a result of a previous claim by the claimant under section 35.

7

An election under this section—

a

must be made as part of the claim under section 35, and

b

is irrevocable.

8

A person’s personal representatives may make any election under this section which the person might have made.

37Claims for relief on delayed remittances

1

A claim under section 35 must be made on or before the fifth anniversary of the normal self-assessment filing date for the tax year for which relief is claimed.

2

All adjustments (by way of repayment of tax, assessment or otherwise) are to be made which are necessary to give effect to section 35.

3

Those adjustments may be made at any time, despite anything to the contrary in the Income Tax Acts.

4

A person’s personal representatives may make any claim under section 35 which the person might have made.

5

If a person dies—

a

any tax paid by the person and repayable because of a claim under section 35 is to be repaid to the person’s personal representatives, and

b

the person’s personal representatives are liable for any additional tax which arises because of a claim under that section.

6

Where subsection (5)(b) applies, the additional tax—

a

is to be assessed on the personal representatives, and

b

is a debt due from and payable out of the estate.

Place of performance of duties of employment

38Earnings for period of absence from employment

1

This section applies if a person ordinarily performs the whole or part of the duties of an employment in the United Kingdom.

2

General earnings for a period of absence from the employment are to be treated for the purposes of this Chapter as general earnings for duties performed in the United Kingdom except in so far as they would, but for that absence, have been general earnings for duties performed outside the United Kingdom.

39Duties in UK merely incidental to duties outside UK

1

This section applies if in a tax year an employment is in substance one whose duties fall to be performed outside the United Kingdom.

2

Duties of the employment performed in the United Kingdom whose performance is merely incidental to the performance of duties outside the United Kingdom are to be treated for the purposes of this Chapter as performed outside the United Kingdom.

3

This section does not affect any question as to—

a

where any duties are performed, or

b

whether a person is absent from the United Kingdom,

for the purposes of section 378 (deduction from seafarers’ earnings: eligibility), and section 383 (place of performance of incidental duties) applies instead.

40Duties on board vessel or aircraft

“the UK sector of the continental shelf” means the areas designated under section 1(7) of the Continental Shelf Act 1964, and

“exploration or exploitation activities” means activities carried on in connection with the exploration or exploitation of so much of the seabed and subsoil and their natural resources as is situated in the United Kingdom or the UK sector of the continental shelf.

Chapter 6Disputes as to domicile or ordinary residence

42Board to determine dispute as to domicile or ordinary residence

1

This section applies if, in connection with any of the provisions listed in subsection (3), there is a dispute as to whether a person is or has been ordinarily resident or domiciled in the United Kingdom.

2

The question whether the person is or has been so resident or domiciled is to be referred to and decided by the Board of Inland Revenue.

3

The provisions referred to in subsection (1) are—

section 15 (earnings for year when employee resident, ordinarily resident and domiciled in UK);

section 21 (earnings for year when employee resident and ordinarily resident, but not domiciled, in UK, except chargeable overseas earnings);

section 22 (chargeable overseas earnings for year when employee resident and ordinarily resident, but not domiciled, in UK);

section 23 (calculation of “chargeable overseas earnings”);

section 25 (UK-based earnings for year when employee resident, but not ordinarily resident, in UK);

section 26 (foreign earnings for year when employee resident, but not ordinarily resident, in UK);

section 341 (deduction for travel expenses at start or finish of overseas employment);

section 342 (deduction for travel expenses between employments where duties performed abroad);

section 355 (deduction for corresponding payments by non-domiciled employees with foreign employers);

section 376 (deduction for foreign accommodation and subsistence costs etc. where overseas employment);

section 390 (exception for payments to non-approved pension schemes if non-domiciled employees with foreign employers).

43Appeal against Board’s decision on domicile or ordinary residence

1

A person who has been given notice of the Board’s decision on a question under section 42 may, if aggrieved by that decision, appeal to the Special Commissioners.

2

The notice of appeal must be given to the Board within 3 months after the date on which the person is given notice of the Board’s decision.

Chapter 7Application of provisions to agency workers

Agency workers

44Treatment of workers supplied by agencies

1

This section applies if—

a

1

This Chapter has effect with respect to the provision of services through an intermediary.

2

Nothing in this Chapter—

a

affects the operation of Chapter 7 of this Part, or

b

applies to payments subject to deduction of tax under section 555 of ICTA (payments to non-resident entertainers and sportsmen).

49Engagements to which this Chapter applies

1

This Chapter applies where—

a

an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person (“the client”),

b

the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (“the intermediary”), and

c

the circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client.

2

In subsection (1)(a) “business” includes any activity carried on—

a

by a government or public or local authority (in the United Kingdom or elsewhere), or

b

by a body corporate, unincorporated body or partnership.

3

The reference in subsection (1)(b) to a “third party” includes a partnership or unincorporated body of which the worker is a member.

4

The circumstances referred to in subsection (1)(c) include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided.

5

In this Chapter “engagement to which this Chapter applies” means any such provision of services as is mentioned in subsection (1).

50Worker treated as receiving earnings from employment

1

If, in the case of an engagement to which this Chapter applies, in any tax year—

a

the conditions specified in section 51, 52 or 53 are met in relation to the intermediary, and

b

the worker, or an associate of the worker—

i

receives from the intermediary, directly or indirectly, a payment or benefit that is not employment income, or

ii

has rights which entitle, or which in any circumstances would entitle, the worker or associate to receive from the intermediary, directly or indirectly, any such payment or benefit,

the intermediary is treated as making to the worker, and the worker is treated as receiving, in that year a payment which is to be treated as earnings from an employment (“the deemed employment payment”).

2

A single payment is treated as made in respect of all engagements in relation to which the intermediary is treated as making a payment to the worker in the tax year.

3

The deemed employment payment is treated as made at the end of the tax year, unless section 57 applies (earlier date of deemed payment in certain cases).

4

In this Chapter “the relevant engagements”, in relation to a deemed employment payment, means the engagements mentioned in subsection (2).

51Conditions of liability where intermediary is a company

1

Where the intermediary is a company the conditions are that the intermediary is not an associated company of the client that falls within subsection (2) and either—

a

the worker has a material interest in the intermediary, or

b

the payment or benefit mentioned in section 50(1)(b)—

i

is received or receivable by the worker directly from the intermediary, and

ii

can reasonably be taken to represent remuneration for services provided by the worker to the client.

2

ii

to a single client together with associates of that client; or

c

that under the profit sharing arrangements the income of any of the partners is based on the amount of income generated by that partner by the provision of services under engagements to which this Chapter applies.

In paragraph (a) “relative” means husband or wife, parent or child or remoter relation in the direct line, or brother or sister.

3

In relation to any payment or benefit received or receivable by the worker otherwise than as a member of the partnership, the conditions are that the payment or benefit—

a

is received or receivable by the worker directly from the intermediary, and

b

can reasonably be taken to represent remuneration for services provided by the worker to the client.

53Conditions of liability where intermediary is an individual

Where the intermediary is an individual the conditions are that the payment or benefit—

a

is received or receivable by the worker directly from the intermediary, and

b

can reasonably be taken to represent remuneration for services provided by the worker to the client.

The deemed employment payment

54Calculation of deemed employment payment

1

The amount of the deemed employment payment for a tax year (“the year”) is the amount resulting from the following steps—

Step 1

Find (applying section 55) the total amount of all payments and benefits received by the intermediary in the year in respect of the relevant engagements, and reduce that amount by 5%.

Step 2

Add (applying that section) the amount of any payments and benefits received by the worker in the year in respect of the relevant engagements, otherwise than from the intermediary, that—

are not chargeable to income tax as employment income, and

would be so chargeable if the worker were employed by the client.

Step 3

Deduct (applying Chapters 1 to 5 of Part 5) the amount of any expenses met in the year by the intermediary that would have been deductible from the taxable earnings from the employment if—

the worker had been employed by the client, and

the expenses had been met by the worker out of those earnings.

If the result at this or any later point is nil or a negative amount, there is no deemed employment payment.

Step 4

Deduct the amount of any capital allowances in respect of expenditure incurred by the intermediary that could have been deducted from employment income under section 262 of CAA 2001 (employments and offices) if the worker had been employed by the client and had incurred the expenditure.

Step 5

Deduct any contributions made in the year for the benefit of the worker by the intermediary to a scheme approved under Chapter 1 or 4 of Part 14 of ICTA that if made by an employer for the benefit of an employee would not be chargeable to income tax as income of the employee.

This does not apply to excess contributions made and later repaid.

Step 6

Deduct the amount of any employer’s national insurance contributions paid by the intermediary for the year in respect of the worker.

Step 7

Deduct the amount of any payments and benefits received in the year by the worker from the intermediary—

in respect of which the worker is chargeable to income tax as employment income, and

which do not represent items in respect of which a deduction was made under step 3.

partly to the services of the worker and partly to other matters.

in the case of a non-cash benefit that is not so calculated, when it would have been treated as received for the purposes of Chapter 4 or 5 of this Part (see section 19 or 32) if—

i

the worker had been an employee, and

ii

the benefit had been provided by reason of the employment.

the client or employer carries on business in the United Kingdom,

the intermediary is treated as having a place of business in the United Kingdom, whether or not it in fact does so.

8

The deemed employment payment is treated as relevant earnings of the worker for the purposes of section 644 of ICTA (relevant earnings for purposes of permissible pension contributions).

Supplementary provisions

57Earlier date of deemed employment payment in certain cases

1

If in any tax year—

a

a deemed employment payment is treated as made, and

b

before the date on which the payment would be treated as made under section 50(2) any relevant event (as defined below) occurs in relation to the intermediary,

the deemed employment payment for that year is treated as having been made immediately before that event or, if there is more than one, immediately before the first of them.

2

Where the intermediary is a company the following are relevant events—

a

the company ceasing to trade;

b

where the worker is a member of the company, the worker ceasing to be such a member;

c

where the worker holds an office with the company, the worker ceasing to hold such an office;

d

where the worker is employed by the company, the worker ceasing to be so employed.

3

Where the intermediary is a partnership the following are relevant events—

a

the dissolution of the partnership or the partnership ceasing to trade or a partner ceasing to act as such;

b

where the worker is employed by the partnership, the worker ceasing to be so employed.

4

Where the intermediary is an individual and the worker is employed by the intermediary, it is a relevant event if the worker ceases to be so employed.

5

The fact that the deemed employment payment is treated as made before the end of the tax year does not affect what receipts and other matters are taken into account in calculating its amount.

against relevant distributions received by the worker before those received by another person, and

c

against relevant distributions of earlier years before those of later years.

6

Where the amount of a relevant distribution is reduced under this section, the amount of any associated tax credit is reduced accordingly.

59Provisions applicable to multiple intermediaries

1

The provisions of this section apply where in the case of an engagement to which this Chapter applies the arrangements involve more than one relevant intermediary.

2

All relevant intermediaries in relation to the engagement are jointly and severally liable, subject to subsection (3), to account for any amount required under the PAYE provisions to be deducted from a deemed employment payment treated as made by any of them—

a

in respect of that engagement, or

b

in respect of that engagement together with other engagements.

3

An intermediary is not so liable if it has not received any payment or benefit in respect of that engagement or any such other engagement as is mentioned in subsection (2)(b).

4

Subsection (5) applies where a payment or benefit has been made or provided, directly or indirectly, from one relevant intermediary to another in respect of the engagement.

5

In that case, the amount taken into account in relation to any intermediary in step 1 or step 2 of section 54(1) is reduced to such extent as is necessary to avoid double-counting having regard to the amount so taken into account in relation to any other intermediary.

6

Except as provided by subsections (2) to (5), the provisions of this Chapter apply separately in relation to each relevant intermediary.

7

In this section “relevant intermediary” means an intermediary in relation to which the conditions specified in section 51, 52 or 53 are met.

60Meaning of “associate”

1

In this Chapter “associate”—

a

in relation to an individual, has the meaning given by section 417(3) and (4) of ICTA, subject to the following provisions of this section;

b

in relation to a company, means a person connected with the company; and

c

in relation to a partnership, means any associate of a member of the partnership.

2

Where an individual has an interest in shares or obligations of the company as a beneficiary of an employee benefit trust, the trustees are not regarded as associates of the individual by reason only of that interest except in the following circumstances.

3

The exception is where—

a

the individual, either alone or with any one or more associates of the individual, or

b

any associate of the individual, with or without other such associates,

has at any time on or after 14th March 1989 been the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control more than 5% of the ordinary share capital of the company.

4

In subsection (3) “associate” does not include the trustees of an employee benefit trust as a result only of the individual’s having an interest in shares or obligations of the trust.

5

Sections 549 to 554 (attribution of interests in companies to beneficiaries of employee benefit trusts) apply for the purposes of subsection (3) as they apply for the purposes of the provisions listed in section 549(2).

6

In this section “employee benefit trust” has the meaning given by sections 550 and 551.

61Interpretation

1

In this Chapter—

“associate” has the meaning given by section 60;

“associated company” has the meaning given by section 416 of ICTA;

“business” means any trade, profession or vocation and includes a Schedule A business;

“company” means a body corporate or unincorporated association, and does not include a partnership;

“employer’s national insurance contributions” means secondary Class 1 or Class 1A national insurance contributions;

“engagement to which this Chapter applies” has the meaning given by section 49(5);

“national insurance contributions” means contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992;

“PAYE provisions” means the provisions of Part 11 or PAYE regulations;

“the relevant engagements” has the meaning given by section 50(4).

2

References in this Chapter to payments or benefits received or receivable from a partnership or unincorporated association include payments or benefits to which a person is or may be entitled in the person’s capacity as a member of the partnership or association.

3

For the purposes of this Chapter—

a

anything done by or in relation to an associate of an intermediary is treated as done by or in relation to the intermediary, and

b

a payment or other benefit provided to a member of an individual’s family or household is treated as provided to the individual.

4

For the purposes of this Chapter a man and a woman living together as husband and wife are treated as if they were married to each other.

Part 3Employment income: earnings and benefits etc. treated as earnings

Chapter 1Earnings

62Earnings

1

This section explains what is meant by “earnings” in the employment income Parts.

2

In those Parts “earnings”, in relation to an employment, means—

a

any salary, wages or fee,

b

any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money’s worth, or

c

anything else that constitutes an emolument of the employment.

3

For the purposes of subsection (2) “money’s worth” means something that is—

a

of direct monetary value to the employee, or

b

capable of being converted into money or something of direct monetary value to the employee.

4

Subsection (1) does not affect the operation of statutory provisions that provide for amounts to be treated as earnings (and see section 721(7)).

Chapter 2Taxable benefits: the benefits code

The benefits code

63The benefits code

1

In the employment income Parts “the benefits code” means—

this Chapter,

Chapter 3 (expenses payments),

Chapter 4 (vouchers and credit-tokens),

Chapter 5 (living accommodation),

Chapter 6 (cars, vans and related benefits),

Chapter 7 (loans),

Chapter 8 (notional loans in respect of acquisitions of shares),

Chapter 9 (disposals of shares for more than market value),

Chapter 10 (residual liability to charge), and

Chapter 11 (exclusion of lower-paid employments from parts of benefits code).

2

If an employment is an excluded employment, the general effect of section 216(1) (provisions not applicable to lower-paid employments) is that only the following Chapters apply to the employment—

this Chapter,

Chapter 4 (vouchers and credit-tokens),

Chapter 5 (living accommodation), and

Chapter 11 (exclusion of lower-paid employments from parts of benefits code).

3

Section 216(5) and (6) explain and restrict the effect of section 216(1).

4

In the benefits code “excluded employment” means an employment to which the exclusion in section 216(1) applies.

64Relationship between earnings and benefits code

1

This section applies if, apart from this section, the same benefit would give rise to two amounts (“A” and “B”)—

a

A being an amount of earnings as defined in Chapter 1 of this Part, and

b

B being an amount to be treated as earnings under the benefits code.

2

In such a case—

a

A constitutes earnings as defined in Chapter 1 of this Part, and

b

the amount (if any) by which B exceeds A is to be treated as earnings under the benefits code.

3

This section does not apply in connection with living accommodation to which Chapter 5 of this Part applies.

4

In that case section 109 applies to determine the relationship between that Chapter and Chapter 1 of this Part.

5

This section does not apply if section 193 (notional loan where acquisition of shares made for less than market value) applies.

6

In that case sections 194 (amount of notional loan) and 196 (effects on other income tax charges) apply to determine the relationship between Chapters 1 and 8 of this Part.

65Dispensations relating to benefits within provisions not applicable to lower-paid employment

1

This section applies for the purposes of the listed provisions where a person (“P”) supplies the Inland Revenue with a statement of the cases and circumstances in which—

a

payments of a particular character are made to or for any employees, or

b

benefits or facilities of a particular kind are provided for any employees,

in any other circumstances,

give an entitlement to receive more than 5% of the assets which would then be available for distribution among the participators.

4

In this section—

“associate” has the meaning given by section 417(3) of ICTA except that, for this purpose, “relative” in section 417(3) has the meaning given by subsection (5) below, and

“participator” has the meaning given by section 417(1) of ICTA.

5

For the purposes of this section a person (“A”) is a relative of another (“B”) if A is—

a

B’s spouse,

b

a parent, child or remoter relation in the direct line either of B or of B’s spouse,

c

a brother or sister of B or of B’s spouse, or

d

the spouse of a person falling within paragraph (b) or (c).

69Extended meaning of “control”

1

The definition of “control” in section 840 of ICTA (which is applied for the purposes of this Act by section 719) is extended as follows.

2

For the purposes of the benefits code that definition applies (with the necessary modifications) in relation to an unincorporated association as it applies in relation to a body corporate.

Chapter 3Taxable benefits: expenses payments

70Sums in respect of expenses

1

This Chapter applies to a sum paid to an employee in a tax year if the sum—

a

is paid to the employee in respect of expenses, and

b

is so paid by reason of the employment.

2

This Chapter applies to a sum paid away by an employee in a tax year if the sum—

a

was put at the employee’s disposal in respect of expenses,

b

was so put by reason of the employment, and

c

is paid away by the employee in respect of expenses.

3

For the purposes of this Chapter it does not matter whether the employment is held at the time when the sum is paid or paid away so long as it is held at some point in the tax year in which the sum is paid or paid away.

4

References in this Chapter to an employee accordingly include a prospective or former employee.

5

This Chapter does not apply to the extent that the sum constitutes earnings from the employment by virtue of any other provision.

71Meaning of paid or put at disposal by reason of the employment

1

If an employer pays a sum in respect of expenses to an employee it is to be treated as paid by reason of the employment unless—

a

the employer is an individual, and

b

the payment is made in the normal course of the employer’s domestic, family or personal relationships.

2

If an employer puts a sum at an employee’s disposal in respect of expenses it is to be treated as put at the employee’s disposal by reason of the employment unless—

a

the employer is an individual, and

b

the sum is put at the employee’s disposal in the normal course of the employer’s domestic, family or personal relationships.

72Sums in respect of expenses treated as earnings

1

If this Chapter applies to a sum, the sum is to be treated as earnings from the employment for the tax year in which it is paid or paid away.

2

Subsection (1) does not prevent the making of a deduction allowed under any of the provisions listed in subsection (3).

3

The provisions are—

section 336 (deductions for expenses: the general rule);

section 337 (travel in performance of duties);

section 338 (travel for necessary attendance);

section 340 (travel between group employments);

section 341 (travel at start or finish of overseas employment);

section 342 (travel between employments where duties performed abroad);

section 343 (deduction for professional membership fees);

section 344 (deduction for annual subscriptions);

section 346 (deduction for employee liabilities);

section 351 (expenses of ministers of religion);

section 353 (deductions from earnings charged on remittance).

Chapter 4Taxable benefits: vouchers and credit-tokens

Cash vouchers: introduction

73Cash vouchers to which this Chapter applies

1

This Chapter applies to a cash voucher provided for an employee by reason of the employment which is received by the employee.

2

A cash voucher provided for an employee by the employer is to be regarded as provided by reason of the employment unless—

a

the employer is an individual, and

b

the provision is made in the normal course of the employer’s domestic, family or personal relationships.

3

A cash voucher provided for an employee and appropriated to the employee—

a

by attaching it to a card held for the employee, or

b

in any other way,

is to be treated for the purposes of this Chapter as having been received by the employee at the time when it is appropriated.

74Provision for, or receipt by, member of employee’s family

For the purposes of this Chapter any reference to a cash voucher being provided for or received by an employee includes a reference to it being provided for or received by a member of the employee’s family.

Meaning of “cash voucher”

75Meaning of “cash voucher”

where—

E is the exchange sum,

PE is the provision expense, and

D is the amount of the difference between E and PE which represents the sickness benefits costs.

3

In this section “sickness benefits” mean benefits in connection with sickness, personal injury or death.

77Apportionment of cost of provision of voucher

If a person incurs expense in or in connection with the provision of vouchers, stamps or similar documents for two or more employees as members of a group or class, the expense incurred in respect of one of them is to be such part of that expense as is just and reasonable.

Cash vouchers: exceptions

78Voucher made available to public generally

This Chapter does not apply to a cash voucher if—

a

it is of a kind made available to the public generally, and

b

it is provided to the employee or a member of the employee’s family on no more favourable terms than to the public generally.

79Voucher issued under approved scheme

3

A non-cash voucher provided for an employee and appropriated to the employee—

a

by attaching it to a card held for the employee, or

b

in any other way,

is to be treated for the purposes of this Chapter as having been received by the employee at the time when it is appropriated.

83Provision for, or receipt by, member of employee’s family

For the purposes of this Chapter any reference to a non-cash voucher being provided for or received by an employee includes a reference to it being provided for or received by a member of the employee’s family.

Meaning of “non-cash voucher”

84Meaning of “non-cash voucher”

1

In this Chapter “non-cash voucher” means—

a

a voucher, stamp or similar document or token which is capable of being exchanged for money, goods or services,

b

a transport voucher, or

c

a cheque voucher,

but does not include a cash voucher.

2

For the purposes of subsection (1)(a) it does not matter whether the document or token is capable of being exchanged—

a

1

This Chapter does not apply to a transport voucher provided for an employee of a passenger transport undertaking under arrangements in operation on 25th March 1982 which meet the condition in subsection (2).

2

The condition is that the arrangements are intended to enable the employee or a member of the employee’s family to obtain passenger transport services provided by—

a

the employer,

b

a subsidiary of the employer,

c

a body corporate of which the employer is a subsidiary, or

d

another passenger transport undertaking.

3

In this section—

“passenger transport undertaking” means an undertaking whose business consists wholly or mainly in the carriage of passengers or a subsidiary of such an undertaking, and

“subsidiary” means a wholly-owned subsidiary within the meaning of section 736 of the Companies Act 1985 (c. 6).

Benefit of non-cash voucher treated as earnings

87Benefit of non-cash voucher treated as earnings

1

The cash equivalent of the benefit of a non-cash voucher to which this Chapter applies is to be treated as earnings from the employment for the tax year in which the voucher is received by the employee.

2

The cash equivalent is the difference between—

Where a cheque voucher is posted it is to be treated as handed over at the time of posting.

89Reduction for meal vouchers

1

This section applies where—

a

the non-cash voucher is a meal voucher,

b

it is provided for an employee for use on a working day, and

c

meal vouchers are made available to all employees (if any) employed by the same employer in lower-paid employment within the meaning of Chapter 11 of this Part (see section 217).

2

The total of the cash equivalents of the benefit of any meal vouchers so provided is to be reduced by 15p for each working day for which the vouchers are provided.

3

In this section—

“meal voucher” means a non-cash voucher which—

can only be used to obtain meals,

is not transferable, and

is not of the kind in respect of which no liability to income tax arises under section 266(3)(e) (subsidised meals), and

If a person incurs expense in or in connection with the provision of credit-tokens for two or more employees as members of a group or class, the expense incurred in respect of one of them is to be such part of that expense as is just and reasonable.

General supplementary provisions

95Disregard for money, goods or services obtained

1

This section applies if the cash equivalent of the benefit of a cash voucher, a non-cash voucher or a credit-token—

a

is to be treated as earnings from an employee’s employment under this Chapter, or

b

would be so treated but for a dispensation given under section 96.

2

Money, goods or services obtained—

a

by the employee or another person in exchange for the cash voucher or non-cash voucher, or

b

by the employee or a member of the employee’s family by use of the credit-token,

are to be disregarded for the purposes of the Income Tax Acts.

3

But the goods or services are not to be disregarded for the purposes of applying sections 362 and 363 (deductions where non-cash voucher or credit-token provided).

4

In the case of a transport voucher, the reference in subsection (2)(a) to the services obtained in exchange for the voucher is to the passenger transport services obtained by using it.

96Dispensations relating to vouchers or credit-tokens

1

This section applies where a person (“P”) supplies the Inland Revenue with a statement of the cases and circumstances in which—

a

cash vouchers,

b

non-cash vouchers, or

c

credit-tokens,

the provision is made in the normal course of the employer’s domestic, family or personal relationships.

Exceptions

98Accommodation provided by local authority

This Chapter does not apply to living accommodation provided for an employee if—

a

the employer is a local authority,

b

it is provided for the employee by the authority, and

c

the terms on which it is provided are no more favourable than those on which similar accommodation is provided by the authority for persons who are not their employees but whose circumstances are otherwise similar to those of the employee.

any other premises held on the trusts of the trust instrument set out in the Schedule to the Chevening Estate Act 1959 (c. 49),

and the employee is a person nominated in accordance with those trusts.

Benefit of living accommodation treated as earnings

102Benefit of living accommodation treated as earnings

1

If living accommodation to which this Chapter applies is provided in any period—

a

which consists of the whole or part of a tax year, and

b

throughout which the employee holds the employment,

the cash equivalent of the benefit of the accommodation is to be treated as earnings from the employment for that year.

2

In this Chapter that period is referred to as “the taxable period”.

3

Section 103 indicates how the cash equivalent is calculated.

Calculation of cash equivalent

103Method of calculating cash equivalent

1

The cash equivalent is calculated—

a

under section 105 if the cost of providing the living accommodation does not exceed £75,000; and

b

under section 106 if the cost of providing the living accommodation exceeds £75,000.

2

Section 104 (general rule) sets out how to calculate the cost of providing living accommodation for the purpose of determining whether or not it exceeds £75,000.

3

In this Chapter—

“annual value”,

“person involved in providing accommodation”, and

“the property”,

have the meaning given by sections 110 to 113, and “the taxable period” has the meaning given by section 102(2).

104General rule for calculating cost of providing accommodation

For any tax year the cost of providing living accommodation is given by the formula—

A+1-P math

where—

A is any expenditure incurred in acquiring the estate or interest in the property held by a person involved in providing the accommodation,

I is any expenditure incurred on improvements to the property which has been incurred before the tax year in question by a person involved in providing the accommodation, and

P is so much of any payment or payments made by the employee to a person involved in providing the accommodation as represents—

reimbursement of A or I, or

consideration for the grant to the employee of a tenancy or sub-tenancy of the property.

Accommodation costing £75,000 or less

105Cash equivalent: cost of accommodation not over £75,000

1

The cash equivalent is to be calculated under this section if the cost of providing the living accommodation does not exceed £75,000.

2

The cash equivalent is the difference between—

a

the rental value of the accommodation for the taxable period, and

b

any sum made good by the employee to the person at whose cost the accommodation is provided that is properly attributable to its provision.

3

The “rental value of the accommodation” for the taxable period is the rent which would have been payable for that period if the property had been let to the employee at an annual rent equal to the annual value.

4

But if the person at whose cost the accommodation is provided pays rent for the whole or part of the taxable period at an annual rate greater than the annual value—

a

subsection (3) does not apply to that period or (as the case may be) that part of it; and

b

instead the “rental value of the accommodation” for that period or part is the rent payable for it by that person.

5

If the rental value of the accommodation for the taxable period does not exceed any sum made good by the employee as mentioned in subsection (2)(b), the cash equivalent is nil.

Accommodation costing more than £75,000

106Cash equivalent: cost of accommodation over £75,000

1

The cash equivalent is calculated under this section if the cost of providing the living accommodation exceeds £75,000.

2

To calculate the cash equivalent—

Step 1

Calculate the amount that would be the cash equivalent if section 105 applied (cash equivalent: cost of accommodation not over £75,000).

Step 2

Calculate the following amount (“the additional yearly rent”)—

ORI×(C-£75,000) math

where—

ORI is the official rate of interest in force for the purposes of Chapter 7 of this Part (taxable benefits: loans) on 6th April in the tax year, and

C is the cost of providing the accommodation calculated—

in accordance with section 104 (general rule for calculating cost of accommodation), or

in a case where section 107 applies (special rule for calculating cost of providing accommodation), in accordance with that section instead.

Step 3

Calculate the rent which would have been payable for the taxable period if the property had been let to the employee at the additional yearly rent calculated under step 2.

Step 4

Calculate the cash equivalent by—

adding together the amounts calculated under steps 1 and 3, and

(if allowed by subsection (3)) subtracting from that total the excess rent paid by the employee.

3

In step 4—

a

paragraph (b) only applies if, in respect of the taxable period, the rent paid by the employee in respect of the accommodation to the person providing it exceeds the rental value of the accommodation for that period as set out in section 105(3) or (4)(b), as applicable, and

b

“the excess rent” means the total amount of that excess.

107Special rule for calculating cost of providing accommodation

1

This section contains a special rule for calculating the cost of providing living accommodation which—

a

operates for the purposes of step 2 of section 106(2) (calculating the additional yearly rent), and

b

accordingly only operates where the cost of provision for the purposes of section 106(1) (as calculated under section 104) exceeds £75,000.

2

This section applies if, throughout the period of 6 years ending with the date when the employee first occupied the accommodation (“the initial date”), an estate or interest in the property was held by a person involved in providing the accommodation.

It does not matter whether it was the same estate, interest or person throughout.

3

For any tax year the cost of providing the living accommodation for the purposes mentioned in subsection (1)(a) is given by the formula—

MV+I-P math

where—

MV is the price which the property might reasonably be expected to have fetched on a sale in the open market with vacant possession as at the initial date,

I is any expenditure incurred on improvements to the property which has been incurred during the period—

beginning with the initial date, and

ending with the day before the beginning of the tax year,

by a person involved in providing the accommodation, and

P is so much of any payment or payments made by the employee to a person involved in providing the accommodation as represents—

reimbursement (up to an amount not exceeding MV) of any expenditure incurred in acquiring the estate or interest in the property held on the initial date,

reimbursement of I, or

consideration for the grant to the employee of a tenancy or sub-tenancy of the property.

4

In estimating MV no reduction is to be made for an option in respect of the property held by—

a

the employee,

b

a person connected with the employee, or

c

a person involved in providing the accommodation.

Apportionment of cash equivalent

108Cash equivalent: accommodation provided for more than one employee

1

If, for the whole or part of a tax year, the same living accommodation is provided for more than one employee at the same time, the total of the cash equivalents for all of the employees is to be limited to the amount that would be the cash equivalent if the accommodation was provided for one employee.

2

The cash equivalent for each of the employees is to be such part of that amount as is just and reasonable.

Other tax implications

109Priority of this Chapter over Chapter 1 of this Part

ii

the repair, insurance or maintenance of any premises which do not form part of the accommodation but belong to or are occupied by the landlord, and

b

amounts are payable in respect of the services in addition to the rent,

the rent to be established under subsection (1) in respect of the accommodation is to be increased under subsection (4).

4

That rent is to include—

a

where the services are relevant services, so much of the additional amounts as exceeds the cost to the landlord of providing the services;

b

where the services are within subsection (3)(a)(ii), the whole of the additional amounts.

5

In this section “relevant service” means a service other than the repair, insurance or maintenance of the accommodation or of any other premises.

111Disputes as to annual value

1

This section applies if there is a dispute as to the amount of the annual value of living accommodation for the purposes of this Chapter.

2

The question is to be determined by the General Commissioners.

3

The Commissioners must hear and determine the question in the same way as an appeal.

112Meaning of “person involved in providing the accommodation”

For the purposes of this Chapter “person involved in providing the accommodation” means any of the following—

a

the person providing the accommodation;

b

the employee’s employer (if not within paragraph (a));

c

any person, other than the employee, who is connected with a person within paragraph (a) or (b).

113Meaning of “the property”

For the purposes of this Chapter “the property”, in relation to living accommodation, means the property consisting of that accommodation.

Chapter 6Taxable benefits: cars, vans and related benefits

General

114Cars, vans and related benefits

1

This Chapter applies to a car or a van in relation to a particular tax year if in that year the car or van—

a

is made available (without any transfer of the property in it) to an employee or a member of the employee’s family or household,

b

is so made available by reason of the employment (see section 117), and

c

is available for the employee’s or member’s private use (see section 118).

2

Where this Chapter applies to a car or van—

a

sections 120 to 148 provide for the cash equivalent of the benefit of the car to be treated as earnings,

b

sections 149 to 153 provide for the cash equivalent of the benefit of any fuel provided for the car to be treated as earnings, and

c

sections 154 to 166 provide for the cash equivalent of the benefit of the van to be treated as earnings.

3

This Chapter does not apply if an amount constitutes earnings from the employment in respect of the benefit of the car or van by virtue of any other provision (see section 119).

4

The following provisions of this Chapter provide for further exceptions—

section 167 (pooled cars);

section 168 (pooled vans);

section 169 (car available to more than one member of family or household employed by same employer).

115Meaning of “car” and “van”

1

In this Chapter—

“car” means a mechanically propelled road vehicle which is not—

a goods vehicle,

a motor cycle,

an invalid carriage, or

a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used;

“van” means a mechanically propelled road vehicle which—

is a goods vehicle, and

has a design weight not exceeding 3,500 kilograms,

and which is not a motor cycle.

2

For the purposes of subsection (1)—

“design weight” means the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden;

“goods vehicle” means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description;

“invalid carriage” has the meaning given by section 185(1) of the Road Traffic Act 1988 (c. 52);

“motor cycle” has the meaning given by section 185(1) of the Road Traffic Act 1988.

116Meaning of when car or van is available to employee

1

For the purposes of this Chapter a car or van is available to an employee at a particular time if it is then made available, by reason of the employment and without any transfer of the property in it, to the employee or a member of the employee’s family or household.

2

References in this Chapter to—

a

the time when a car is first made available to an employee are to the earliest time when the car is made available as mentioned in subsection (1), and

b

Cars: benefit treated as earnings

120Benefit of car treated as earnings

1

If this Chapter applies to a car in relation to a particular tax year, the cash equivalent of the benefit of the car is to be treated as earnings from the employment for that year.

2

In such a case the employee is referred to in this Chapter as being chargeable to tax in respect of the car in that year.

121Method of calculating the cash equivalent of the benefit of a car

1

The cash equivalent of the benefit of a car for a tax year is calculated as follows—

Step 1

Find the price of the car in accordance with sections 122 to 124.

Step 2

Add the price of any accessories which fall to be taken into account in accordance with sections 125 to 131.

Step 3

Make any deduction under section 132 for capital contributions made by the employee to the cost of the car or accessories.

Step 4

If the amount carried forward from step 3 exceeds £80,000, the interim sum is £80,000.

In any other case, the interim sum is the amount carried forward from step 3.

Step 5

Find the appropriate percentage for the car for the year in accordance with sections 133 to 142.

Step 6

Multiply the interim sum by the appropriate percentage for the car for the year.

Step 7

Make any deduction under section 143 for any periods when the car was unavailable.

The resulting amount is the provisional sum.

Step 8

Make any deduction from the provisional sum under section 144 in respect of payments by the employee for the private use of the car.

The result is the cash equivalent of the benefit of the car for the year.

2

The method of calculation set out in subsection (1) is modified in the special cases dealt with in—

section 146 (cars that run on road fuel gas), and

section 147 (classic cars: 15 years of age or more).

3

The cash equivalent may be reduced under section 148 where the car is shared.

Cars: the price of a car

122The price of the car

For the purposes of this Chapter the price of a car means—

a

its list price, if it has one, or

b

its notional price, if it has no list price.

123The list price of a car

1

In this Chapter a car’s “list price” means the price published by the car’s manufacturer, importer or distributor (as the case may be) as the inclusive price appropriate for a car of that kind if sold—

a

in the United Kingdom,

b

singly,

c

in a retail sale,

d

in the open market, and

e

on the day immediately before the date of the car’s first registration.

2

The “inclusive price” means the price inclusive of—

a

any charge for delivery by the manufacturer, importer or distributor to the seller’s place of business, and

b

any relevant taxes (see section 171(1)).

124The notional price of a car with no list price

3

But subsection (2)(b) does not apply in relation to a car to which section 137 (different CO2 emissions figure for bi-fuel cars) applies.

4

In this Chapter—

“standard accessory” means an accessory equivalent to an accessory assumed to be available with cars of the same kind as the car in question in arriving at the list price, and

“non-standard accessory” means any other accessory.

its notional price, if it has no list price.

5

This section is subject to section 131 (replacement accessories).

127The list price of an accessory

1

For the purposes of this Chapter the list price of an initial extra accessory is—

a

the published price of the manufacturer, importer or distributor of the car (see section 128), or

b

if there is no such price, the published price of the manufacturer, importer or distributor of the accessory (see section 129).

2

For the purposes of this Chapter the list price of a later accessory is the published price of the manufacturer, importer or distributor of the accessory (see section 129).

128Accessory: published price of the car manufacturer etc.

1

In this Chapter the “published price of the manufacturer, importer or distributor of the car” in relation to an accessory means the price published by the car’s manufacturer, importer or distributor (as the case may be) as the inclusive price appropriate for an equivalent accessory if sold with a car of the same kind—

a

in the United Kingdom,

b

singly,

c

in a retail sale,

d

in the open market, and

e

on the day immediately before the date of the car’s first registration.

2

The “inclusive price” means the price inclusive of—

a

any charge for delivery by the manufacturer, importer or distributor to the seller’s place of business,

b

any relevant taxes other than car tax (see section 171(1)), and

c

any charge for fitting the accessory.

129Accessory: published price of the accessory manufacturer etc.

1

In this Chapter the “published price of the manufacturer, importer or distributor of the accessory” in relation to an accessory means the price published by or on behalf of the manufacturer, importer or distributor of the accessory (as the case may be) as the inclusive price appropriate for such an accessory if sold—

a

in the United Kingdom,

b

singly,

c

in a retail sale,

d

in the open market, and

e

at the time immediately before the accessory concerned is first made available for use with the car.

2

The “inclusive price” means the price inclusive of—

a

any charge for delivery by the manufacturer, importer or distributor to the seller’s place of business,

b

any relevant taxes other than car tax (see section 171(1)), and

c

in the case of an accessory permanently attached to the car, the price which the seller would charge for attaching it.

3

In the case of an initial extra accessory, the time referred to in subsection (1)(e) may be a time before the car is first made available to the employee.

130The notional price of an accessory

1

In this Chapter the “notional price” of an accessory means the inclusive price which it might reasonably have been expected to fetch if sold—

a

in the United Kingdom,

b

singly,

c

in a retail sale,

d

in the open market, and

e

at the time immediately before the accessory concerned is first made available for use with the car.

2

The “inclusive price” means the price inclusive of—

a

any charge for delivery by the manufacturer, importer or distributor to the seller’s place of business,

b

any relevant taxes other than car tax (see section 171(1)), and

c

in the case of an accessory permanently attached to the car, the price which the seller would charge for attaching it.

3

In the case of an initial extra accessory, the time referred to in subsection (1)(e) may be a time before the car is first made available to the employee.

c

is a diesel car to which section 141 applies,

and is determined under sections 139 to 141.

3

If the car was first registered before 1st January 1998, the “appropriate percentage” is determined under section 142.

134Meaning of car with or without a CO2 emissions figure

1

In this Chapter a “car with a CO2 emissions figure” means—

a

a car first registered on or after 1st January 1998 but before 1st October 1999 to which section 135 applies,

b

a car first registered on or after 1st October 1999 to which section 136 applies, or

c

a car first registered on or after 1st January 2000 which is a car to which section 137 (bi-fuel cars) applies.

2

In this Chapter a “car without a CO2 emissions figure” means any other car first registered on or after 1st January 1998.

Cars: appropriate percentage: first registered on or after 1st January 1998

135Car with a CO2 emissions figure: pre-October 1999 registration

1

This section applies to a car first registered on or after 1st January 1998 but before 1st October 1999 if when it was so registered—

a

it conformed to a vehicle type with an EC type-approval certificate (see section 171(1)), or

b

it had a UK approval certificate (see section 171(1)),

which specifies a CO2 emissions figure in terms of grams per kilometre driven.

2

The car’s CO2 emissions figure is that specified figure.

3

This is subject to section 138 (automatic car for a disabled employee).

136Car with a CO2 emissions figure: post-September 1999 registration

1

This section applies to a car first registered on or after 1st October 1999 if it is so registered on the basis of—

a

an EC certificate of conformity (see section 171(1)), or

b

a UK approval certificate (see section 171(1)),

which specifies a CO2 emissions figure in terms of grams per kilometre driven.

2

The car’s CO2 emissions figure is that specified figure unless more than one figure is specified, in which case the car’s CO2 emissions figure is the figure specified as the CO2 emissions (combined) figure.

3

This is subject to—

the lowest figure specified, or

b

if there is more than one figure specified in relation to each fuel, the lowest CO2 emissions (combined) figure specified.

3

This is subject to section 138 (automatic car for a disabled employee).

a clutch pedal, or

ii

a lever which the driver may operate manually.

5

For the purposes of this section a car is available to an employee at a particular time if it is then made available, by reason of the employment and without any transfer of the property in it, to the employee.

139Car with a CO2 emissions figure: the appropriate percentage

1

The appropriate percentage for a year for a car with a CO2 emissions figure depends upon whether the car’s CO2 emissions figure exceeds the lower threshold for that year.

2

If the car’s CO2 emissions figure does not exceed the lower threshold for the year, the appropriate percentage for the year is 15% (“the basic percentage”).

3

If the car’s CO2 emissions figure does exceed the lower threshold for the year, the appropriate percentage for the year is whichever is the lesser of—

a

the basic percentage increased by one percentage point for each 5 grams per kilometre by which the CO2 emissions figure exceeds the lower threshold for the year, and

b

35%.

4

The lower threshold is—

Table

Tax year	Lower threshold (in g/km)
2003-04	155
2004-05 and subsequent tax years	145

5

If the car’s CO2 emissions figure is not a multiple of 5, it is to be rounded down to the nearest multiple of 5 for the purposes of this section.

6

This section is subject to—

a

section 141 (diesel cars), and

b

any regulations made by the Treasury under section 170(4) (power to reduce the appropriate percentage).

140Car without a CO2 emissions figure: the appropriate percentage

1

The appropriate percentage for a year for a car without a CO2 emissions figure is determined under this section.

2

If the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is—

Table

Cylinder capacity of car in cubic centimetres	Appropriate percentage
1,400 or less	15%
More than 1,400 but not more than 2,000	25%
More than 2,000	35%

1

This section applies to a diesel car first registered on or after 1st January 1998.

2

To determine the appropriate percentage for such a car for a year—

Step 1

Determine whether the car is a car with a CO2 emissions figure or a car without a CO2 emissions figure (see section 134).

Step 2

Take what would be the appropriate percentage for the car for the year under section 139 or 140 as appropriate.

Step 3

The appropriate percentage for the car for the year is whichever is the smaller of—

the figure resulting from the addition of 3 percentage points to the figure found under step 2, and

35%.

3

In this section “diesel car” means a car which is propelled solely by diesel.

4

This section is subject to any regulations made by the Treasury under section 170(4) (power to reduce the appropriate percentage).

Cars: appropriate percentage: first registered before 1st January 1998

142Car first registered before 1st January 1998: the appropriate percentage

1

The appropriate percentage for a car first registered before 1st January 1998 is determined under this section.

2

If the car has an internal combustion engine with one or more reciprocating pistons, the appropriate percentage for the year is—

Table

Cylinder capacity of car in cubic centimetres	Appropriate percentage
1,400 or less	15%
More than 1,400 but not more than 2,000	22%
More than 2,000	32%

The amount of the deduction is given by the formula—

UY×A math

where—

U is the number of days in the year on which the car is unavailable,

Y is the number of days in that year, and

A is the amount carried forward from step 6.

4

This section is subject to section 145 (modification where car temporarily replaced).

144Deduction for payments for private use

1

A deduction is to be made from the provisional sum calculated under step 7 of section 121(1) if, as a condition of the car being available for the employee’s private use, the employee—

a

is required in the tax year in question to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and

b

makes such payment.

2

If the amount paid by the employee in respect of that year is equal to or exceeds the provisional sum, the provisional sum is reduced so that the cash equivalent of the benefit of the car for that year is nil.

3

In any other case the amount paid by the employee in respect of the year is deducted from the provisional sum in order to give the cash equivalent of the benefit of the car for that year.

4

In this section the reference to the car being available for the employee’s private use includes a reference to the car being available for the private use of a member of the employee’s family or household.

5

This section is subject to section 145 (modification where car temporarily replaced).

it is materially better in quality, or

b

when calculating the cash equivalent of the benefit of the replacement car, the interim sum calculated under step 4 of section 121(1) is materially higher than the interim sum calculated in relation to the normal car.

Cars: special cases

146Cars that run on road fuel gas

1

This section applies if the car—

a

has been manufactured so as to be capable of running on road fuel gas, and

b

is not a car to which section 137 (different CO2 emissions figure for bi-fuel cars) applies.

2

The price of the car found under step 1 of section 121(1) is to be reduced by so much of that price as it is reasonable to attribute to the car being manufactured in such a way as to be capable of running on road fuel gas rather than in such a way as to be capable of running only on petrol.

and two or more of those employees are chargeable to tax in respect of the car in that year by virtue of section 120.

2

The cash equivalent of the benefit of the car to each of those employees for that year—

a

is to be calculated separately under section 121, and

b

is then to be reduced on a just and reasonable basis.

3

If the employment of any of the employees mentioned in subsection (1)(a) is an excluded employment, the availability of the car to that employee is to be disregarded for the purposes of subsection (2)(b).

4

In this section the reference to the car being available for each employee’s private use includes a reference to the car being available for the private use of a member of the employee’s family or household.

Car fuel: benefit treated as earnings

149Benefit of car fuel treated as earnings

1

If in a tax year—

a

fuel is provided for a car by reason of an employee’s employment, and

b

that person is chargeable to tax in respect of the car by virtue of section 120,

the cash equivalent of the benefit of the fuel is to be treated as earnings from the employment for that year.

2

The cash equivalent of the benefit of the fuel is calculated in accordance with sections 150 to 153.

3

Fuel is to be treated as provided for a car, in addition to any other way in which it may be provided, if—

a

any liability in respect of the provision of fuel for the car is discharged,

b

a non-cash voucher or a credit-token is used to obtain fuel for the car,

c

a non-cash voucher or a credit-token is used to obtain money which is spent on fuel for the car, or

d

any sum is paid in respect of expenses incurred in providing fuel for the car.

4

References in this section to fuel do not include any facility or means for supplying electrical energy for an electrically propelled vehicle.

150Car fuel: calculating the cash equivalent

1

The cash equivalent of the benefit of the fuel is the appropriate percentage of £14,400.

2

The “appropriate percentage” means the appropriate percentage determined in accordance with sections 133 to 142 for the purpose of calculating the cash equivalent of the benefit of the car for which the fuel is provided.

3

But the cash equivalent may be—

a

nil where either of the conditions in section 151 is met;

b

proportionately reduced under section 152;

c

reduced under section 153.

151Car fuel: nil cash equivalent

1

The cash equivalent of the benefit of the fuel is nil if condition A or B is met.

2

Condition A is met if in the tax year in question—

a

the employee is required to make good to the person providing the fuel the whole of the expense incurred by that person in connection with the provision of the fuel for the employee’s private use, and

b

the employee does make good that expense.

3

Condition B is met if in the tax year in question the fuel is made available only for business travel (see section 171(1)).

152Car fuel: proportionate reduction of cash equivalent

1

The cash equivalent of the benefit of the fuel is to be proportionately reduced if for any part of the tax year in question the car for which the fuel is provided is unavailable (within the meaning of section 143 (deduction for periods when car unavailable)).

2

The cash equivalent of the benefit of the fuel is also to be proportionately reduced if for any part of the tax year in question—

a

the facility for the provision of fuel as mentioned in section 149(1) is not available,

b

the fuel is made available only for business travel (see section 171(1)), or

c

3

The fact that any of the conditions specified in subsection (2) is met for part of a tax year is to be disregarded if there is a time later in that year when none of those conditions is met.

4

Where the cash equivalent is to be proportionately reduced under subsection (1) or (2) (or under both those subsections), the reduced amount is given by the formula—

CE×Y-DY math

where—

CE is the amount of the cash equivalent before any reduction,

Y is the number of days in the tax year in question, and

D is the total number of days in that year on which either the car is unavailable or one or more of the conditions in subsection (2) is met.

153Car fuel: reduction of cash equivalent

If a reduction of the cash equivalent of the benefit of the car for which the fuel is provided is made under section 148 (reduction of cash equivalent where car is shared), a corresponding reduction is to be made in relation to the cash equivalent of the benefit of the fuel.

Vans: benefit treated as earnings

154Benefit of van treated as earnings

If this Chapter applies to a van in relation to a particular tax year, the cash equivalent of the benefit of the van is to be treated as earnings from the employment for that year.

155Method of calculating the cash equivalent of the benefit of a van

1

The method of calculation of the cash equivalent of the benefit of a van for a tax year depends upon whether the van is a shared van for the whole or any part of that year.

2

If the van is not a shared van for the whole or any part of the year, the cash equivalent of the benefit of the van for the year is the value of exclusive availability calculated in accordance with section 157.

3

If the van is a shared van for the whole of the year, the cash equivalent of the benefit of the van for the year is the value of shared availability calculated in accordance with section 160.

This is subject to subsection (7) where more than one shared van is available to an employee.

4

If the van is a shared van for only part of the year the cash equivalent of the benefit of the van for the year is the total of—

a

the value of exclusive availability calculated in accordance with section 157 (for the period when it is not a shared van), and

b

b

if any of those vans is a shared van for only part of the year, adding the value of exclusive availability in respect of each of those vans calculated in accordance with section 157.

8

This section is subject to section 166 (limit of cash equivalent).

156Meaning of “shared van”

1

For the purposes of sections 155 to 165 a van is a shared van for a period if condition A or B is met.

2

Condition A is met if throughout the period the van is available concurrently to more than one employee of the same employer.

3

Condition B is met if—

a

the period is one throughout which the van is available to different employees of the same employer (a “shared period”), and

b

the circumstances are such that the employee or employees to whom the van is available at any given time in the period are not necessarily the same as those to whom it is available at any other given time in the period.

4

But if the van is available to only one employee for a period exceeding 30 days (an “exclusive period”)—

a

the exclusive period does not count towards any period that would otherwise be a shared period,

b

the shared period is to be treated as ending when the exclusive period begins, and

c

a further shared period may begin after the end of the exclusive period.

5

If a van is a shared van for part of a day, it is to be treated for the purposes of this section as shared throughout that day.

Vans: value of exclusive availability

157Value of exclusive availability

The value of exclusive availability is calculated as follows—

Step 1

Determine the age of the van.

Step 2

If the age of the van is less than 4 years at the end of the tax year in question, the basic value of the van for the year is £500.

In any other case, the basic value of the van for the year is £350.

Step 3

Make any deduction from the basic value of the van under section 158 for any periods when the van was unavailable or a shared van.

The resulting amount is the provisional sum.

Step 4

Make any deduction from the provisional sum under section 159 in respect of payments by the employee for the private use of the van.

The result is the value of exclusive availability.

158Deduction for periods of unavailability or shared use

1

A deduction is to be made from the basic value of the van calculated under step 2 of section 157 if there are any excluded days during the tax year in question.

2

In this section an “excluded day” means a day on which—

a

the van is unavailable (see subsection (4)), or

b

the van is a shared van.

3

The amount of the deduction is given by the formula—

EY×B math

where—

E is the number of excluded days in the year,

Y is the number of days in the year, and

B is the basic value of the van calculated under step 2 of section 157.

4

For the purposes of this section a van is unavailable on any day if the day—

a

falls before the first day on which the van is available to the employee,

b

falls after the last day on which the van is available to the employee, or

c

falls within a period of 30 days or more throughout which the van is not available to the employee.

159Deduction for payments for private use

1

A deduction is to be made from the provisional sum calculated under step 3 of section 157 if, as a condition of the van being available for the employee’s private use, the employee—

a

is required in the tax year in question to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and

b

makes such payment.

2

If the amount paid by the employee in respect of that year is equal to or exceeds the provisional sum, the provisional sum is reduced so that the value of exclusive availability is nil.

3

In any other case the amount paid by the employee in respect of the year is deducted from the provisional sum in order to give the value of exclusive availability.

4

If the van is a shared van for any part of the tax year in question, the reference in subsection (1) to the employee’s private use in that year is to be read as a reference to the employee’s private use in that part of the year when the van is not a shared van.

5

In this section any reference to the van being available for the employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.

Vans: value of shared availability

160Value of shared availability

The value of shared availability is calculated under—

a

section 161, or

b

section 164 where the employee makes a claim for that section to apply.

161Value of shared availability: normal calculation

1

The value of shared availability is calculated as follows—

Step 1

Identify the van or vans involved in the calculation. They are—

the shared van, and

where that van is made available by the employer, any other vans made available (whether or not to the employee or a member of the employee’s family or household) by the same employer which are shared vans for the whole or any part of the tax year in question.

Step 2

Determine whether the employee is a participating employee within the meaning of section 162.

If the employee is not, then the value of shared availability is nil.

Step 3

Determine the total number of participating employees within the meaning of section 162.

Step 4

Find the basic value of the van for the year under section 163 or, where more than one van is involved, the basic value of each of those vans for the year under that section.

Step 5

Calculate the reckonable amount which is given by the formula—

BVPE math

where—

BV is the basic value of the van or, where more than one van is involved, the total of the basic values of each of those vans, and

PE is the total number of participating employees.

Step 6

If the reckonable amount exceeds £500, the provisional sum is £500.

In any other case, the provisional sum is the reckonable amount.

Step 7

Make any deduction from the provisional sum under section 165 in respect of payments by the employee for the private use of the van or vans involved.

The result is the value of shared availability.

2

The calculation is made under this section in relation to a participating employee regardless of—

a

the number of vans involved which are available to the particular employee,

b

the fact that a particular van involved is or is not available to, or used by, the employee, or

c

the extent to which a particular van involved is available to, or used by, the employee.

162Shared van: meaning of “participating employee”

1

If only one van is involved, an employee is a participating employee for the purposes of section 161 if—

a

the van is available to the employee for the employee’s private use while it is a shared van, and

b

the employee makes private use of it at least once while it is a shared van.

2

If more than one van is involved, an employee is a participating employee for the purposes of section 161 if—

a

one of the vans is available to the employee for the employee’s private use while it is a shared van, or

b

some or all of the vans are available to the employee for the employee’s private use while they are shared vans,

and the employee makes private use of at least one of the vans involved while it is a shared van.

3

In this section—

a

any reference to a van being available for an employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household, and

b

any reference to an employee making private use of a van includes a reference to a member of the employee’s family or household making private use of it.

163Shared van: basic value

1

The basic value of a shared van is calculated as follows—

Step 1

Determine the age of the van.

Step 2

If the age of the van is less than 4 years at the end of the tax year in question, the interim value of the van is £500.

In any other case, the interim value of the van is £350.

Step 3

Make a deduction from the interim value if there are any excluded days during the tax year in question.

The amount of the deduction is given by the formula—

EY×IV math

where—

E is the number of excluded days in the year,

Y is the number of days in the year, and

IV is the interim value of the van.

The result is the basic value of the van for the year.

2

In this section an “excluded day” means a day on which—

a

the van is not a shared van, or

b

the van is incapable of use.

3

For the purposes of this section a van is to be treated as incapable of use on any day if the day falls within a period of 30 days or more throughout which the van is incapable of being used at all.

164Value of shared availability: alternative calculation

1

This section applies if the employee makes a claim for this section to apply instead of section 161.

2

The value of shared availability is calculated as follows—

Step 1

Identify the van or vans involved in the calculation. They are—

the shared van, and

where that van is made available by the employer, any other vans made available by the same employer to the employee or a member of the employee’s family or household which are shared vans for the whole or any part of the tax year in question.

Step 2

Determine the number of relevant days for the van, or where more than one van is involved, for each of those vans.

Step 3

Calculate the provisional sum which is given by the formula—

RD×£5 math

where RD is the number of relevant days for the van or, where more than one van is involved, the total of the number of relevant days for each of those vans.

Step 4

Make any deduction from the provisional sum under section 165 in respect of payments by the employee for the private use of the van or vans involved.

The result is the value of shared availability.

3

For the purposes of this section a relevant day is a day—

a

which falls in the tax year in question, and

b

during which (or during part of which) the employee or a member of the employee’s family or household makes private use of the van concerned while it is a shared van.

4

For the purposes of section 95 of TMA 1970 (incorrect return etc.) a claim under this section is to be treated as a claim for relief.

165Deduction for payments for private use

1

A deduction is to be made from the provisional sum calculated under step 6 of section 161(1) or step 3 of section 164(2) if, as a condition of the van or vans involved being available for the employee’s private use, the employee—

a

is required in the tax year in question to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and

b

makes such payment.

2

If the relevant sum in respect of that year is equal to or exceeds the provisional sum, the provisional sum is reduced so that the value of shared availability is nil.

3

In any other case the relevant sum in respect of the year is deducted from the provisional sum in order to give the value of shared availability.

4

The relevant sum is found by—

a

taking for any van involved the amount paid by the employee as a condition of it being available for the employee’s private use in respect of the period when it is a shared van in the year concerned, and

b

where more than one van is involved, adding together all the amounts found under paragraph (a).

5

In this section any reference to a van being available for the employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.

Vans: limit of cash equivalent

166Vans: limit of cash equivalent

If—

a

the cash equivalent of the benefit of vans to an employee for a tax year would (apart from this section) total more than £500, and

b

no more than one of the vans is available to the employee for the employee’s private use, or the private use of a member of the employee’s family or household, at any one time in the year,

the cash equivalent of the benefit of the vans to the employee for the year is to be £500.

Cars and vans: exceptions

167Pooled cars

1

This section applies to a car in relation to a particular tax year if for that year the car has been included in a car pool for the use of the employees of one or more employers.

2

For that tax year the car—

a

is to be treated under section 114(1) (cars to which this Chapter applies) as not having been available for the private use of any of the employees concerned, and

b

is not to be treated in relation to the employees concerned as an employment-related benefit within the meaning of Chapter 10 of this Part (taxable benefits: residual liability to charge) (see section 201).

3

In relation to a particular tax year, a car is included in a car pool for the use of the employees of one or more employers if in that year—

a

the car was made available to, and actually used by, more than one of those employees,

b

the car was made available, in the case of each of those employees, by reason of the employee’s employment,

c

the car was not ordinarily used by one of those employees to the exclusion of the others,

d

in the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee’s other use of the car in that year, and

e

the car was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the car available to them.

168Pooled vans

1

This section applies to a van in relation to a particular tax year if for that year the van has been included in a van pool for the use of the employees of one or more employers.

2

For that tax year the van—

a

is to be treated under section 114(1) (vans to which this Chapter applies) as not having been available for the private use of any of the employees concerned, and

b

3

In relation to a particular tax year, a van is included in a van pool for the use of the employees of one or more employers if in that year—

a

the van was made available to, and actually used by, more than one of those employees,

b

the van was made available, in the case of each of those employees, by reason of the employee’s employment,

c

the van was not ordinarily used by one of those employees to the exclusion of the others,

d

in the case of each of those employees, any private use of the van made by the employee was merely incidental to the employee’s other use of the van in that year, and

e

the van was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the van available to them.

169Car available to more than one member of family or household employed by same employer

a

by such amount,

b

in such circumstances, and

c

subject to such conditions,

as may be prescribed in the regulations.

5

The Treasury may by order substitute a different amount for that specified in section 150(1) (car fuel: cash equivalent).

6

An order under subsection (5) must specify the tax years to which it applies, being tax years beginning after that in which it is made.

Supplementary

171Minor definitions: general

1

In this Chapter—

“business travel”, in relation to any employee, means travelling the expenses of which, if incurred and paid by the employee, would (if Chapter 2 of Part 4 did not apply) be deductible under sections 337 to 342, section 353 or under Chapter 5 of Part 5 (other than section 377);

“diesel” means any diesel fuel within the definition in Article 2 of Directive 98/70/EC of the European Parliament and of the Council;

“EC certificate of conformity” means a certificate of conformity issued by a manufacturer under any provision of the law of a Member State implementing Article 6 of Council Directive 70/156/EEC, as amended;

“EC type-approval certificate” means a type-approval certificate issued under any provision of the law of a Member State implementing Council Directive 70/156/EEC, as amended;

“relevant taxes” means any car tax, any value added tax, any customs or excise duty and any tax chargeable as if it were a customs duty;

“road fuel gas” means any substance which is gaseous at a temperature of 15°C and under a pressure of 1013.25 millibars, and which is for use as fuel in road vehicles;

“UK approval certificate” means a certificate issued under—

section 58(1) or (4) of the Road Traffic Act 1988 (c. 52), or

Article 31A(4) or (5) of the Road Traffic (Northern Ireland) Order 1981 (S.I. 1981/154 (N.I. 1)).

Sections 288 and 289 make provision for exemption and relief for certain bridging loans connected with employment moves.

174Employment-related loans

1

For the purposes of this Chapter an employment-related loan is a loan—

a

made to an employee or a relative of an employee, and

b

of a class described in subsection (2).

2

For the purposes of this Chapter the classes of employment-related loan are—

A loan made by the employee’s employer.

A loan made by a company or partnership over which the employee’s employer had control.

A loan made by a company or partnership by which the employer (being a company or partnership) was controlled.

A loan made by a company or partnership which was controlled by a person by whom the employer (being a company or partnership) was controlled.

A loan made by a person having a material interest in—

a close company which was the employer, had control over the employer or was controlled by the employer, or

a company or partnership controlling that close company.

3

In this section—

“employee” includes a prospective employee, and

179Exception for certain advances for necessary expenses

1

An advance by an employer to an employee for the purpose of paying for—

a

necessary expenses, or

b

7

In subsection (6)(b) “the overnight stay conditions” has the same meaning as in section 240 (exemption for incidental overnight expenses) (see section 240(4)).

180Threshold for benefit of loan to be treated as earnings

1

The cash equivalent of the benefit of an employment-related loan is not to be treated as earnings of the employment for a tax year under section 175(1)—

a

if the normal £5,000 threshold is not exceeded, or

b

where the loan is a non-qualifying loan and that threshold is exceeded, if the £5,000 threshold for non-qualifying loans is not exceeded.

2

The normal £5,000 threshold is not exceeded if at all times in the year the amount outstanding on the loan (or, if two or more employment-related loans which are taxable cheap loans are outstanding in the year, the aggregate of the amount outstanding on them) does not exceed £5,000.

3

The £5,000 threshold for non-qualifying loans is not exceeded if at all times in the year the amount outstanding on the loan (or if two or more employment-related loans which are non-qualifying loans are outstanding in the year, the aggregate of the amounts outstanding on them) does not exceed £5,000.

4

In this section a “non-qualifying loan” means a taxable cheap loan which is not a qualifying loan.

5

For the purposes of this section a loan is a “qualifying loan” in relation to a particular tax year if, assuming interest is paid on the loan for that year (whether or not it is in fact paid), the whole or part of that interest—

a

is eligible for relief under section 353 of ICTA (general provision for relief for payments of interest, excluding MIRAS),

b

c

is deductible in computing the amount of the profits to be charged under Case I or II of Schedule D in respect of a trade, profession or vocation carried on by the person to whom the loan is made, or

d

is deductible in computing the amount of the profits to be charged under Schedule A in respect of a Schedule A business carried on by that person.

Calculation of amount of interest at official rate

181The official rate of interest

1

“The official rate of interest” for the purposes of this Chapter means the rate applicable under section 178 of FA 1989 (general power of Treasury to specify rates of interest).

2

Regulations under that section may make different provision in relation to a loan if—

a

it was made in the currency of a country or territory outside the United Kingdom, and

b

the employee normally lives in that country or territory, and has actually lived there at some time in the period of 6 years ending with the tax year in question.

3

Subsection (2) does not affect the general power under section 178(3) of FA 1989 to make different provision for different purposes.

182Normal method of calculation: averaging

The normal method of calculating for the purposes of this Chapter the amount of interest that would be payable on a loan for a tax year at the official rate is as follows.

Step 1

Calculate the average amount of the loan outstanding during the tax year—

Find the maximum amount of the loan outstanding on 5th April preceding the tax year or, if the loan was made in the tax year, on the date it was made.

Find the maximum amount outstanding on 5th April of the tax year or, if the loan was discharged in the tax year, on the date of discharge.

Add these amounts together and divide the result by 2.

Step 2

If the official rate of interest changed during the period in the tax year when the loan was outstanding, calculate the average official rate of interest for that period as follows—

Multiply each official rate of interest in force during the period by the number of days when it is in force.

Add these products together.

Divide the result by the number of days in the period.

Step 3

Calculate the amount of interest that would be payable on the loan for the tax year at the official rate as follows—

A×I×M12 math

where—

A is the average amount of the loan outstanding during the tax year obtained from step 1,

I is the official rate of interest in force during the period in the tax year when the loan was outstanding or, if the official rate changed, the average official rate of interest obtained from step 2, and

M is the number of whole months during which the loan was outstanding in the year.

For this purpose a month begins on the sixth day of the calendar month.

183Alternative method of calculation

1

The alternative method of calculating for the purposes of this Chapter the amount of interest that would be payable on a loan for a tax year at the official rate applies for a tax year—

a

if the Inland Revenue so require, by notice to the employee, or

b

if the employee so elects, by notice to the Inland Revenue.

2

Notice may be given on or before the first anniversary of the normal self-assessment filing date for the tax year in relation to which the question arises whether the loan is a taxable cheap loan.

3

The alternative method is as follows—

Step 1

Find for each day in the tax year in question the maximum amount of the loan outstanding on that day and multiply it by the official rate of interest in force on that day.

Step 2

Add together each of the amounts obtained under step 1.

Step 3

the portion allocated to each employee is to be treated as the cash equivalent of the benefit of the loan so far as that employee is concerned.

the same or other employment with the person who is the employer in relation to the original loan, or

b

employment with a person who is connected with that employer.

187Aggregation of loans by close company to director

1

This section applies where, in relation to any tax year, there are employment-related loans between the same lender and borrower which are aggregable with each other.

2

The lender may elect for aggregation to apply for that tax year in the case of the borrower.

3

The effect of the election is that all the aggregable loans are to be treated as a single loan for the purposes of—

section 175 (benefit of taxable cheap loan treated as earnings),

the provisions of this Chapter relating to the calculation of the cash equivalent of the benefit of a taxable cheap loan, and

section 184 (interest treated as paid).

4

For this purpose loans are aggregable for any tax year if they are made in the same currency and all the following conditions are met in relation to each of them—

a

there is a time in the tax year when—

i

the loan is outstanding,

ii

the lender is a close company, and

iii

the borrower is a director of that company;

b

at all times in the tax year the rate of interest on the loan is less than the official rate applying at that time;

c

the loan is not a qualifying loan within the meaning of section 180 (see section 180(5)).

5

An election under this section must be made by the lender in a notice given—

a

to the Inland Revenue, and

b

before 7th July after the end of the tax year to which the election relates.

Loan released or written off

b

it is not an employment-related loan in relation to other employment.

4

This section is subject to section 189 (exception where double charge).

189Exception where double charge

the tax payable by an employee for a tax year in respect of a loan has been decided on the basis that—

i

section 288 (limited exemption of certain bridging loans connected with employment moves), and

ii

section 289 (relief for certain bridging loans not qualifying for exemption under section 288),

will not apply because the condition in section 288(1)(b) (which requires that the limit on the exemption under section 287(1) has not been reached) will not be met, and

b

that condition is met.

5

Where a claim is made under this section the tax payable is to be adjusted accordingly.

Chapter 8Taxable benefits: notional loans in respect of acquisitions of shares

Introduction

192Application of this Chapter

1

section 178 (exception for loans where interest qualifies for tax relief),

section 180 (threshold for benefit of loan to be treated as earnings),

section 182 (normal method of calculation: averaging),

section 183 (alternative method of calculation),

section 184 (interest treated as paid),

section 185 (apportionment of cash equivalent in case of joint loan etc.), and

section 187 (aggregation of loans by close company to director).

5

This section is subject to—

section 491 (approved SIPs: no charge on award of shares as taxable benefit),

section 519 (approved SAYE option schemes: no charge in respect of exercise of option),

section 524 (approved CSOP schemes: no charge in respect of exercise of option),

section 540 (enterprise management incentives: no charge on acquisition of shares as taxable benefit),

section 542 (exemption: offer made to public and employees), and

section 544 (exemption: different offers made to public and employees).

194The amount of the notional loan

1

The amount of the notional loan initially outstanding is—

MV-DA math

where—

MV is—

the market value of fully paid up shares of the same class as the employment-related shares, or

if the employment-related shares consist of an interest in shares, the proportion of the market value of fully paid up shares of the same class as those in which the interest subsists that corresponds to the size of the interest, and

DA is the total of any deductible amounts.

2

For the purposes of subsection (1) each of the following is a “deductible amount”—

a

any payment made for the employment-related shares at or before the time of the acquisition;

b

any amount that constitutes earnings from the employee’s employment under Chapter 1 of this Part (earnings) in respect of the acquisition;

c

if the acquisition results from the exercise of a share option—

i

any amount that constitutes earnings from the employment under Chapter 1 of this Part (earnings) in respect of the receipt of the share option,

ii

any amount that is treated as earnings from the employment under Chapter 10 of this Part (taxable benefits: residual liability to charge) in respect of its receipt, and

iii

any amount that counts as employment income of the employee under section 476 or 477 (charge on employee on exercise etc. of option by employee or another person) in respect of the exercise; and

d

if the acquisition results from the exercise of a share option and an amount counts as employment income of the employee under section 526 (approved CSOP schemes: charge where option granted at a discount) in respect of the share option, so much of that amount as is attributable to the employment-related shares.

3

The amount of the notional loan outstanding at any subsequent time is the difference between—

a

the amount initially outstanding, and

b

the amount of any payments or further payments made for the employment-related shares after the acquisition but before that time.

195Discharge of notional loan: amount treated as earnings

1

The notional loan is to be treated as discharged when the following occurs—

a

payments or further payments for the employment-related shares equal to the amount initially outstanding have been made,

b

if the employment-related shares were not fully paid up at the time of the acquisition, any outstanding or contingent obligation to pay for them ceases to bind the employee or any person connected with the employee,

c

the employment-related shares are disposed of so that neither the employee nor any person connected with the employee any longer has a beneficial interest in them, or

d

the employee dies.

2

If—

a

a notional loan is discharged as a result of an event specified in subsection (1)(b) or (c), and

b

at the time of that event the employee holds the employment by reason of which the right or opportunity to make the acquisition was available,

the amount of the notional loan outstanding immediately before the occurrence of the event is to be treated as earnings from the employment for the tax year in which the event occurs.

3

But if the employment has terminated or become an excluded employment before that event and there was a time when—

a

the whole or part of the notional loan was outstanding,

b

the employee held the employment, and

c

it was not an excluded employment,

subsection (2) applies as if the employment had not terminated or become an excluded employment.

Supplementary provisions

196Effects on other income tax charges

Nothing in this Chapter affects any liability to income tax arising in respect of the acquisition by virtue of—

a

Chapter 1 of this Part (earnings), or

b

section 476 or 477 (charge on employee on exercise etc. of option by employee or another person).

197Minor definitions

1

In this Chapter—

“employee” includes a prospective employee;

“interest in shares” means an interest in shares less than full beneficial ownership and includes an interest in the proceeds of sale of part of the shares, but not a right to acquire shares;

“market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act;

“shares” includes—

stock, and

any securities as defined in section 254(1) of ICTA.

2

In this Chapter references to the acquisition of shares or an interest in shares include receipt by way of allotment or assignment or in any other way.

3

In this Chapter references to payment for the employment-related shares include giving any consideration in money or money’s worth or making any subscription, whether in pursuance of a legal liability or not.

4

In this Chapter—

“the acquisition”, and

“the employment-related shares”,

have the meaning indicated in section 192(4).

Chapter 9Taxable benefits: disposals of shares for more than market value

198Shares to which this Chapter applies

1

This Chapter applies to shares in a company which have, or an interest in shares in a company which has, been acquired by an employee or a person connected with an employee, if the right or opportunity to acquire the shares or interest in shares was available by reason of the employment.

2

In this Chapter, “employment-related shares” means shares, or an interest in shares, acquired as mentioned in subsection (1).

3

The shares may be in the employer, or in another company.

4

A right or opportunity to acquire shares or an interest in shares which is made available by the employer is to be regarded as made available by reason of the employment unless—

a

the employer is an individual, and

b

the right or opportunity is made available in the normal course of the employer’s domestic, family or personal relationships.

199Disposal for more than market value: amount treated as earnings

1

This section applies if—

a

employment-related shares are disposed of so that neither the employee nor any person connected with the employee any longer has a beneficial interest in them, and

b

the disposal is for a consideration which exceeds the market value of the employment-related shares at the time of the disposal.

2

But this section does not apply if the disposal occurs after the death of the employee.

3

The amount given by the following formula is to be treated as earnings from the employee’s employment for the tax year in which the disposal occurs—

CD-MV math

where—

CD is the amount or value of the consideration for the disposal, and

MV is the market value of the employment-related shares at the time of the disposal.

4

But if—

a

the employment has terminated or become an excluded employment before the disposal, and

b

at the time of the acquisition of the employment-related shares the employee held, or was about to hold, the employment and it was not an excluded employment,

this section applies as if the employment had not terminated or become an excluded employment.

5

If the employment-related shares consist of an interest in shares, the references in this section to the market value of the employment-related shares are to the proportion corresponding to the size of the interest of the market value of the shares in which the interest subsists.

200Minor definitions

1

In this Chapter—

“employee” includes a prospective employee;

“interest in shares” means an interest in shares less than full beneficial ownership and includes an interest in the proceeds of sale of part of the shares, but not a right to acquire shares;

“market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act;

“shares” includes—

stock, and

any securities as defined in section 254(1) of ICTA.

2

In this Chapter references to the acquisition of shares or an interest in shares include receipt by way of allotment or assignment or in any other way.

3

In this Chapter “employment-related shares” has the meaning indicated in section 198(2).

Chapter 10Taxable benefits: residual liability to charge

Introduction

201Employment-related benefits

1

This Chapter applies to employment-related benefits.

2

In this Chapter—

“benefit” means a benefit or facility of any kind;

“employment-related benefit” means a benefit, other than an excluded benefit, which is provided in a tax year—

for an employee, or

for a member of an employee’s family or household,

section 205 provides that the cost is to be determined in accordance with that section, or

b

section 206 provides that the cost is to be determined in accordance with that section.

Determination of the cost of the benefit

204Cost of the benefit: basic rule

The cost of an employment-related benefit is the expense incurred in or in connection with provision of the benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters).

205Cost of the benefit: asset made available without transfer

1

The cost of an employment-related benefit (“the taxable benefit”) is determined in accordance with this section if—

a

the benefit consists in—

i

an asset being placed at the disposal of the employee, or at the disposal of a member of the employee’s family or household, for the employee’s or member’s use, or

ii

an asset being used wholly or partly for the purposes of the employee or a member of the employee’s family or household, and

any rent or hire charge payable for the asset by those providing the asset.

206Cost of the benefit: transfer of used or depreciated asset

1

The cost of an employment-related benefit is determined in accordance with this section if—

a

the benefit consists in the transfer of an asset, and

b

the asset has been used, or has depreciated, since the person transferring the asset (“the transferor”) acquired or produced it.

2

The cost of the benefit is the market value of the asset at the time of the transfer.

3

But the cost of the benefit (“the current benefit”) is the higher of the market value of the asset at the time of the transfer and the amount calculated in accordance with subsection (5) if—

a

the asset is not a car (within the meaning of Chapter 6),

b

the asset has previously been applied in the provision of a relevant employment-related benefit (whether or not the person provided with that benefit is also the transferee), and

c

the transferor first applied the asset in the provision of an employment-related benefit after 5th April 1980.

4

In this section “relevant employment-related benefit” means an employment-related benefit the cost of which was to be determined in accordance with section 205.

5

The amount referred to in subsection (3) is calculated in accordance with the following steps—

Step 1

Determine the tax years in which the asset was applied in the provision of a relevant employment-related benefit (including, if appropriate, the current tax year).

Step 2

Determine the cost of the benefit for each of those tax years in accordance with section 205.

Step 3

Calculate the total of the amounts determined under step 2.

Step 4

Calculate the market value of the asset at the time when the transferor first applied it in the provision of an employment-related benefit.

Step 5

Deduct the total calculated under step 3 from the market value calculated under step 4.

The result is the amount referred to in subsection (3).

Supplementary provisions

207Meaning of “annual rental value”

1

For the purposes of this Chapter the “annual rental value” of land is the rent which might reasonably be expected to be obtained on a letting from year to year if—

In this section “relevant service” means a service other than the repair, insurance or maintenance of the land or of any other land.

208Meaning of “market value”

For the purposes of this Chapter the market value of an asset at any time is the price which the asset might reasonably be expected to fetch on a sale in the open market at that time.

209Meaning of “persons providing benefit”

For the purposes of this Chapter the persons providing a benefit are the person or persons at whose cost the benefit is provided.

210Power to exempt minor benefits

1

The Treasury may make provision by regulations for exempting from the application of this Chapter such minor benefits as may be specified in the regulations.

2

An exemption conferred by such regulations is conditional on the benefit being made available to the employer’s employees generally on similar terms.

Special rules for scholarships

211Special rules for scholarships: introduction

1

Sections 212 to 214 supplement the preceding provisions of this Chapter in the following ways—

section 212 provides for certain scholarships provided under arrangements entered into by an employer or a connected person to be regarded as provided by reason of an employment;

section 213 provides that this Chapter does not apply to certain scholarships provided under a trust fund or a scheme;

section 214 provides a different method of determining the cost of an employment-related benefit if it consists in the provision of a scholarship from a trust fund.

2

Section 215 limits the extent to which section 331 of ICTA (exemption for scholarship income) applies to a scholarship whose provision constitutes an employment-related benefit.

3

In this section and sections 212 to 215 “scholarship” includes a bursary, exhibition or other similar educational endowment.

212Scholarships provided under arrangements entered into by employer or connected person

1

A scholarship which is provided for a member of an employee’s family or household is to be regarded for the purposes of this Chapter as provided by reason of the employment if it is provided under arrangements entered into by—

a

the employer, or

b

a person connected with the employer.

2

Subsection (1) applies whether or not the arrangements require the employer or the connected person to contribute directly or indirectly to the cost of providing the scholarship.

3

A scholarship is not to be regarded as provided by reason of an employment by virtue of subsection (1) if—

a

the employer is an individual, and

b

the arrangements are made in the normal course of the employer’s domestic, family or personal relationships.

4

This section is without prejudice to section 201(3).

213Exception for certain scholarships under trusts or schemes

1

This Chapter does not apply to an employment-related benefit consisting in the provision of a scholarship if conditions A, B, C and D are met.

2

Condition A is that the scholarship would not be regarded as provided by reason of the employment if section 201(3) and section 212 were disregarded.

3

Condition B is that the holder of the scholarship is a full-time student.

4

Condition C is that the scholarship is provided from a trust fund or under a scheme.

5

Condition D is that, in the tax year in which the scholarship is provided, not more than 25% of the total amount of relevant payments is attributable to scholarships provided by reason of a person’s employment.

6

For the purposes of conditions B and D “full-time student” means a person who is in full-time education at a university, college, school or other educational establishment.

7

For the purposes of condition D—

“employment” includes any employment within the meaning of the employment income Parts (see section 4), whether or not it is a taxable employment under Part 2;

“relevant payments” means the payments made from the fund or scheme mentioned in condition C in respect of scholarships held by full-time students.

214Scholarships: cost of the benefit

If an employment-related benefit consists in the provision of a scholarship from a trust fund—

a

section 204 does not apply, and

b

the cost of the benefit is the total of the payments made from the fund to the person holding the scholarship.

215Limitation of exemption for scholarship income in section 331 of ICTA

If an employment-related benefit consists in the provision of a scholarship, section 331(1) of ICTA (exemption for scholarship income) applies only in relation to the holder of the scholarship.

Chapter 11Taxable benefits: exclusion of lower-paid employments from parts of benefits code

Introduction

216Provisions not applicable to lower-paid employments

1

The Chapters of the benefits code listed in subsection (4) do not apply to an employment in relation to a tax year if—

a

it is lower-paid employment in relation to that year (see section 217), and

b

condition A or B is met.

2

Condition A is that the employee is not employed as a director of a company.

3

Condition B is that the employee is employed as a director of a company but has no material interest in the company and either—

a

the employment is as a full-time working director, or

b

the company is non-profit-making or is established for charitable purposes only.

“Non-profit-making” means that the company does not carry on a trade and its functions do not consist wholly or mainly in the holding of investments or other property.

4

The Chapters referred to in subsection (1) are—

Chapter 3 (taxable benefits: expenses payments);

Chapter 6 (taxable benefits: cars, vans and related benefits);

Chapter 7 (taxable benefits: loans);

Chapter 8 (taxable benefits: notional loans in respect of acquisitions of shares);

Chapter 9 (taxable benefits: disposals of shares for more than market value);

Chapter 10 (taxable benefits: residual liability to charge).

5

Subsection (1)—

a

means that in any of those Chapters a reference to an employee does not include an employee whose employment is within the exclusion in that subsection, if the context is such that the reference is to an employee in relation to whom the Chapter applies, but

b

does not restrict the meaning of references to employees in other contexts.

6

Subsection (1) has effect subject to—

section 188(2) (discharge of loan: where employment becomes lower-paid),

section 195(3) (discharge of notional loan: where employment becomes lower-paid),

section 199(4) (disposal for more than market value: where employment becomes lower-paid), and

section 220 (employment in two or more related employments).

What is lower-paid employment

217Meaning of “lower-paid employment”

1

For the purposes of this Chapter an employment is “lower-paid employment” in relation to a tax year if the earnings rate for the employment for the year (calculated under section 218) is less than £8,500.

2

Subsection (1) is subject to section 220 (employment in two or more related employments).

218Calculation of earnings rate for a tax year

1

For any tax year the earnings rate for an employment is to be calculated as follows—

Step 1

Find the total of the following amounts—

the total amount of the earnings from the employment for the year within Chapter 1 of this Part,

the total of any amounts that are treated as earnings from the employment for the year under the benefits code (see subsections (2) and (3)),

the total of any amounts that are treated as earnings from the employment for the year under Chapter 12 of this Part (payments treated as earnings), and

in the case of an employment within section 56(2) (deemed employment of worker by intermediary), the amount of the deemed employment payment for the year (see section 54),

excluding any exempt income.

Step 2

Add to that total any extra amount required to be added for the year by section 219 (extra amounts to be added in connection with a car).

Step 3

Subtract the total amount of any authorised deductions (see subsection (4)) from the result of step 2.

Step 4

The earnings rate for the employment for the year is given by the formula—

R×YE math

where—

R is the result of step 3,

Y is the number of days in the year, and

E is the number of days in the year when the employment is held.

2

Section 216(1) (provisions not applicable to lower-paid employment) is to be disregarded for the purpose of determining any amount under step 1.

3

If the benefit of living accommodation is to be taken into account under step 1, the cash equivalent is to be calculated in accordance with section 105 (even if the cost of providing the accommodation exceeds £75,000).

4

For the purposes of step 3 “authorised deduction” means any deduction that would (assuming it was an amount of taxable earnings) be allowed from any amount within step 1 under—

section 346 (employee liabilities),

section 352 (agency fees paid by entertainers),

section 355 (corresponding payments by non-domiciled employees with foreign employers),

section 368 (fixed sum deductions from earnings payable out of public revenue),

section 370 (travel costs and expenses where duties performed abroad: employee’s travel),

section 371 (travel costs and expenses where duties performed abroad: visiting spouse’s or child’s travel),

section 373 (non-domiciled employee’s travel costs and expenses where duties performed in UK),

section 374 (non-domiciled employee’s spouse’s or child’s travel costs and expenses where duties performed in UK),

section 376 (foreign accommodation and subsistence costs and expenses (overseas employments)),

section 377 (costs and expenses in respect of personal security assets and services),

section 713 (payroll giving to charities),

section 592(7) of ICTA (contributions to exempt approved schemes),

section 594 of ICTA (contributions to exempt statutory schemes), or

section 262 of CAA 2001 (capital allowances to be given effect by treating them as deductions).

219Extra amounts to be added in connection with a car

1

The provisions of this section apply for the purposes of section 218(1) in the case of a tax year in which a car is made available as mentioned in section 114(1) (cars, vans and related benefits) by reason of the employment.

2

Subsection (3) applies if in the tax year—

a

an alternative to the benefit of the car is offered, and

b

the amount that would be earnings within Chapter 1 of this Part if the benefit of the car were to be determined by reference to the alternative offered exceeds the benefit code earnings (see subsection (4)).

3

The amount of the excess is an extra amount to be added under step 2 in section 218(1).

4

For the purposes of subsection (2) “the benefit code earnings” is the total for the year of—

a

the cash equivalent of the benefit of the car (calculated in accordance with Chapter 6 of this Part), and

b

the cash equivalent (calculated in accordance with that Chapter) of the benefit of any fuel provided for the car by reason of the employment.

5

Subsection (6) applies if in the tax year there would be an amount of general earnings consisting of—

a

earnings within Chapter 1 of this Part, or

b

an amount treated as earnings from the employment under Chapter 3 (expenses payments) or Chapter 4 (vouchers and credit-tokens) of this Part,

1

This section applies if—

a

an employer is treated by virtue of sections 687, 689 and 693 to 700 as having made a payment of income of an employee (“the notional payment”),

b

the employer is required by virtue of section 710(4) to account to the Inland Revenue for an amount of income tax (“the due amount”) in respect of the notional payment, and

c

the employee does not, before the end of the period of 30 days beginning with the date on which the employer is treated as making the notional payment, make good the due amount to the employer.

2

The due amount is to be treated as earnings from the employment for the tax year in which the date mentioned in subsection (1)(c) falls.

3

In this section “employer”, in relation to any provision of sections 687, 689, 693 to 700 or 710, means the person taken to be the employer for the purposes of that provision.

It also includes a person who is treated as making a payment of PAYE income by virtue of section 689(2) (payments by person for whom employee works but who is not the employer).

223Payments on account of director’s tax other than by the director

1

This section applies if in a tax year—

a

a person (“P”) makes a payment to another person who is employed as the director of a company,

b

the payment is of, or on account of, earnings from the director’s employment,

c

PAYE regulations require P to deduct an amount of income tax (“the deductible tax”),

d

P deducts none, or only some, of the deductible tax, and

e

either or both of the following occur—

i

P accounts to the Board of Inland Revenue for some or all of the deductible tax (whether or not P has actually deducted the amount accounted for);

ii

one or more persons other than P (apart from the director) account to the Board of Inland Revenue for some or all of the deductible tax.

2

For the purposes of this section it does not matter whether the director’s employment is held at the time when P makes the payment mentioned in subsection (1)(a) so long as it is held at some point in the tax year in which the payment is made.

3

References in this section to employment as a director accordingly include prospective or past employment as a director.

4

The deductible tax accounted for to the Board of Inland Revenue is to be treated as earnings of the director from the director’s employment for the tax year in which it is accounted for.

5

But if—

a

the deductible tax is accounted for after the director’s employment has ceased, and

b

the employment ceased in a tax year before the one in which the deductible tax is accounted for,

the deductible tax is treated as earnings for the tax year in which the director’s employment ceased.

6

The following rules apply to the calculation of the amount to be treated as earnings under this section—

a

any amount accounted for after the death of the director is to be disregarded;

b

if P deducts some of the deductible tax, the amount treated as earnings is reduced by the amount deducted;

c

if the director makes good to P or to another person some or all of the deductible tax which P or the other person accounts for, the amount treated as earnings is reduced by the amount made good.

7

This section does not apply if the director has no material interest in the company and either—

a

the director is employed as a full-time working director of the company, or

b

the company is—

i

non-profit-making, or

ii

established for charitable purposes only.

8

In this section—

“director” has the same meaning as in the benefits code (see section 67);

“director’s employment”, in relation to a person who is employed as a director, means that employment;

“full-time working director” has the same meaning as in the benefits code (see section 67);

“material interest” has the same meaning as in the benefits code (see section 68);

“non-profit-making”, in relation to a company, means that—

the company does not carry on a trade, and

its functions do not consist wholly or mainly in the holding of investments or other property.

224Payments to non-approved personal pension arrangements

1

Contributions paid by an employer under non-approved personal pension arrangements made by the employee are to be treated as earnings from the employment for the tax year in which they are paid.

2

Subsection (1) does not apply if or to the extent that the contributions are chargeable to income tax as the employee’s income apart from this section.

3

For the purposes of this section—

a

“personal pension arrangements” has the meaning given by section 630(1) of ICTA, and

b

arrangements are “non-approved” if they are not “approved” within the meaning of that section.

section 21 (earnings of employee resident and ordinarily resident, but not domiciled, in UK, except chargeable overseas earnings),

c

section 25 (UK-based earnings of employee resident but not ordinarily resident in UK), and

d

section 27 (UK-based earnings of employee not resident in UK).

8

In this section “restrictive undertaking” means an undertaking which restricts the individual’s conduct or activities.

employment income exemptions.

2

In this Act “earnings-only exemption” means an exemption from income tax which—

a

prevents liability to tax arising in respect of earnings, either by virtue of one or more particular provisions (such as a Chapter of the benefits code) or at all, and

b

does not prevent liability to tax arising in respect of other employment income.

3

In this Act “employment income exemption” means an exemption from income tax which prevents liability to tax arising in respect of employment income of any kind at all.

4

The following provisions in Part 7 also confer exemption from liability to income tax in respect of earnings—

a

section 426 (conditional interests in shares: no charge in respect of acquisition of employee’s interest in certain circumstances),

b

section 474 (share options: no charge in respect of receipt of shorter- term option),

c

sections 489 to 493 and sections 496 to 499 (approved share incentive plans),

d

section 518 (approved SAYE option schemes: no charge in respect of receipt of option),

e

section 519 (approved SAYE option schemes: no charge in respect of exercise of option),

f

section 523 (approved CSOP schemes: no charge in respect of receipt of option),

g

section 524 (approved CSOP schemes: no charge in respect of exercise of option),

h

section 528 (enterprise management incentives: no charge on receipt of qualifying option),

i

section 542 (priority share allocations: exemption where offer made to public and employees), and

j

section 544 (priority share allocations: exemption where different offers made to public and employees).

228Effect of exemptions on liability under provisions outside Part 2

1

The exemptions conferred by the provisions specified in subsection (2) prevent liability to income tax arising under any enactment, but the other exemptions in this Part only affect liability to income tax under Part 2 of this Act.

2

The provisions referred to in subsection (1) are—

a

section 245 (travelling and subsistence during public transport strikes),

b

section 248 (transport home: late night working and failure of car-sharing arrangements),

c

section 264 (annual parties and functions),

d

Chapter 8 of this Part (exemptions for special kinds of employees) except for sections 290 and 291,

e

section 323 (long service awards),

f

section 324 (small gifts from third parties), and

g

section 326 (expenses incidental to transfer of a kind not normally met by transferor).

Chapter 2Exemptions: mileage allowances and passenger payments

Mileage allowances

229Mileage allowance payments

1

No liability to income tax arises in respect of approved mileage allowance payments for a vehicle to which this Chapter applies (see section 235).

2

Mileage allowance payments are amounts, other than passenger payments (see section 233), paid to an employee for expenses related to the employee’s use of such a vehicle for business travel (see section 236(1)).

3

Mileage allowance payments are approved if, or to the extent that, for a tax year, the total amount of all such payments made to the employee for the kind of vehicle in question does not exceed the approved amount for such payments applicable to that kind of vehicle (see section 230).

4

Subsection (1) does not apply if—

a

the employee is a passenger in the vehicle, or

b

the vehicle is a company vehicle (see section 236(2)).

230The approved amount for mileage allowance payments

1

The approved amount for mileage allowance payments that is applicable to a kind of vehicle is—

M×R math

where—

M is the number of miles of business travel by the employee (other than as a passenger) using that kind of vehicle in the tax year in question;

R is the rate applicable to that kind of vehicle.

2

The rates applicable are as follows—

Table

Kind of vehicle	Rate per mile
Car or van	40p for the first 10,000 miles
	25p after that
Motor cycle	24p
Cycle	20p

3

The reference in subsection (2) to “the first 10,000 miles” is to the total number of miles of business travel in relation to the employment, or any associated employment, by car or van in the tax year in question.

4

One employment is associated with another if—

a

the employer is the same;

b

the employers are partnerships or bodies and an individual or another partnership or body has control over both of them; or

c

the employers are associated companies within the meaning of section 416 of ICTA.

5

In subsection (4)(b)—

a

“control”, in relation to a body corporate or partnership, has the meaning given by section 840 of ICTA (in accordance with section 719 of this Act), and

b

the definition of “control” in that section of that Act applies (with the necessary modifications) in relation to an unincorporated association as it applies in relation to a body corporate.

6

The Treasury may by regulations amend subsection (2) so as to alter the rates or rate bands.

that subsection (2)(b) does not apply, and

b

where applicable, that the earnings constitute taxable earnings in the tax year in which the employee receives them.

5

Subsection (3) applies only to the extent that the mileage allowance relief cannot be deducted under subsection (2).

6

A deduction shall not be made twice, whether under subsection (2) or (3), in respect of the same mileage allowance relief.

7

In this section “taxable earnings” or “net taxable earnings” means taxable earnings or net taxable earnings from the employment for the purposes of Part 2.

Passenger payments

233Passenger payments

1

No liability to income tax arises in respect of approved passenger payments made to an employee for the use of a car or van (whether or not it is a company vehicle) if—

a

the employee receives mileage allowance payments for the use of the car or van, and

b

the cash equivalent of the benefit of the car or van is treated as earnings from the employment by virtue of section 120 or 154 (cars and vans as benefits).

This is subject to subsection (2).

2

The condition in subsection (1)(b) needs to be met only if the car or van is made available to the employee by reason of the employment.

3

Passenger payments are amounts paid to an employee because, while using a car or van for business travel, the employee carries in it one or more passengers who are also employees for whom the travel is business travel.

4

Passenger payments are approved if, or to the extent that, for a tax year, the total amount of all such payments made to the employee does not exceed the approved amount for such payments (see section 234).

5

Section 117 (when cars and vans are made available by reason of employment) applies for the purposes of subsection (2).

234The approved amount for passenger payments

1

The approved amount for passenger payments is—

M×R math

where—

M is the number of miles of business travel by the employee by car or van—

for which the employee carries in the tax year in question one or more passengers who are also employees for whom the travel is business travel, and

in respect of which passenger payments are made;

R is a rate of 5p per mile.

2

If the employee carries for all or part of the tax year two or more passengers who are also employees for whom the travel is business travel, the approved amount for passenger payments is the total of the amounts calculated separately under subsection (1) in respect of each of those passengers.

3

The Treasury may by regulations amend subsection (1) so as to alter the rate.

Supplementary

235Vehicles to which this Chapter applies

1

This Chapter applies to cars, vans, motor cycles and cycles.

2

“Car” means a mechanically propelled road vehicle which is not—

a

a goods vehicle,

b

a motor cycle, or

c

a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

3

“Van” means a mechanically propelled road vehicle which—

a

is a goods vehicle, and

b

has a design weight not exceeding 3,500 kilograms,

and which is not a motor cycle.

4

“Motor cycle” has the meaning given by section 185(1) of the Road Traffic Act 1988 (c. 52).

5

“Cycle” has the meaning given by section 192(1) of that Act.

6

In this section—

“design weight” means the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden;

“goods vehicle” means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description.

236Interpretation of this Chapter

1

In this Chapter—

“business travel” means travelling the expenses of which, if incurred and paid by the employee in question, would (if this Chapter did not apply) be deductible under sections 337 to 342;

“mileage allowance payments” has the meaning given by section 229(2);

“passenger payments” has the meaning given by section 233(3).

2

For the purposes of this Chapter a vehicle is a “company vehicle” in a tax year if in that year—

a

the vehicle is made available to the employee by reason of the employment and is not available for the employee’s private use, or

b

the cash equivalent of the benefit of the vehicle is to be treated as the employee’s earnings for the tax year by virtue of—

i

section 120 (benefit of car treated as earnings),

ii

section 154 (benefit of van treated as earnings), or

iii

section 203 (residual liability to charge: benefit treated as earnings), or

c

in the case of a car or van, the cash equivalent of the benefit of the car or van would be required to be so treated if sections 167 and 168 (exceptions for pooled cars and vans) did not apply, or

d

in the case of a cycle, the cash equivalent of the benefit of the cycle would be required to be treated as the employee’s earnings for the tax year under Chapter 10 of Part 3 (taxable benefits: residual liability to charge) if section 244(1) (exception for cycles made available) did not apply.

3

Sections 117 and 118 (when cars and vans are made available by reason of employment and are made available for private use) apply for the purposes of subsection (2).

Chapter 3Exemptions: other transport, travel and subsistence

237Parking provision and expenses

1

No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision of workplace parking for an employee.

2

No liability to income tax arises by virtue of the payment or reimbursement of expenses incurred in connection with the provision for or the use by an employee of workplace parking.

3

In this section “workplace parking” means—

a

a car parking space,

b

a motor cycle parking space, or

c

facilities for parking a cycle other than a motor cycle,

at or near the employee’s workplace.

238Modest private use of heavy goods vehicles

1

No liability to income tax arises where a heavy goods vehicle is made available to an employee for the employee’s private use if conditions A and B are met.

2

Condition A is that there is no transfer of the property in the vehicle to the employee.

3

Condition B is that the employee’s use of the vehicle in the tax year is not wholly or mainly private use.

4

In this section—

“heavy goods vehicle” means a mechanically propelled road vehicle which—

is of a construction primarily suited for the conveyance of goods or burden of any kind, and

is designed or adapted to have a maximum weight exceeding 3,500 kilograms when in normal use and travelling on a road laden, and

“private use” means use other than for travel which the employee is necessarily obliged to do in the performance of the duties of the employment.

239Payments and benefits connected with taxable cars and vans and exempt heavy goods vehicles

1

No liability to income tax arises in respect of the discharge of any liability of an employee in connection with a taxable car or van or an exempt heavy goods vehicle.

2

No liability to income tax arises in respect of a payment to an employee in respect of expenses incurred by the employee in connection with a taxable car or van or an exempt heavy goods vehicle.

3

Subsections (1) and (2) do not apply to liability arising by virtue of section 149 (benefit of car fuel treated as earnings).

4

No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of a benefit connected with a taxable car or van or an exempt heavy goods vehicle.

5

Subsection (4) does not apply to the provision of a driver.

6

For the purposes of this section a car or van is “taxable” if under Chapter 6 of Part 3 the cash equivalent of the benefit of it is to be treated as the employee’s earnings for the tax year.

7

For the purposes of this section—

a

“heavy goods vehicle” has the same meaning as in section 238(4) (modest private use of heavy goods vehicles), and

b

a heavy goods vehicle is “exempt” if it is made available in the tax year to the employee in such circumstances that section 238 applies.

8

For the purposes of subsections (1) and (2), a heavy goods vehicle is also “exempt” if it is so made available in such circumstances that section 238 would apply if the employee were not in excluded employment.

9

In this Part “excluded employment” means an excluded employment within the meaning of the benefits code (see section 63(4)).

240Incidental overnight expenses and benefits

b

section 374 (non-domiciled employee’s spouse’s or child’s travel costs and expenses where duties performed in UK), and

c

section 376 (foreign accommodation and subsistence costs and expenses (overseas employments)).

241Incidental overnight expenses and benefits: overall exemption limit

1

Section 240(1) and (2) do not apply if the exemption provisions total in respect of the qualifying period in question exceeds the permitted amount.

2

In this section “the exemption provisions total”, in respect of a period, means the aggregate of—

a

the amounts that would be exempted under section 240(1) and (2) in respect of the period, apart from this section, and

b

the amounts that would be exempted under section 268 (exemption of vouchers and tokens for incidental overnight expenses) in respect of the period, apart from the condition in section 268(5).

3

In this section “the permitted amount”, in respect of a period, means the aggregate of the following amounts—

a

£5 for each night during the period spent wholly in the United Kingdom, and

b

£10 for each night during the period spent wholly or partly outside the United Kingdom.

242Works transport services

This applies whether or not the vehicle is a bus within the meaning of that Part of that Schedule.

6

For the purposes of subsection (4) a seat is disqualified if relevant construction and use requirements are not met in relation to it.

In this subsection “construction and use requirements” has the same meaning as in Part 2 of the Road Traffic Act 1988 (c. 52) or, in Northern Ireland, Part III of the Road Traffic (Northern Ireland) Order 1995 (S.I. 1995/2994 (N.I. 18)).

243Support for public bus services

1

No liability to income tax arises in respect of the provision of financial or other support for a public transport road service if—

a

in the case of a local bus service, conditions A and B are met, or

b

in any other case, conditions A to C are met.

a payment to the employee in respect of expenses incurred on such transport.

246Transport between work and home for disabled employees: general

1

No liability to income tax arises in respect of—

a

the provision of transport for a disabled employee, or

b

the payment or reimbursement of expenses incurred on such transport,

if the condition in subsection (2) is met.

2

The condition is that the transport is provided or the expenses are incurred for the purpose of ordinary commuting or travel between any two places that is for practical purposes substantially ordinary commuting.

3

Subsection (1) does not apply in a case where a car is made available to a disabled employee (but see section 247).

4

In this section “disabled employee” means an employee who has a physical or mental impairment with a substantial and long-term adverse effect on the employee’s ability to carry out normal day to day activities.

247Provision of cars for disabled employees

1

This section applies where a car is made available to a disabled employee without any transfer of the property in it.

2

No liability to income tax arises by virtue of Chapter 6 or 10 of Part 3 (taxable benefits: cars, vans etc. and residual liability to charge) in respect of the benefit if conditions A to C are met.

3

No liability to income tax arises in respect of—

a

the provision of fuel for the car, or

b

the payment or reimbursement of expenses incurred in connection with it,

if conditions A to C are met.

4

Condition A is that the car has been adapted for the employee’s special needs or, in the case of an employee who because of disability can only drive a car that has automatic transmission, it is such a car.

5

Condition B is that the car is made available on terms prohibiting its use otherwise than for—

a

the employee’s business travel, or

b

transport for the employee for the purpose of—

i

ordinary commuting or travel between any two places that is for practical purposes substantially ordinary commuting, or

ii

travel to a place the expenses of travelling to which would be within one of the training exemption provisions if the employer paid them.

6

Condition C is that in the tax year the car is only used in accordance with those terms.

7

In this section—

“business travel” has the same meaning as in Chapter 6 of Part 3 (taxable benefits: cars, vans and related benefits) (see section 171(1)),

“disabled employee” has the same meaning as in section 246 (see subsection (4)), and

“the training exemption provisions” means—

section 250 (exemption of work-related training provision),

section 255 (exemption for contributions to individual learning account training), and

section 311 (retraining courses).

8

Section 138(4) (when a car has automatic transmission) applies for the purposes of this section as it applies for the purposes of section 138.

In this Chapter—

“car” and “van” have the same meaning as in Chapter 6 of Part 3 (taxable benefits: cars, vans and related benefits) (see section 115), except that for the purposes of sections 246 and 247 (transport for the disabled) any adaptation of a car for the employee’s special needs is to be disregarded,

“ordinary commuting” has the same meaning as in section 338 (travel for necessary attendance) (see subsection (3)),

“qualifying journey”, in relation to an employee, means the whole or part of a journey—

between the employee’s home and workplace,

between one workplace and another,

in connection with the performance of the duties of the employment, and

“workplace” and “permanent workplace” have the meaning given by section 339.

Chapter 4Exemptions: education and training

Work-related training

250Exemption of work-related training provision

1

No liability to income tax arises by virtue of—

a

the provision for an employee of work-related training or any benefit incidental to such training, or

b

the payment or reimbursement to or in respect of an employee of—

i

the cost of work-related training or of any benefit incidental to such training, or

ii

any costs of a kind specified in subsection (2) in respect of such training.

2

The costs are—

a

costs which are incidental to the employee undertaking the training,

b

expenses incurred in connection with an examination or other assessment of what the employee has gained from the training, and

c

the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training or such an examination or other assessment.

251Meaning of “work-related training”

1

In this Chapter “work-related training”, in relation to an employee, means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which—

a

are likely to prove useful to the employee when performing the duties of the employment or a related employment, or

b

will qualify or better qualify the employee—

i

to perform those duties, or

ii

to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

2

For this purpose “related employment”, in relation to an employee, means another employment with the same employer, or with a person connected with the employer, which the employee—

a

is to hold,

b

has a serious opportunity of holding, or

c

can realistically expect to have a serious opportunity of holding in due course.

252Exception for non-deductible travel expenses

1

Where travel or subsistence is provided or the costs of travel or subsistence are paid or reimbursed, section 250 does not apply except to the extent that the travel meets condition A or B or the subsistence meets condition B.

2

Condition A is that, on the assumptions in subsection (4), mileage allowance relief under Chapter 2 of this Part would be available for the travel if no mileage allowance payments had been made.

3

Condition B is that, on those assumptions, the expenses of the travel or subsistence would be deductible under Part 5.

4

The assumptions are—

a

that the employee undertook the training as one of the duties of the employment, and

b

that the employee incurred and paid the expenses.

5

In this section—

“mileage allowance payments” has the meaning given by section 229(2), and

“subsistence” includes food, drink and temporary living accommodation.

253Exception where provision for excluded purposes

1

Section 250 does not apply if or to the extent that the facilities or other benefits that are provided or the costs of which are paid or reimbursed are provided to the employee for one or more of the following purposes.

2

They are—

a

enabling the employee to enjoy the facilities or benefits for entertainment or recreational purposes which are unconnected,

b

providing the employee with an unconnected inducement to remain in or accept an employment with the employer or a person connected with the employer, and

c

rewarding the employee for performing duties of the employment or performing them in a particular way.

3

In subsection (2)(a) the reference to enjoying facilities or benefits for entertainment or recreational purposes includes a reference to enjoying them in the course of a leisure activity.

4

In subsection (2)(a) and (b) “unconnected” means unconnected with imparting, instilling, improving or reinforcing knowledge, skills or personal qualities within section 251(1).

254Exception where unrelated assets are provided

Where travel or subsistence is provided or the costs of travel or subsistence are paid or reimbursed, section 255 does not apply except to the extent that the travel meets condition A or B or the subsistence meets condition B.

2

Condition A is that, on the assumptions in subsection (4), mileage allowance relief under Chapter 2 of this Part would be available for the travel if no mileage allowance payments had been made.

3

Condition B is that, on those assumptions, the expenses of the travel or subsistence would be deductible under Part 5.

training materials provided in the course of the training, or

c

something made by the employee or former employee in the course of the training or incorporated into something so made.

3

For this purpose “training materials” includes stationery, books or other written material, audio or video tapes, compact disks or floppy disks.

260Exception where training not generally available to staff

1

Section 255(1) only applies if any expenditure involved in making the provision, the payment or the reimbursement is incurred in giving effect to existing arrangements providing—

a

for the person incurring it to contribute to costs arising from the undertaking of individual learning account training by the employer’s employees or former employees, and

b

for such contributions to be generally available, on similar terms, to the employer’s employees at that time.

2

In subsection (1) “existing arrangements” means arrangements in place when the agreement to incur the expenditure was made.

3

The Treasury may by regulations make provision specifying the persons or other entities under whom Crown servants are to be treated for the purposes of this section as holding employment.

4

Such regulations may—

a

treat a description of Crown servants (or two or more such descriptions taken together) as an entity for the purposes of the regulations, and

b

make different provision for different descriptions of Crown servants.

5

In this section “Crown servant” means a person holding an employment under the Crown.

Chapter 5Exemptions: recreational benefits

Recreational facilities

261Exemption of recreational benefits

1

No liability to income tax arises in respect of the provision to an employee or a member of an employee’s family or household of benefits within subsection (2).

2

The benefits are—

a

sporting or other recreational facilities which meet conditions A to C, and

b

a right or opportunity to make use of such facilities.

This is subject to section 262.

3

Condition A is that the facilities are available generally to the employees of the employer in question.

4

Condition B is that they are not available to members of the public generally.

5

Condition C is that they are used wholly or mainly by persons whose right or opportunity to use them is employment-related (whether or not by reference to the same employer).

6

A person’s right or opportunity to use facilities is “employment-related” if and only if—

a

it derives from the person being—

i

an employee or former employee, or

ii

a member or former member of the family or household of an employee or former employee,

of a particular employer, and

b

the facilities are provided so as to be available generally to that employer’s employees.

262Benefits not exempted by section 261

1

Section 261 (exemption of recreational benefits) does not apply to the following benefits—

a

an interest in or the use of any of the following—

i

a mechanically propelled vehicle,

ii

holiday or other overnight accommodation, or

iii

facilities which include, or are provided in association with, a right or opportunity to make use of holiday or overnight accommodation,

b

facilities provided on domestic premises, or

c

a right or opportunity to make use of facilities within paragraph (a) or (b).

2

In this section—

“domestic premises” means—

premises used wholly or mainly as a private dwelling, or

land or other premises belonging to, or enjoyed with, premises so used, and

“vehicle” includes a ship, boat or other vessel, an aircraft and a hovercraft.

263Power to alter benefits to which section 261 applies

The Treasury may by regulations provide that section 261—

a

does not apply to a benefit specified in the regulations,

b

applies to a benefit so specified only where such conditions as the regulations specify are met in relation to the terms on which, and the persons to whom, it is provided, or

c

applies in such cases as are so specified to—

i

facilities that do not meet the conditions in section 261(3) to (5), or

ii

a benefit within section 262.

Annual parties and functions

264Annual parties and functions

1

This section applies to an annual party or similar annual function provided for an employer’s employees and available to them generally or available generally to those at a particular location.

2

Where in the tax year only one annual party or similar annual function to which this section applies is provided for the employer’s employees, or the employees in question, no liability to income tax arises in respect of its provision if the cost per head of the party or function does not exceed £75.

3

Where in the tax year two or more such parties or functions are so provided, no liability to income tax arises in respect of the provision of one or more of them (“the exempt party or parties”) if the cost per head of the exempt party or parties does not exceed £75 or £75 in aggregate.

4

For the purposes of this section, the cost per head of a party or function is the total cost of providing—

a

the party or function, and

b

any transport or accommodation incidentally provided for persons attending it (whether or not they are the employer’s employees),

divided by the number of those persons.

5

That total cost includes any value added tax on the expenses incurred in providing the party, function, transport or accommodation.

Entertainment

265Third party entertainment

1

No liability to income tax arises in respect of the provision of entertainment for an employee or a member of the employee’s family or household if conditions A to C are met.

2

Condition A is that the person providing the entertainment is not the employer or a person connected with the employer.

section 264 (annual parties and functions),

d

section 296 (armed forces’ leave travel facilities), or

e

section 317 (subsidised meals).

4

No liability to income tax arises by virtue of Chapter 4 of Part 3 (taxable benefits: vouchers and credit-tokens) in respect of a non-cash voucher if the voucher evidences the employee’s entitlement to a benefit in respect of which no charge arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) because of regulations under section 210 (power to exempt minor benefits).

5

For the purposes of this section direct provision is taken to fall within a section if it would do so if the employee were not in excluded employment.

267Exemption of credit-tokens used for exempt benefits

6

In this section—

“the overnight stay conditions” has the same meaning as in section 240 (exemption of incidental overnight expenses and benefits) (see section 240(4)), and

“the exemption provisions total” and “the permitted amount” have the same meaning as in section 241 (incidental overnight expenses and benefits: overall exemption limit) (see section 241(2) and (3)).

“heavy goods vehicle” has the same meaning as in section 238 (modest private use of heavy goods vehicles), and

b

a heavy goods vehicle is “exempt” if it is made available in the tax year to the employee in such circumstances that section 238 applies or would apply if the employee were not in excluded employment.

270Exemption for small gifts of vouchers and tokens from third parties

1

No liability to income tax arises by virtue of Chapter 4 of Part 3 (taxable benefits: vouchers and credit-tokens) in respect of a non-cash voucher or a credit-token if conditions A to C are met.

2

Condition A is that the voucher or token is provided as a gift.

3

Condition B is that it is only capable of being used to obtain goods.

4

Condition C is that it meets conditions A to C and E in section 324 (general exemption of small gifts from third parties).

Chapter 7Exemptions: removal benefits and expenses

Exemption of removal benefits and expenses: general

271Limited exemption of removal benefits and expenses: general

1

No liability to income tax in respect of earnings arises by virtue of—

a

the provision of removal benefits to which this section applies, or

b

the payment or reimbursement of removal expenses to which this section applies.

2

Subsection (1) does not apply if (disregarding this section) the earnings are general earnings to which either of the following sections applies—

a

section 22 (chargeable overseas earnings for year when employee resident and ordinarily resident, but not domiciled, in UK), or

b

section 26 (foreign earnings for year when employee resident, but not ordinarily resident, in UK).

3

Subsection (1) is subject to section 287 (limit on exemption).

they are reasonably incurred by the employee in connection with a change of the employee’s residence which meets the conditions in section 273,

b

they are incurred on or before the limitation day, and

c

they are within one of the provisions referred to in subsection (1)(c)(i) to (vi) or within section 284 (bridging loan expenses).

273Conditions applicable to change of residence

1

The conditions referred to in section 272(1)(a) and (3)(a) which apply to the change of the employee’s residence are conditions A to C.

2

Condition A is that the change of residence results from one of the following changes—

a

the employee becoming employed,

b

an alteration of the duties of the employment, or

c

an alteration of the place where the employee is normally to perform those duties.

3

Condition B is that the change of residence is made wholly or mainly to allow the employee to reside within a reasonable daily travelling distance of the place where the employee normally performs or is normally to perform the duties of the employment after the employment change (see section 275).

4

Condition C is that the employee’s former residence is not within a reasonable daily travelling distance of that place.

274Meaning of “the limitation day”

1

In this Chapter “the limitation day”, in relation to an employee’s change of residence, means the last day of the tax year after that in which the employee begins to perform the duties of the employment after the employment change, but this is subject to any direction under subsection (2).

2

The Inland Revenue may direct that the last day of a later tax year is the limitation day in relation to any particular change of residence if it appears to them reasonable to do so having regard to all the circumstances of that change.

275Meaning of “the employment change”

In this Chapter “the employment change”, in relation to an employee’s change of residence, means whichever of the changes specified in section 273(2) results in the change of residence.

276Meaning of “residence”, “former residence” and “new residence” etc.

5

In this section—

“appropriate registry” means—

Her Majesty’s Land Registry,

the Land Registry in Northern Ireland, or

the Registry of Deeds for Northern Ireland, and

“appropriate register” means any register under the management and control of the Keeper of the Registers of Scotland.

278Abortive acquisition benefits and expenses

Benefits or expenses are within this section if—

a

they are benefits provided or expenses incurred with a view to the acquisition of an interest in a residence,

b

the interest is not acquired—

i

because of circumstances outside the control of the person seeking to acquire it, or

ii

because that person reasonably declines to proceed, and

c

the benefits or expenses would have fallen within section 277 if the interest had been acquired.

part of it was so raised and the rest of it is so secured.

280Transporting belongings

1

The following benefits are within this section—

a

the transportation of domestic belongings from the employee’s former residence to the employee’s new residence, and

b

the effecting of insurance to cover such transportation.

2

The following expenses are within this section—

a

expenses connected with such transportation, and

b

the costs of any such insurance.

3

In this section—

“domestic belongings” means belongings of the employee or of members of the employee’s family or household, and

“transportation” includes—

packing and unpacking belongings,

temporarily storing them, where there is not a direct move from the former to the new residence,

detaching domestic fittings from the former residence, where they are to be taken to the new residence, and

attaching domestic fittings to the new residence and adapting them, where they are brought from the former residence.

if that accommodation is within subsection (2)(b), the employee’s new residence, and

c

if that accommodation is within subsection (2)(c) or (d), the employee’s temporary accommodation.

4

The cost of providing subsistence or travel of a kind described in subsection (1) is an expense within this section.

5

Subsections (1) and (4) are subject to section 282 (exclusion from this section of benefits and expenses where deduction allowed), and subsection (1) is also subject to section 283 (exclusion from this section of taxable car and van facilities).

6

In this section—

“new duties” means—

if the employment change is within section 273(2)(a) (change of employer), the duties of the employee’s new employment, and

if the employment change is within section 273(2)(b) (change of duties), the new duties of the employment,

“former area” means the area round or near the former residence of the employee,

“new area” means—

if the employment change is within section 273(2)(a) or (b) (change of employer or duties), the area round or near the place where the employee’s new duties normally are or are to be performed, and

if the employment change is within section 273(2)(c) (change of place of performance), the area round or near the new place where the duties of the employee’s employment normally are or are to be performed,

“relevant child” means a person who is a member of the employee’s family or household and is aged under 19 at the beginning of the tax year in which the employment change occurs, and

“subsistence” means food, drink and temporary living accommodation.

282Exclusion from section 281 of benefits and expenses where deduction allowed

1

Benefits and expenses are excluded from section 281 (travelling and subsistence) if or to the extent that an amount is deductible in respect of the cost of the benefits or of the expenses under any of the following provisions.

2

They are—

a

section 341 (travel at start or finish of overseas employment),

b

section 342 (travel between employments where duties performed abroad), and

c

Chapter 5 of Part 5 except section 376 (deductions for earnings representing benefits or reimbursed expenses in respect of certain foreign travel).

3

If an amount is so deductible in respect of part only of the cost of a benefit, the part of the benefit excluded by this section is to be determined on a just and reasonable basis.

283Exclusion from section 281 of taxable car and van facilities

1

A car or van is not treated as a facility for the purposes of section 281(1) if in the tax year in which it is provided it is also made available—

a

to the employee or members of the employee’s family or household for private use not falling within section 281(1),

b

by reason of the employee’s employment, and

c

without any transfer of the property in it.

2

The following sections apply for the purposes of this section as they apply for the purposes of Chapter 6 of Part 3 (taxable benefits: cars, vans and related benefits)—

for redeeming a loan—

i

which was raised by the employee to obtain an interest in the former residence,

ii

which is secured on such an interest, or

iii

which was partly so raised and the rest of which is so secured.

3

If the loan exceeds the market value of the employee’s interest in the former residence at the time of acquisition of the new residence, the interest on the excess is not within this section.

4

If subsection (3) applies in a case where the loan is used partly for purposes within subsection (2) and partly for other purposes, the amount of the interest within this section is the appropriate fraction of the total interest.

5

The appropriate fraction is—

MVL math

or, if it is smaller—

PLL math

where—

MV is the market value of the employee’s interest in the former residence at the time of acquisition of the new residence,

PL is the part of the loan used for purposes within subsection (2), and

L is the amount of the loan.

6

In this section—

a

references to a loan raised by the employee include a loan raised by—

i

one or more members of the employee’s family or household, or

ii

the employee and one or more members of the employee’s family or household, and

b

references to the employee having, disposing of or acquiring an interest in a residence include—

i

one or more members of the employee’s family or household having, disposing of or acquiring such an interest, or

ii

the employee and one or more members of the employee’s family or household having, disposing of or acquiring such an interest.

285Replacement of domestic goods

1

Benefits and expenses are within this section if—

a

the employee has an interest in the former residence and disposes of it because of the change of residence,

b

the employee acquires an interest in the new residence,

c

in the case of benefits, they are domestic goods provided to replace goods used at the former residence which are unsuitable for use at the new residence, and

d

in the case of expenses, they are incurred on the purchase of domestic goods intended for such replacement.

2

In this section references to the employee having, disposing of or acquiring an interest in a residence include—

a

one or more members of the employee’s family or household having, disposing of or acquiring such an interest, or

b

the employee and one or more members of the employee’s family or household having, disposing of or acquiring such an interest.

286Power to amend sections 279 to 285

1

The Treasury may by regulations amend sections 279 to 285 so as to secure that benefits or expenses which would not otherwise fall within any of those sections do so.

2

The regulations may include such supplementary, incidental or consequential provisions as appear to the Treasury to be necessary or expedient.

3

Those provisions may be made by amending this Chapter or otherwise.

4

The regulations apply to a change of an employee’s residence resulting from an employment change occurring on or after the day specified in the regulations for this purpose.

Limit on exemption

287Limit on exemption

1

If in the case of any change of residence the value of the exemption exceeds £8,000, section 271 (exemption of removal benefits and expenses) does not apply to the excess.

2

The value of the exemption is an amount equal to the sum of—

a

the section 62 earnings, and

b

the benefits code earnings (after taking account of section 64(2)(b) where otherwise an amount that falls within paragraph (a) would be included).

3

In this section “the section 62 earnings” means all earnings within section 62 (earnings) in respect of which section 271 would prevent liability to income tax from arising if this section were disregarded.

4

In this section “the benefits code earnings” means all earnings—

a

which are treated as such under the benefits code (except earnings so treated under Chapter 7 of Part 3 (taxable benefits: loans)), and

b

in respect of which section 271 would prevent liability to income tax from arising if this section were disregarded.

5

In the case of living accommodation, the amount that would be so treated is to be taken to be equal to—

CE-D math

where—

CE is the cash equivalent of the accommodation under Chapter 5 of Part 3 (taxable benefits: living accommodation) for the period in which the accommodation is provided (calculated as mentioned in section 103), and

D is any amount deductible under section 364 (deductions where living accommodation provided).

Special exemption and relief for bridging loans

288Limited exemption of certain bridging loans connected with employment moves

1

No liability to income tax arises by virtue of Chapter 7 of Part 3 (taxable benefits: loans) in respect of a loan if—

a

it is a removal benefit (see subsection (2)),

b

the unused removal benefit exemption condition is met (see subsection (3)), and

c

the loan is discharged before the end of the exempted loan discharge period (see subsection (4)).

2

For the purposes of this section and section 289, a loan is a removal benefit if—

a

it is raised by the employee in connection with a change of residence meeting the conditions in section 273 (conditions applicable to change of residence),

b

the employee has an interest in the former residence and disposes of it in consequence of the change of residence,

c

the employee acquires an interest in the new residence,

d

the loan is raised wholly or partly because expenditure is incurred in connection with that acquisition before the proceeds of that disposal become available, and

e

the loan is made before the limitation day.

3

For the purposes of this section and section 289 the unused removal benefit exemption condition is that, in the case of the particular change of residence—

a

the sum specified in section 287(1) (limit on exemption), exceeds

b

the amount referred to in section 287(2) (the value of the exemption);

and for those purposes that excess is “the unused exemption”.

4

In this section and section 289 “the exempted loan discharge period”, in relation to a loan, means the period of N days beginning with the day on which it is made, taking N as the number obtained by applying the following formula and, if that does not give a whole number, rounding up the result to the nearest whole number—

AB×C×365 math

where—

A is the unused exemption,

B is the maximum amount of the loan outstanding in the period beginning with the time when the loan is made and ending with the limitation day, and

C is the official rate of interest in force when the loan is made (expressed as a percentage).

5

In this section—

a

references to a loan raised by the employee include a loan raised by—

i

one or more members of the employee’s family or household, or

ii

the employee and one or more members of the employee’s family or household, and

b

references to the employee having, disposing of or acquiring an interest in a residence include—

i

one or more members of the employee’s family or household having, disposing of or acquiring such an interest, or

ii

the employee and one or more members of the employee’s family or household having, disposing of or acquiring such an interest.

6

The tax payable in respect of a loan for a tax year ending before the limitation day may be decided on the basis that the unused removal benefit exemption condition will not be met.

289Relief for certain bridging loans not qualifying for exemption under section 288

1

This subsection applies to a loan if—

a

it is a removal benefit (see section 288(2)),

b

the unused removal benefit exemption condition is met (see section 288(3)), and

c

the loan is not discharged before the end of the exempted loan discharge period (see section 288(4)).

2

A loan to which subsection (1) applies is to be treated for the purposes of Chapter 7 of Part 3 (taxable benefits: loans) as if it was made on the day after the last day of the exempted loan discharge period.

3

Subsection (2) does not apply for the purposes of sections 176, 177, 180, 189 and 190.

4

The tax payable in respect of a loan for a tax year ending before the limitation day may be decided on the basis that subsections (1) and (2) will not apply because the unused removal benefit exemption condition will not be met.

Chapter 8Exemptions: special kinds of employees

Ministers of religion

290Accommodation benefits of ministers of religion

1

No liability to income tax in respect of a person employed as a full-time minister arises by virtue of—

a

the payment or reimbursement of a statutory amount payable in connection with qualifying premises, or

b

the reimbursement of a statutory deduction made in connection with qualifying premises.

2

No liability to income tax in respect of a person employed as a full-time minister arises by virtue of the payment or reimbursement of expenses incurred in connection with providing living accommodation in qualifying premises if the employment is excluded employment.

3

Subsection (1) does not apply if or to the extent that the amount or deduction is properly attributable to a part of the premises for which the minister receives rent.

4

Premises are qualifying premises in relation to a person employed as a minister if—

a

an interest in them belongs to a charity or an ecclesiastical corporation, and

b

because of that interest and by reason of holding the employment, the minister has a residence in them from which to perform the duties of the employment.

5

In this section—

“charity” means a body of persons or trust established for charitable purposes only,

“full-time minister” means a person in full-time employment as a minister of a religious denomination,

“statutory amount” means an amount paid in pursuance of a provision in, or having the force of, an Act, and

“statutory deduction” means a deduction made in pursuance of such a provision.

MPs, government ministers etc.

291Termination payments to MPs and others ceasing to hold office

1

No liability to income tax in respect of earnings arises by virtue of any grant or payment to which this section applies (but see Chapter 3 of Part 6: payments and benefits on termination of employment etc.).

2

This section applies to grants and payments—

a

made in accordance with a resolution of the House of Commons to a person ceasing to be a Member of that House on a dissolution of Parliament,

b

made under section 4 of the Ministerial and other Pensions and Salaries Act 1991 (c. 5) (grants to persons ceasing to hold certain ministerial and other offices),

c

made under section 3 of the European Parliament (Pay and Pensions) Act 1979 (c. 50) (resettlement grants for persons ceasing to be Representatives),

d

made under section 81(3) of the Scotland Act 1998 (c. 46) to a person—

i

ceasing to be a member of the Scottish Parliament on its dissolution, or

ii

ceasing to hold an office corresponding to a relevant office,

e

made under section 18(1) of the Government of Wales Act 1998 (c. 38) to a person ceasing to be a member of the National Assembly for Wales on the expiry of the member’s term of office, or

f

made under section 48(1) of the Northern Ireland Act 1998 (c. 47) to a person—

i

ceasing to be a member of the Northern Ireland Assembly on its dissolution, or

ii

ceasing to hold an office corresponding to a relevant office.

3

In this section “a relevant office” has the same meaning as in section 4 of the Ministerial and other Pensions and Salaries Act 1991.

292Overnight expenses allowances of MPs

1

No liability to income tax arises in respect of an overnight expenses allowance paid to a Member of the House of Commons in accordance with a resolution of that House.

2

“Overnight expenses allowance” means an allowance expressed to be in respect of additional expenses necessarily incurred by the Member in staying overnight away from the Member’s only or main residence, for the purpose of performing parliamentary duties—

a

in the London area, as defined in such a resolution, or

b

in the Member’s constituency.

293Overnight expenses of other elected representatives

1

No liability to income tax arises in respect of a payment to which this section applies if it is expressed to be made in respect of a member’s necessary overnight expenses.

2

This section applies to payments—

a

made to members of the Scottish Parliament under section 81(2) of the Scotland Act 1998 (c. 46),

The Treasury shall by order make such amendments of the definition in subsection (3) as are necessary to secure that the countries listed are those that are from time to time candidates for membership of the European Union.

Consuls, foreign agents etc.

300Consuls

1

No liability to income tax arises in respect of income arising from the office of a consul in the United Kingdom in the service of a foreign state.

2

Such income is also to be disregarded in estimating the amount of income for any income tax purposes.

3

In this section “consul” means a person recognised by Her Majesty as being a consul-general, consul, vice-consul or consular agent.

301Official agents

1

No liability to income tax arises in respect of income arising from employment as an official agent in the United Kingdom for a foreign state if conditions A and B are met.

2

Condition A is that the employee is neither—

a

a Commonwealth citizen, nor

b

a citizen of the Republic of Ireland.

3

Condition B is that the functions of the employment are not exercised in connection with a trade, business or other undertaking carried on for the purposes of profit.

4

Such income is also to be disregarded in estimating the amount of income for any income tax purposes.

5

In this section “official agent” means a person who is not a consul (as defined in section 300) but is employed on the staff of—

a

a consulate, or

b

an official department or agency of a foreign state.

6

Subsection (5)(b) does not apply to a department or agency which carries on a trade, business or other undertaking for the purposes of profit.

302Consular employees

1

No liability to income tax arises in respect of income arising from employment in the United Kingdom as a consular employee for a foreign state if—

a

Her Majesty by Order in Council directs that this section applies to the foreign state for the purpose of giving effect to a reciprocal arrangement with that state, and

b

condition A or B is met.

2

Condition A is that the employee is a national of the foreign state.

3

Condition B is that the employee is not a British citizen, a British overseas territories citizen, a British National (Overseas) or a British Overseas citizen.

4

In this section—

“consular employee” includes any person employed for the purposes of the official business of a consular officer at—

any consulate,

any consular establishment, or

any other premises used for those purposes, and

“local transport” means transport between a place where the employee is provided with related accommodation and subsistence and the place of departure or arrival on the mainland,

“offshore installation” means anything falling within section 40(5)(b)(i) or (ii), and

“workplace” and “permanent workplace” have the meaning given by section 339.

Miners etc.

306Miners etc: coal and allowances in lieu of coal

1

No liability to income tax arises in respect of the provision of coal or smokeless fuel or an allowance paid in lieu of such provision if the employee is a colliery worker and the condition in subsection (2) is met.

2

That condition is that the amount of coal or fuel provided or in respect of which the allowance is paid does not substantially exceed the amount reasonably required for personal use.

3

That condition is assumed to be met unless the contrary is shown.

4

In this section “colliery worker” means a coal miner or any other person employed at or about a colliery otherwise than in clerical, administrative or technical work.

Chapter 9Exemptions: pension provision

2

Where an approved contractual payment exceeds the amount which would have been due if a redundancy payment had been payable, the excess is liable to income tax.

3

No liability to income tax in respect of employment income other than earnings arises by virtue of a redundancy payment or an approved contractual payment, except where it does so by virtue of Chapter 3 of Part 6 (payments and benefits on termination of employment etc.).

4

For the purposes of this section—

a

a statutory payment in respect of a redundancy payment is to be treated as paid on account of the redundancy payment, and

b

a statutory payment in respect of an approved contractual payment is to be treated as paid on account of the approved contractual payment.

5

In this section—

“approved contractual payment” means a payment to a person on the termination of the person’s employment under an agreement in respect of which an order is in force under section 157 of ERA 1996 or Article 192 of ER(NI)O 1996,

“redundancy payment” means a redundancy payment under Part 11 of ERA 1996 or Part 12 of ER(NI)O 1996, and

“statutory payment” means a payment under section 167(1) of ERA 1996 or Article 202(1) of ER(NI)O 1996.

6

In subsection (5) “employment”, in relation to a person, has the meaning given in section 230(5) of ERA 1996 or Article 3(5) of ER(NI)O 1996.

Outplacement benefits

310Counselling and other outplacement services

1

No liability to income tax arises in respect of—

a

the provision of services to a person in connection with the cessation of the person’s employment, or

b

the payment or reimbursement of—

i

fees for such provision, or

ii

8

In this section “mileage allowance payments” has the meaning given by section 229(2).

that attendance at the course is one of the duties of the employee’s employment,

b

that the employee incurs and pays the expenses, and

c

if the employee has in fact ceased to be employed by the employer, that the employee continues to be employed by the employer.

7

In this section “mileage allowance payments” has the meaning given by section 229(2).

312Recovery of tax

1

This section applies if—

a

a person’s liability to tax for a tax year has been determined on the assumption that section 311(1) applies, and

b

subsequently—

i

the condition in section 311(4)(a) is not met because of the person’s failure to begin the course within the period of one year after ceasing to be employed, or

ii

the condition in section 311(4)(b) is not met because of the person’s continued employment or re-employment.

2

An assessment of an amount or further amount of tax due as a result of the condition not being met may be made under section 29(1) of TMA 1970.

3

Such an assessment must be made before the end of the period of 6 years immediately following the end of the tax year in which subsection (1) first applies.

4

If subsection (1)(b)(i) or (ii) applies, the person’s employer or former employer must give the Inland Revenue a notice containing particulars of the person’s failure to begin the course or continued employment or re-employment within 60 days of coming to know of it.

5

If the Inland Revenue have reason to believe that a person has failed to give such a notice, they may by notice require the person to provide such information as they may reasonably require for the purposes of this section about—

a

the failure to begin the course,

b

the continued employment, or

c

the re-employment.

6

A notice under subsection (5) may specify a time (not less than 60 days) within which the required information must be provided.

Chapter 11Miscellaneous exemptions

Living accommodation

313Repairs and alterations to living accommodation

1

This section applies where living accommodation is provided by reason of a person’s employment.

2

No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of—

a

alterations and additions to the premises which are of a structural nature, or

b

landlord’s repairs to the premises.

3

In this section “landlord’s repairs” means repairs of a kind which are the obligation of the lessor under the covenants implied by section 11(1) of the Landlord and Tenant Act 1985 (c. 70) (lessor’s repairing obligations in short leases) where premises are let under a lease to which that section applies.

314Council tax etc. paid for certain living accommodation

1

This section applies if living accommodation provided for an employee falls within the exception in one of the following provisions—

section 99(1) (accommodation necessary for proper performance of duties),

section 99(2) (accommodation provided for better performance of duties), or

section 100 (accommodation provided as a result of security threat).

2

No liability to income tax arises by virtue of—

a

any payment to, for or on behalf of the employee, or

b

any reimbursement of any payment by the employee,

in respect of council tax or rates, or water or sewerage charges, in respect of the accommodation.

315Limited exemption for expenses connected with certain living accommodation

1

This section applies if—

a

living accommodation is provided for an employee in a tax year, and

b

conditions A and B are met.

2

Condition A is that the accommodation falls within the exception in one of the following provisions—

section 99(1) (accommodation necessary for proper performance of duties),

section 99(2) (accommodation provided for better performance of duties), or

section 100 (accommodation provided as a result of security threat).

3

Condition B is that there is an amount of earnings from the employment in the tax year by virtue of expenditure, or the reimbursement to the employee of expenditure, on—

a

heating, lighting or cleaning the premises,

b

repairs to the premises, their maintenance or decoration, or

c

the provision in the premises of furniture, equipment or other items which are normal for domestic occupation.

4

If this section applies, no liability to income tax arises in respect of the earnings mentioned in subsection (3) to the extent that they exceed—

(10%×NE×DADE)−SMG math

where—

DA is the number of reckonable days in the tax year (a “reckonable day” being a day on which—

the accommodation is provided, and

the employment is held by the employee),

DE is—

the number of days in that year, or

if the employment is held for only part of that year, the number of days in that part,

NE is the net amount of the earnings from the employment in the tax year (see subsection (5)),

SMG is, where the expenses are incurred by a person other than the employee, so much of any sum made good by the employee to that other person as is properly attributable to the expenses.

5

To calculate the net amount of the earnings from the employment—

Step 1

Take the earnings from the employment, leaving out of account the expenses in question.

Step 2

Add, in the case of employment by a company, the earnings from any employment by an associated company.

A company is “associated” with another for this purpose if one has control of the other or both are under the control of the same person.

Step 3

Deduct any deductions allowable under—

section 232 (giving effect to mileage allowance relief) or Part 5 of this Act,

section 592(7), 594 or 619(1)(a) of ICTA, or

c

is a child in respect of whom the employee has all the rights, duties, powers, responsibilities and authority which by law a parent of a child has in relation to the child and the child’s property.

In paragraph (a) “child” includes stepchild.

4

Condition B is that—

a

the premises on which the care is provided are not used wholly or mainly as a private dwelling, and

b

any applicable registration requirement is met with respect to the premises.

5

In subsection (4), “registration requirement” means a requirement that a person providing the care is registered under—

a

section 71 or Part 10A of the Children Act 1989 (c. 41), or

b

Article 118 of the Children (Northern Ireland) Order 1995 (S.I.1995/755 (N.I. 2)),

is not a cordless telephone or a telepoint telephone.

3

For the purposes of subsection (2)—

“cordless telephone” means telephone apparatus designed or adapted to provide a wireless extension to a telephone and used only as such an extension to a telephone which is physically connected to a land-line,

“telephone apparatus” means wireless telegraphy apparatus designed or adapted for the purpose of transmitting and receiving spoken messages and connected to a public telecommunication system (as defined in section 9(1) of the Telecommunications Act 1984 (c. 12)), and

“telepoint telephone” means telephone apparatus used for the purpose of a short-range radio communications service at frequencies between 864 and 868 megahertz (inclusive).

320Limited exemption for computer equipment

4

Condition B is that the suggestion is made by an employee who could not reasonably be expected to make it in the course of the duties of the employment, having regard to the employee’s experience.

5

Condition C is that the suggestion is not made at a meeting held for the purpose of proposing suggestions.

6

In this section and section 322—

“encouragement award” means an award, other than a financial benefit award, made for a suggestion with intrinsic merit or showing special effort, and

“financial benefit award” means an award for a suggestion relating to an improvement in efficiency or effectiveness which the employer has decided to adopt and reasonably expects will result in a financial benefit.

In this section—

“the appropriate proportion” means such proportion as the award bears to the total of the financial benefit awards made on the same occasion for the suggestion,

“the residue of the suggestion maximum” means the suggestion maximum less the total previous exemption, and

“the total previous exemption” means the total of the amounts exempted from income tax under section 321 in respect of financial benefit awards for the suggestion made on previous occasions.

323Long service awards

1

No liability to income tax arises in respect of a long service award which meets the condition in subsection (3) if or to the extent that the chargeable amount does not exceed the permitted maximum.

2

In subsection (1)—

“chargeable amount” means the amount of employment income which would be charged to tax in respect of the award apart from subsection (1),

“long service award” means an award made to an employee to mark not less than 20 years’ service with the same employer, and

“permitted maximum” means £20 for each year of service in respect of which the award is made.

3

The condition is that the award must take the form of—

a

tangible moveable property,

b

shares in a company which is, or belongs to the same group as, the employer, or

c

the provision of any other benefit except—

i

a payment,

ii

a cash voucher,

iii

a credit-token,

iv

securities,

v

shares not within paragraph (b), or

vi

an interest in or rights over securities or shares.

4

Subsection (1) does not apply to an award (“the later award”) if another award to mark a particular period of service with the same employer has been made to the employee in the period of 10 years ending with the date on which the later award is made.

5

For the purposes of this section, service is treated as being with the same employer if it is with two or more employers—

a

each of whom is a successor or predecessor of the others, or

b

one of whom is a company which belongs or has belonged to the same group as the others or a predecessor or successor of the others.

6

In this section “group” means a body corporate and its 51% subsidiaries.

324Small gifts from third parties

Chapter 2 (deductions for employee’s expenses),

Chapter 3 (deductions from benefits code earnings),

Chapter 4 (fixed allowances for employee’s expenses),

Chapter 5 (deductions for earnings representing benefits or reimbursed expenses), and

Chapter 6 (deductions from seafarers’ earnings).

4

Further provision about deductions from earnings is made in—

section 232 (giving effect to mileage allowance relief),

section 619 of ICTA (contributions under retirement annuity contracts), and

section 262 of CAA 2001 (capital allowances to be given effect by treating them as deductions from earnings).

5

Further provision about deductions from income including earnings is made in—

Part 12 (payroll giving),

section 592(7) of ICTA (contributions to exempt approved schemes), and

section 594(1) of ICTA (contributions to exempt statutory schemes).

General rules

328The income from which deductions may be made

1

The general rule is that deductions under this Part are allowed—

a

from any earnings from the employment in question, and

b

not from earnings from any other employment.

This is subject to subsections (2) to (4).

2

Deductions under section 351 (expenses of ministers of religion) are allowed from earnings from any employment as a minister of a religious denomination.

3

Deductions under section 368 (fixed sum deductions from earnings payable out of public revenue) are allowed only from earnings payable out of the public revenue.

4

Deductions limited to specified earnings (see subsection (5)) are allowed—

a

only from earnings from the employment that are taxable earnings under certain of the charging provisions of Chapters 4 and 5 of Part 2, and

b

not from other earnings from it.

5

“Deductions limited to specified earnings” are deductions under—

sections 336 to 342 (deductions from earnings charged on receipt: see sections 335(2) and 354),

section 353 (deductions from earnings charged on remittance),

sections 370 to 374 (travel deductions from earnings charged on receipt), and

Chapter 6 of this Part (deductions from seafarers’ earnings: see section 378(1)(a)).

329Deductions from earnings not to exceed earnings

1

The amount of a deduction allowed under this Part may not exceed the earnings from which it is deductible.

2

If two or more deductions allowed under this Part are deductible from the same earnings, the amounts deductible may not in aggregate exceed those earnings.

3

If deductions allowed otherwise than under this Part fall to be allowed from the same earnings as amounts deductible under this Part, the amounts deductible under this Part may not exceed the earnings remaining after the other deductions.

4

Subsections (1) and (2) do not apply to a deduction under section 351 (expenses of ministers of religion), and subsection (3) applies as if such a deduction were allowed otherwise than under this Part.

5

This section is to be disregarded for the purposes of the deductibility provisions (see section 332).

6

See also section 380 of ICTA (which provides that where a loss in an employment is sustained, relief may be given against other income).

330Prevention of double deductions

1

A deduction from earnings under this Part is not allowed more than once in respect of the same costs or expenses.

2

If apart from this subsection—

a

a deduction would be allowed under Chapter 4 of this Part (fixed allowances for employee’s expenses) for a sum fixed by reference to any kind of expenses, and

b

the employee would be entitled under another provision to a deduction for an amount paid in respect of the same kind of expenses,

only one of those deductions is allowed.

331Order for making deductions

1

This Part needs to be read with section 835(3) and (4) of ICTA (general rule that deductions are to be allowed in the order resulting in the greatest reduction of liability to income tax).

2

In the case of deductions under this Part, the general rule in that section is subject to—

a

section 23(3) (which requires certain deductions to be made in order to establish “chargeable overseas earnings”), and

b

section 381 (which requires deductions under other provisions to be taken into account before deductions under Chapter 6 of this Part (seafarers)).

332Meaning of “the deductibility provisions”

For the purposes of this Part, “the deductibility provisions” means the following provisions (which refer to amounts or expenses that would be deductible if they were incurred and paid by an employee)—

the definition of “business travel” in section 171(1) (definitions for Chapter 6 of Part 3),

section 179(6) (exception for certain advances for necessary expenses),

the definition of “business travel” in section 236(1) (definitions for Chapter 2 of Part 4),

section 240(1)(c) and (5) (exemption of incidental overnight expenses and benefits),

section 252(3) (exception from exemption of work-related training provision for non-deductible travel expenses),

section 257(3) (exception from exemption for individual learning account training provision for non-deductible travel expenses),

section 305(5) (offshore oil and gas workers: mainland transfers),

section 310(6)(b) (counselling and other outplacement services),

section 311(5)(b) (retraining courses),

section 361(b) (scope of Chapter 3 of this Part: cost of benefits deductible as if paid by employee),

section 362(1)(c) and (2)(b) (deductions where non-cash voucher provided),

section 363(1)(b) and (2)(b) (deductions where credit-token provided),

section 364(1)(b) and (2) (deductions where living accommodation provided),

section 365(1)(b) and (2) (deductions where employment-related benefit provided).

Chapter 2Deductions for employee’s expenses

Introduction

333Scope of this Chapter: expenses paid by the employee

1

A deduction from a person’s earnings for an amount is allowed under the following provisions of this Chapter only if the amount—

a

is paid by the person, or

b

is paid on the person’s behalf by someone else and is included in the earnings.

2

2

But where a reimbursement or such other payment is made in respect of an amount, a deduction for the amount is allowed under the following provisions of this Chapter only if or to the extent that—

a

the reimbursement, or

b

so much of the other payment as relates to the amount,

is included in the person’s earnings.

3

This section does not apply to a deduction allowed under section 351 (expenses of ministers of religion).

4

This section is to be disregarded for the purposes of the deductibility provisions.

335Application of deductions provisions: “earnings charged on receipt” and “earnings charged on remittance”

1

the tasks to be carried out in the performance of those duties are allocated there.

5

A place is not regarded as a temporary workplace if the employee’s attendance is—

a

in the course of a period of continuous work at that place—

i

lasting more than 24 months, or

ii

comprising all or almost all of the period for which the employee is likely to hold the employment, or

b

at a time when it is reasonable to assume that it will be in the course of such a period.

6

For the purposes of subsection (5), a period is a period of continuous work at a place if over the period the duties of the employment are performed to a significant extent at the place.

7

An actual or contemplated modification of the place at which duties are performed is to be disregarded for the purposes of subsections (5) and (6) if it does not, or would not, have any substantial effect on the employee’s journey, or expenses of travelling, to and from the place where they are performed.

8

An employee is treated as having a permanent workplace consisting of an area if—

a

the duties of the employment are defined by reference to an area (whether or not they also require attendance at places outside it),

b

in the performance of those duties the employee attends different places within the area,

c

none of the places the employee attends in the performance of those duties is a permanent workplace, and

d

the area would be a permanent workplace if subsections (2), (3), (5), (6) and (7) referred to the area where they refer to a place.

340Travel between group employments

1

A deduction from earnings from an employment is allowed for travel expenses if conditions A to D are met.

2

Condition A is that the employee is obliged to incur and pay the expenses.

3

Condition B is that the travel is for the purpose of performing duties of the employment at the destination.

4

Condition C is that the employee has performed duties of another employment at the place of departure.

5

Condition D is that the employments are with companies in the same group.

6

In this section “group” means a company and its 51% subsidiaries.

7

For the purposes of sections 353 and 354 (special rules for earnings with a foreign element), the expenses are treated as incurred in the performance of the duties to be performed at the destination.

8

This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

341Travel at start or finish of overseas employment

1

A deduction from earnings from an employment is allowed for starting travel expenses and finishing travel expenses if conditions A to C are met.

2

Condition A is that the duties of the employment are performed wholly outside the United Kingdom.

3

Condition B is that the employee is resident and ordinarily resident in the United Kingdom.

4

Condition C is that in a case where the employer is a foreign employer, the employee is domiciled in the United Kingdom.

5

If the travel is only partly attributable to the taking up or termination of the employment, this section applies only to the part of the expenses properly so attributable.

6

Subsection (7) applies if in the tax year the employment is in substance one whose duties fall to be performed outside the United Kingdom.

7

Duties of the employment performed in the United Kingdom, whose performance is merely incidental to the performance of duties outside the United Kingdom, are to be treated for the purposes of subsection (2) as performed outside the United Kingdom.

8

In this section—

“starting travel expenses” means expenses incurred by the employee in travelling from a place in the United Kingdom to take up the employment,

“finishing travel expenses” means expenses incurred by the employee in travelling to a place in the United Kingdom on the termination of the employment, and

“employee” includes a person who is to be, or has ceased to be, an employee.

9

This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

342Travel between employments where duties performed abroad

1

A deduction from earnings from an employment is allowed for travel expenses incurred by the employee if conditions A to F are met.

2

Condition A is that the travel is for the purpose of performing duties of the employment at the destination.

3

Condition B is that the employee has performed duties of another employment at the place of departure.

4

Condition C is that the place of departure or the destination or both are outside the United Kingdom.

5

Condition D is that the duties of one or both of the employments are performed wholly or partly outside the United Kingdom.

6

Condition E is that the employee is resident and ordinarily resident in the United Kingdom.

7

Condition F is that in a case where the employer is a foreign employer, the employee is domiciled in the United Kingdom.

8

If the travel is only partly attributable to the purpose of performing duties of the employment at the destination, this section applies only to the part of the expenses properly so attributable.

9

This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

Fees and subscriptions

343Deduction for professional membership fees

1

A deduction from earnings from an employment is allowed for an amount paid in respect of a professional fee if—

a

the duties of the employment involve the practice of the profession to which the fee relates, and

b

the registration, certification, licensing or other matter in respect of which the fee is payable is a condition, or one of alternative conditions, which must be met if that profession is to be practised in the performance of those duties.

2

In this section “professional fee” means a fee mentioned in the following Table.

Table

Health professionals
1 Fee payable for entry or retention of a name in any of the following— a the Register of Chartered Psychologists, b the register maintained by the Registrar of Chiropractors, c a roll or record kept for a class of dental auxiliaries, d the dentists register, e the register of dispensing opticians, f the register maintained by the Health Professions Council, g the register maintained by the registrar appointed by the Hearing Aid Council, h the register of medical practitioners, i the register maintained by the Nursing and Midwifery Council, j either of the registers of opthalmic opticians, k the register maintained by the Registrar of Osteopaths, l the Register of Pharmaceutical Chemists. 2 Fee payable by a chartered psychologist on the issue of a practising certificate.
Animal health professionals
1 Fee payable for entry or retention of a name in any of the following— a the register maintained by the registrar appointed by the Farriers Registration Council, b the supplementary veterinary register, c the register of veterinary surgeons.
Legal professionals
1 Fee payable to the Council for Licensed Conveyancers on the issue of a licence to practise as a licensed conveyancer. 2 Fee and contribution to the compensation fund or Guarantee Fund payable on the issue of a solicitor’s practising certificate.
Architects
1 Fee payable for entry or retention of a name in the Register of Architects.
Teachers
1 Fee payable for entry or retention of a name in any of the following— a the register maintained by the General Teaching Council for England, b the register maintained by the General Teaching Council for Scotland, c the register maintained by the General Teaching Council for Wales.
Patent agents and trade mark agents
1 Registration fee payable by— a a registered patent agent, b a registered trade mark agent. 2 Practising fee payable by— a a registered patent agent, b a registered trade mark agent.
Occupations in the transport sector
1 Fee payable by a driving instructor for entry or retention of a name in the register of approved instructors or on the issue or renewal of a licence authorising its holder to give paid instruction in the driving of a motor car. 2 Fee (including any related medical or technical examination fee) payable, on the issue or renewal of a licence by the Civil Aviation Authority, by— a an aircraft maintenance engineer, b an air traffic controller or student air traffic controller, c a member of the flight crew of an aircraft registered in the United Kingdom, d a flight information service officer. 3 Fee (including any related medical examination fee) payable— a on the issue or renewal of a licence authorising its holder to drive a large goods vehicle or a passenger-carrying vehicle, b by an officer or other seaman on the issue, renewal or endorsement of a certificate, licence or other document which is required as evidence of his qualification or competence to serve in a ship. 4 Fee payable by a seafarer employed in a sea-going United Kingdom ship on the issue or renewal of a medical fitness certificate.

3

The Board of Inland Revenue may make an order adding such fee as is specified in the order to the Table of fees mentioned in subsection (2).

4

The Board may make an order if they consider that such fee is payable in respect of any registration, certification, licensing or other matter if it is required as a condition, or one of alternative conditions, of the practice of a profession.

In determining that part, the Inland Revenue must have regard to the proportion of expenditure of the body attributable to objects other than objects within subsection (2) and all other relevant circumstances.

7

If a body applies for approval under this section and is approved, a subscription paid to it—

a

before it has applied but in the same tax year as the application, or

b

after it has applied but before it is approved,

is treated for the purposes of this section as having been paid to an approved body.

345Decisions of the Inland Revenue under section 344

1

The Inland Revenue may by notice to the body in question—

a

withdraw an approval given under section 344, and

b

withdraw or vary a determination made under that section,

to take account of any change in circumstances.

2

A body aggrieved by a decision of the Inland Revenue under section 344 or subsection (1) may appeal to the Special Commissioners.

3

The notice of appeal must be given to the Inland Revenue within 30 days after the date on which notice of their decision was given to the body.

Employee liabilities and indemnity insurance

346Deduction for employee liabilities

1

A deduction from earnings from an employment is allowed for any or all of the following—

Payment in or towards the discharge of a liability related to the employment.

Payment of any costs or expenses incurred in connection with—

a claim that the employee is subject to a liability related to the employment, or

proceedings relating to or arising out of a claim that the employee is subject to a liability related to the employment.

Payment of a premium under a qualifying insurance contract, but only to the extent that the premium relates to—

provision in the contract for the employee to be indemnified against a payment falling within paragraph A, or

provision in the contract for the payment of any costs or expenses falling within paragraph B.

2

But a deduction is not allowed for a payment which falls within paragraph A or B if it would be unlawful for the employer to enter into a contract of insurance in respect of the liability, or costs or expenses, in question.

3

In this Chapter—

a

“premium”, in relation to a qualifying insurance contract, means an amount payable to the insurer under the contract, and

b

where a qualifying insurance contract relates to more than one person, employment or risk, the part of the premium to be treated as relating to each of them is to be determined by apportionment on a just and reasonable basis.

347Payments made after leaving the employment

1

A deduction for a payment is not allowed under section 346 if—

a

the employee has ceased to hold the employment, and

b

the payment is made after the day on which the employee ceased to hold the employment.

2

If subsection (1) applies, see section 555 (former employee entitled to deduction from total income).

348Liabilities related to the employment

For the purposes of this Chapter each of the following kinds of liability is related to the employment—

Liability imposed upon the employee because he did an act, or failed to do an act—

in his capacity as holder of the employment, or

in any other capacity in which he acted in the performance of the duties of the employment.

Liability imposed upon the employee in connection with any proceedings relating to, or arising from, a claim that he is subject to a liability because he did an act, or failed to do an act—

in his capacity as holder of the employment, or

in any other capacity in which he acted in the performance of the duties of the employment.

if the insured is so entitled, that the part of the premium reasonably attributable to the entitlement is not a significant part of the whole premium.

5

Condition D is that the contract is not connected with another contract.

the contracts meet conditions A, B and C specified in section 349,

because of that interest and by reason of holding an employment as a minister of a religious denomination, the minister has a residence in the premises from which to perform the duties of the employment,

a deduction is allowed from the minister’s earnings from any such employment for part of any expenses borne by the minister on the maintenance, repair, insurance or management of the premises.

4

The amount of the deduction is—

A4-B math

where—

A is the amount of the expenses borne by the minister on the maintenance, repair, insurance or management of the premises, and

B is the amount of those expenses that are allowed under subsection (1).

5

In this section “charity” means a body of persons or trust established for charitable purposes only.

6

Subsection (1) needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

Agency fees paid by entertainers

352Limited deduction for agency fees paid by entertainers

1

A deduction is allowed from earnings from an employment as an entertainer for agency fees (and any value added tax on them) if the fees are calculated as a percentage of the whole or part of the earnings from the employment.

This is subject to the limit in subsection (2).

2

Amounts may be deducted under this section in calculating the net taxable earnings from an employment in a tax year only to the extent that, in aggregate, they do not exceed 17.5% of the taxable earnings from the employment in the tax year.

3

Subsections (4) and (5) apply for the purposes of this section.

4

“Entertainer” means an actor, dancer, musician, singer or theatrical artist.

5

“Agency fees”, in relation to an employment, means—

a

fees paid under a contract between the employee and another person, to whom the fees are paid, who—

i

agrees under the contract to act as an agent of the employee in connection with the employment, and

ii

at the time the fees are paid is carrying on an employment agency with a view to profit, and

b

fees paid under an arrangement under which a co-operative society or the members of such a society agree to act as the employee’s agent in connection with the employment.

6

For the purposes of subsection (5)—

“co-operative society” does not include a society which carries on or intends to carry on business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with or lent to the society or any other person, and

“employment agency” has the meaning given by section 13(2) of the Employment Agencies Act 1973 (c. 35).

Special rules for earnings with a foreign element

353Deductions from earnings charged on remittance

1

A deduction is allowed from earnings charged on remittance for expenses within subsection (2) if the condition in subsection (3) is met.

2

The expenses are—

a

any expenses—

i

paid by the employee out of the earnings, or

ii

paid on the employee’s behalf by another person and included in the earnings, and

b

any other expenses paid in the United Kingdom in the tax year or an earlier tax year in which the employee has been resident in the United Kingdom.

3

The condition is that the expenses would have been deductible under sections 336 to 342 if the earnings had been earnings charged on receipt in the tax year in which the expenses were incurred.

4

Where—

a

any of the deductibility provisions refers to amounts or expenses that would be deductible from earnings if they were paid by a person, and

b

the earnings in question are earnings charged on remittance,

it is assumed for the purposes of those provisions that the person pays the amounts or expenses out of those earnings.

354Disallowance of expenses relating to earnings taxed on different basis or untaxed

1

If the earnings from an employment for a tax year include both earnings charged on receipt and other earnings (except earnings charged under section 22), no deduction is allowed under sections 336 to 342 from the earnings charged on receipt for an amount paid in respect of duties of the employment to which the other earnings relate.

2

If the earnings from an employment for a tax year include both earnings charged on remittance under section 26 and other earnings, no deduction is allowed under section 353 from the earnings charged on remittance for an amount paid in respect of duties of the employment to which the other earnings relate.

3

This section is to be disregarded for the purposes of the deductibility provisions.

355Deductions for corresponding payments by non-domiciled employees with foreign employers

1

An employee may make a claim to the Board of Inland Revenue under this section if conditions A to D are met.

2

Condition A is that the employee is not domiciled in the United Kingdom.

3

Condition B is that the employment is with a foreign employer.

4

Condition C is that the employee has made a payment out of earnings from the employment.

5

Condition D is that the payment does not reduce the employee’s liability to United Kingdom income tax, but was made in circumstances corresponding to those in which it would do so.

6

If the Board are satisfied that conditions A to D are met, they may allow the payment as a deduction under this Chapter.

Disallowance of business entertainment and gifts expenses

356Disallowance of business entertainment and gifts expenses

1

No deduction from earnings is allowed under this Part for expenses incurred in providing entertainment or a gift in connection with the employer’s trade, business, profession or vocation.

2

Subsection (1) is subject to the exceptions in—

a

section 357 (exception where employer’s expenses disallowed), and

Condition C is that—

a

the employer is a tonnage tax company during the whole or part of the tax year, and

b

apart from the tonnage tax election, the deduction of the amount included in the employee’s earnings would fall to be disallowed in calculating the employer’s relevant shipping profits.

5

In subsection (4) “tonnage tax company”, “tonnage tax election” and “relevant shipping profits” have the same meaning as in Schedule 22 to FA 2000.

358Business entertainment and gifts: other exceptions

1

The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing entertainment or gifts for the employer’s employees unless—

a

they are also provided for others, and

b

their provision for the employees is incidental to their provision for the others.

2

For this purpose directors and persons engaged in the management of a company are regarded as employed by it.

3

The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing a gift which incorporates a conspicuous advertisement for the employer or, if the employer is a company, another company which belongs to the same group as the employer, unless—

a

the gift is food, drink, tobacco or a token or voucher exchangeable for goods, or

b

the cost of the gift to the donor, together with any other gifts (except food, drink, tobacco or tokens or vouchers exchangeable for goods) given to the same person in the same tax year, is more than £50.

4

In subsection (3) “group” means a body corporate and its 51% subsidiaries.

Other rules preventing deductions of particular kinds

359Disallowance of travel expenses: mileage allowances and reliefs

1

No deduction may be made under the travel deductions provisions in respect of travel expenses incurred in connection with the use by the employee of a vehicle that is not a company vehicle if condition A or B is met.

2

Condition A is that mileage allowance payments are made to the employee in respect of the use of the vehicle.

3

Condition B is that mileage allowance relief is available in respect of the use of the vehicle by the employee (see section 231).

4

In this section—

“company vehicle” has the meaning given by section 236(2),

“mileage allowance payments” has the meaning given by section 229(2), and

“the travel deductions provisions” means sections 337 to 342, 370, 371, 373 and 374 (travel expenses) and section 351 (expenses of ministers of religion).

360Disallowance of certain accommodation expenses of MPs and other representatives

A deduction from earnings is allowed if—

a

3

For the purposes of this section, the cost of the benefit is determined in accordance with sections 204 to 206.

Chapter 4Fixed allowances for employee’s expenses

Introduction

366Scope of this Chapter: amounts fixed by Treasury

A deduction from an employee’s earnings for an amount is allowed under this Chapter where the amount has been fixed by the Treasury by reference to the employee’s employment.

Fixed sum deductions

367Fixed sum deductions for repairing and maintaining work equipment

1

A deduction is allowed for the sum, if any, fixed by the Treasury as in their opinion representing the average annual expenses incurred by employees of the class to which the employee belongs in respect of the repair and maintenance of work equipment.

2

The Treasury may only fix such a sum for a class of employees if they are satisfied that—

a

the employees are generally responsible for the whole or part of the expense of repairing and maintaining the work equipment, and

b

the expenses for which they are generally responsible would be deductible from the employees’ earnings under section 336 if paid by them.

If the included amount is an amount treated as earnings under—

a

Chapter 4 of Part 3 (taxable benefits: vouchers and credit-tokens),

b

Chapter 5 of Part 3 (taxable benefits: living accommodation), or

c

Chapter 10 of Part 3 (taxable benefits: residual liability to charge),

the journey is made wholly and exclusively for the purpose of performing those duties, or those duties and other duties of the employment, or returning after performing them.

371Travel costs and expenses where duties performed abroad: visiting spouse’s or child’s travel

1

A deduction is allowed from earnings which are taxable earnings under section 15 or 21 (earnings for year when employee resident and ordinarily resident in UK) if—

a

the earnings include an amount in respect of—

i

the provision of travel facilities for a journey made by the employee’s spouse or child, or

ii

the reimbursement of expenses incurred by the employee on such a journey, and

b

conditions A to C are met.

2

The deduction is equal to the included amount.

3

Condition A is that the employee is absent from the United Kingdom for a continuous period of at least 60 days for the purpose of performing the duties of one or more employments.

4

Condition B is that the journey is between a place in the United Kingdom and a place outside the United Kingdom where such duties are performed.

5

Condition C is that the employee’s spouse or child is—

a

accompanying the employee at the beginning of the period of absence,

b

visiting the employee during that period, or

c

returning to a place in the United Kingdom after so accompanying or visiting the employee.

6

A deduction is not allowed under this section for more than two outward and two return journeys by the same person in a tax year.

7

In this section “child” includes a stepchild and an illegitimate child, but not a person who is 18 or over at the beginning of the outward journey.

372Where seafarers’ duties are performed

For the purposes of—

a

section 370 (employee’s travel costs and expenses where duties performed abroad), and

b

section 371 (visiting spouse’s or child’s travel costs and expenses where duties performed abroad),

whether duties performed on a vessel are performed in or outside the United Kingdom is determined without regard to section 40(2) (certain duties treated as performed in UK).

Travel costs and expenses of non-domiciled employees where duties performed in UK

373Non-domiciled employee’s travel costs and expenses where duties performed in UK

1

This section applies if a person (“the employee”) who is not domiciled in the United Kingdom—

a

receives earnings from an employment for duties performed in the United Kingdom, and

b

an amount is included in the earnings in respect of—

i

the provision of travel facilities for a journey made by the employee, or

ii

the reimbursement of expenses incurred by the employee on such a journey.

2

A deduction is allowed from earnings from the employment which are earnings charged on receipt if the journey meets conditions A and B.

3

Condition A is that the journey ends on, or during the period of 5 years beginning with, a date that is a qualifying arrival date in relation to the employee (see section 375).

4

Condition B is that the journey is made—

a

from the country outside the United Kingdom in which the employee normally lives to a place in the United Kingdom in order to perform duties of the employment, or

b

to that country from a place in the United Kingdom in order to return to that country after performing such duties.

5

If the journey is wholly for a purpose specified in subsection (4), the deduction is equal to the included amount.

6

If the journey is only partly for such a purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

If the journey is wholly for the purpose of so accompanying or visiting the employee or so returning, the deduction is equal to the included amount.

7

If the journey is only partly for that purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

8

A deduction is not allowed under this section for more than two inward journeys and two return journeys by the same person in a tax year.

9

In this section “child” includes a stepchild and an illegitimate child, but not a person who is 18 or over at the beginning of the inward journey.

375Meaning of “qualifying arrival date”

1

For the purposes of sections 373(3) and 374(3), a date is a qualifying arrival date in relation to a person if—

a

it is a date on which the person arrives in the United Kingdom to perform duties of an employment from which the person receives earnings for duties performed in the United Kingdom, and

b

condition A or B is met.

2

Condition A is that the person has not been in the United Kingdom for any purpose during the period of 2 years ending with the day before the date.

3

Condition B is that the person was not resident in the United Kingdom in either of the 2 tax years preceding the tax year in which the date falls.

4

If, in a case where condition B applies, there are 2 or more dates in the tax year on which the person arrives in the United Kingdom to perform duties of an employment from which the person receives earnings for duties performed in the United Kingdom, the qualifying arrival date is the earliest of them.

Foreign accommodation and subsistence costs and expenses

376Foreign accommodation and subsistence costs and expenses (overseas employments)

1

A deduction from earnings from an employment is allowed if—

a

the duties of the employment are performed wholly outside the United Kingdom,

b

the employee is resident and ordinarily resident in the United Kingdom,

c

in a case where the employer is a foreign employer, the employee is domiciled in the United Kingdom, and

d

the earnings include an amount in respect of—

i

the provision of accommodation or subsistence outside the United Kingdom for the employee for the purpose of enabling the employee to perform the duties of the employment, or

ii

the reimbursement of expenses incurred by the employee on such accommodation or subsistence for that purpose.

2

If the accommodation or subsistence is wholly for that purpose, the deduction is equal to the included amount.

3

If the accommodation or subsistence is only partly for that purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

4

Subsection (5) applies if in the tax year the employment is in substance one whose duties fall to be performed outside the United Kingdom.

5 Personal security assets and services

377Costs and expenses in respect of personal security assets and services

1

This section applies if—

a

there is a special threat to an employee’s personal physical security which arises wholly or mainly because of the employee’s employment,

b

an asset or service which improves personal security is provided for or used by the employee to meet the threat,

c

the employee’s earnings include an amount in respect of—

i

the provision or use, or

ii

expenses connected with it,

because the whole or part of the cost of the provision or use is borne, or the expenses are reimbursed to the employee, by or on behalf of another person (“the provider”), and

d

the provider’s sole object in bearing the whole or part of the cost or reimbursing the expenses is meeting the threat.

2

In the case of such an asset, if the provider intends it to be used solely for the purpose of improving personal physical security, a deduction equal to the included amount is allowed.

3

at least half of the days in which are days of absence from the United Kingdom, and

b

which consists of 3 consecutive periods, A, B and C, where—

A is a period of consecutive days of absence from the United Kingdom or a period which is itself a combined period,

B is a period of not more than 183 days, and

C is a period of consecutive days of absence from the United Kingdom.

4

For this purpose a person is only regarded as being absent from the United Kingdom on any day if absent at the end of the day.

379Calculating the deduction

1

The deduction under section 378—

a

3

In this section “associated employments” means employments with the same employer or with associated employers.

4

The same rules for determining whether employers are associated apply for the purposes of this section as apply for section 24(4) (limit on chargeable overseas earnings where duties of associated employment performed in UK) (see section 24(5)).

381Taking account of other deductions

For the purposes of sections 379 and 380, the amount of the earnings from an employment for a tax year is the amount remaining after any deductions under—

a

section 232 (giving effect to mileage allowance relief),

b

Chapter 2, 3, 4 or 5 of this Part,

c

section 592(7) of ICTA (contributions to exempt approved schemes),

d

section 594(1) of ICTA (contributions to exempt statutory schemes), and

e

section 262 of CAA 2001 (capital allowances to be given effect by treating them as deductions from earnings).

382Duties on board ship

1

Duties which a person performs on a ship engaged—

a

on a voyage beginning or ending outside the United Kingdom (but excluding any part of it beginning and ending in the United Kingdom), or

b

on a part beginning or ending outside the United Kingdom of any other voyage,

are treated as performed outside the United Kingdom for the purposes of this Chapter.

2

Duties which a person performs on a vessel engaged on a voyage not extending to a port outside the United Kingdom are treated for the purposes of this Chapter as performed in the United Kingdom.

3

For the purposes of subsection (1) the areas designated under section 1(7) of the Continental Shelf Act 1964 (c. 29) are treated as part of the United Kingdom.

4

Subsection (1) applies despite anything to the contrary in section 40 (duties on board vessel or aircraft).

383Place of performance of incidental duties

1

For the purposes of section 378(1)(b) (deduction from seafarers’ earnings: eligibility), duties of an employment as a seafarer which are performed outside the United Kingdom are treated as performed in the United Kingdom if conditions A and B are met.

2

Condition A is that in the tax year in which the duties are performed the employment is in substance one whose duties fall to be performed in the United Kingdom.

3

Condition B is that the performance of the duties performed outside the United Kingdom is merely incidental to the performance of duties in the United Kingdom.

4

Section 39 (duties in UK merely incidental to duties outside UK) does not affect the question—

a

where any duties are performed, or

b

whether a person is absent from the United Kingdom,

for the purposes of section 378(1) to (3).

384Meaning of employment “as a seafarer”

1

In this Chapter employment “as a seafarer” means an employment (other than Crown employment) consisting of the performance of duties on a ship or of such duties and others incidental to them.

2

In this section “Crown employment” means employment under the Crown—

a

which is of a public nature, and

b

the earnings from which are payable out of the public revenue of the United Kingdom or of Northern Ireland.

385Meaning of “ship”

In this Chapter “ship” does not include—

a

any offshore installation within the meaning of the Mineral Workings (Offshore Installations) Act 1971 (c. 61), or

b

what would be such an installation if the references in that Act to controlled waters were to any waters.

Part 6Employment income: income which is not earnings or share-related

Chapter 1Payments to non-approved pension schemes

386Charge on payments to non-approved retirement benefits schemes

1

A sum paid by an employer—

a

in accordance with a non-approved retirement benefits scheme, and

b

with a view to the provision of relevant benefits for or in respect of an employee of the employer,

counts as employment income of the employee for the relevant tax year.

2

The “relevant tax year” is the tax year in which the sum is paid.

3

Subsection (1) does not apply if or to the extent that the sum is chargeable to income tax as the employee’s income apart from this section.

4

But if, apart from this section, the payment of the sum would be a payment to which Chapter 3 of this Part (payments and benefits on termination of employment etc.) would apply, subsection (1) applies to the sum (and accordingly that Chapter does not apply to it).

5

In this Chapter—

a

“employee” includes a person who is to be or has been an employee,

b

section 5(1) (application to offices) does not apply, but “employee”, in relation to a company, includes any officer or director of the company and any other person taking part in the management of the affairs of the company,

c

“employer” and “employment” have meanings corresponding to the meaning of “employee” given by paragraphs (a) and (b),

d

“director” has the meaning given by section 612(1) of ICTA, and

e

“relevant benefits” has the meaning given by that section, and section 612(2) of ICTA applies to references in this Chapter to the provision of relevant benefits as it applies to such references in Chapter 1 of Part 14 of ICTA.

6

For the purposes of this Chapter benefits are provided in respect of an employee if they are provided for the employee’s spouse, widow or widower, children, dependants or personal representatives.

7

Any liability to tax arising by virtue of this section is subject to the reliefs given under—

a

section 392 (relief where no benefits are paid or payable), and

b

section 266A of ICTA (life assurance premiums paid by employer).

387Meaning of “non-approved retirement benefits scheme”

1

In this Chapter “retirement benefits scheme” has the meaning given by section 611 of ICTA.

2

For the purposes of this Chapter, a retirement benefits scheme is “non-approved” unless it is—

a

an approved scheme,

b

a relevant statutory scheme, or

c

a scheme set up by a government outside the United Kingdom for the benefit of its employees or primarily for their benefit.

3

In this section—

“approved scheme” has the meaning given by section 612(1) of ICTA, and

“relevant statutory scheme” has the meaning given by section 611A of ICTA.

388Apportionment of payments in respect of more than one employee

1

If a sum within section 386 is paid for or in respect of two or more employees, part of it is treated as paid in respect of each of them.

2

The amount treated as paid in respect of each employee is—

A×BC math

where—

A is the sum paid,

B is the amount which would have had to be paid to secure the benefits to be provided in respect of the employee in question, and

C is the total amount which would have had to be paid to secure the benefits to be provided in respect of all the employees if separate payments had been made in the case of each of them.

1

An application for relief may be made to the Inland Revenue if—

a

a sum is charged to tax by virtue of section 386 in respect of the provision of any benefits,

b

no payment in respect of, or in substitution for, the benefits has been made, and

c

an event occurs by reason of which no such payment will be made.

2

The application must be made within 6 years from the time when the event occurs.

3

The application must be made by the employee or, if the employee has died, the employee’s personal representatives.

4

If the Inland Revenue are satisfied that the conditions in subsection (1) are met in relation to the whole sum, they must give relief in respect of tax on it by repayment or otherwise as appropriate, unless subsection (6) applies.

5

If the Inland Revenue are satisfied that the conditions in subsection (1) are met in relation to part of the sum, they may give such relief in respect of tax on it as is just and reasonable, unless subsection (6) applies.

6

This subsection applies if—

a

the reason why no payment has been made in respect of, or in substitution for, the benefits, or

b

the event by reason of which there will be no such payment,

is a reduction or cancellation of the employee’s rights in respect of the benefits, or part of the benefits, as a consequence of a pension sharing order or provision.

7

In subsection (6) “pension sharing order or provision” means any such order or provision as is mentioned in—

a

section 28(1) of WRPA 1999 (rights under pension sharing arrangements), or

b

Article 25(1) of WRP(NI)O 1999 (provision for Northern Ireland corresponding to section 28(1) of WRPA 1999).

Chapter 2Benefits from non-approved pension schemes

Benefits treated as employment income

393Application of this Chapter

1

This Chapter applies to any benefit provided under a non-approved retirement benefits scheme.

2

But this Chapter does not apply to a benefit which is charged to tax under Part 9 (pension income).

394Charge on benefit to which this Chapter applies

1

If a benefit to which this Chapter applies is received by an individual, the amount of the benefit counts as employment income of the individual for the relevant tax year.

2

If a benefit to which this Chapter applies is received by a person who is not an individual, the administrator of the scheme under which the benefit is provided is chargeable to tax under Case VI of Schedule D on the amount of the benefit for the relevant tax year.

3

In subsections (1) and (2) the “relevant tax year” is the tax year in which the benefit is received.

4

For the purposes of subsection (2), the rate of tax is 40% or such other rate as may for the time being be specified by the Treasury by order.

5

No liability to income tax arises by virtue of any other provision of this Act in respect of a benefit to which this Chapter applies.

an employee has not been assessed in respect of a sum or sums as mentioned in subsection (4)(b).

396Certain lump sums not taxed by virtue of section 394

1

Section 394 does not apply to a lump sum if—

a

all of the income and gains accruing to the scheme under which the lump sum is provided are brought into charge to tax, and

b

the lump sum is provided to—

i

the employee mentioned in section 395(4)(b),

ii

a relative of that employee,

iii

the personal representatives of that employee,

iv

an ex-spouse of that employee, or

v

any other individual designated by that employee.

2

For the purposes of this section it must be assumed that, unless the contrary is shown, the income and gains accruing to the scheme are not brought into charge to tax.

397Certain lump sums: calculation of amount taxed by virtue of section 394

1

In a case where—

a

section 394 applies to a lump sum, and

b

any of the income or gains accruing to the scheme under which the lump sum is provided is not brought into charge to tax,

the amount which by virtue of that section counts as employment income, or is chargeable to tax under Case VI of Schedule D, is determined in accordance with this section.

2

That amount is the amount of the lump sum reduced by the deduction applicable under subsection (3) or (4).

3

Subject to subsection (4), the deduction applicable is the aggregate of—

a

the sum or sums mentioned in section 395(3)(b) (if any), and

b

the sum or sums mentioned in section 395(4)(b) (if any),

which in either case were paid by way of contribution to the provision of the lump sum.

4

The deduction applicable is calculated in accordance with the formula in subsection (6) if—

a

the lump sum is provided under the scheme on the disposal of a part of any asset or the surrender of any part of or share in any rights in any asset, and

b

a person falling within subsection (5) has a right to receive, or any expectation of receiving, a further lump sum or further lump sums under the scheme on a further disposal of any part of the asset or a further surrender of any part of or share in any rights in the asset.

5

The persons referred to in subsection (4)(b) are—

a

the employee,

b

a relative of that employee,

c

the personal representatives of that employee, or

d

any person connected with that employee.

6

The formula referred to in subsection (4) is—

D=S×LSMVA math

where—

D is the deduction applicable;

S is the aggregate amount of any sum or sums of a description mentioned in paragraphs (a) and (b) of subsection (3);

LS is the amount of the lump sum received in relation to which the deduction applicable falls to be determined;

In this Chapter—

“administrator”, in relation to a scheme, has the same meaning as in section 611AA of ICTA;

“employee” has the same meaning as in Chapter 1 of Part 14 of ICTA (see section 612(1) of ICTA);

“ex-spouse” means a party to a marriage that has been dissolved or annulled and, in relation to any person, means the other party to a marriage with that person that has been dissolved or annulled;

“non-approved retirement benefits scheme” has the same meaning as in Chapter 1 of this Part (see section 387);

“relative”, in relation to an individual, means—

the wife or husband of the individual,

the widow or widower of the individual,

a child of the individual, and

a dependant of the individual;

“relevant benefits” has the same meaning as in section 612(1) of ICTA.

2

Section 612(2) of ICTA applies to the references in this Chapter to the provision of relevant benefits as it applies to such references in Chapter 1 of Part 14 of ICTA.

Chapter 3Payments and benefits on termination of employment etc.

Preliminary

401Application of this Chapter

1

This Chapter applies to payments and other benefits which are received directly or indirectly in consideration or in consequence of, or otherwise in connection with—

a

the termination of a person’s employment,

b

a change in the duties of a person’s employment, or

c

a change in the earnings from a person’s employment,

by the person, or the person’s spouse, blood relative, dependant or personal representatives.

2

Subsection (1) is subject to subsection (3) and sections 405 to 413 (exceptions for certain payments and benefits).

3

This Chapter does not apply to any payment or other benefit chargeable to income tax apart from this Chapter.

4

For the purposes of this Chapter—

a

c

section 319 (mobile telephones), or

d

section 320 (limited exemption for computer equipment).

3

In this Chapter “benefit” does not include a benefit received in connection with any change in the duties of, or earnings from, a person’s employment to the extent that it is a benefit which, were it received for performance of the duties of the employment, would fall within section 271(1) (limited exemption of removal benefits and expenses).

4

The right to receive a payment or benefit is not itself a benefit for the purposes of this Chapter.

Payments and benefits treated as employment income

403Charge on payment or other benefit

1

The amount of a payment or benefit to which this Chapter applies counts as employment income of the employee or former employee for the relevant tax year if and to the extent that it exceeds the £30,000 threshold.

2

In this section “the relevant tax year” means the tax year in which the payment or other benefit is received.

3

For the purposes of this Chapter—

a

a cash benefit is treated as received—

i

when it is paid or a payment is made on account of it, or

ii

when the recipient becomes entitled to require payment of or on account of it, and

b

a non-cash benefit is treated as received when it is used or enjoyed.

4

For the purposes of this Chapter the amount of a payment or benefit in respect of an employee or former employee exceeds the £30,000 threshold if and to the extent that, when it is aggregated with other such payments or benefits to which this Chapter applies, it exceeds £30,000 according to the rules in section 404 (how the £30,000 threshold applies).

5

If it is received after the death of the employee or former employee—

a

the amount of a payment or benefit to which this Chapter applies counts as the employment income of the personal representatives for the relevant year if or to the extent that it exceeds £30,000 according to the rules in section 404, and

b

the tax is accordingly to be assessed and charged on them and is a debt due from and payable out of the estate.

6

In this Chapter references to the taxable person are to the person in relation to whom subsection (1) or (5) provides for an amount to count as employment income.

404How the £30,000 threshold applies

407Exception for payments and benefits under tax-exempt pension schemes

1

This Chapter does not apply to a payment or other benefit provided under a tax-exempt pension scheme if—

a

the payment or other benefit is by way of compensation—

i

for loss of employment, or

ii

for loss or diminution of earnings, and

the loss or diminution is due to ill-health, or

b

the payment or other benefit is properly regarded as earned by past service.

2

For this purpose “tax-exempt pension scheme” means—

a

a retirement benefits scheme which is—

i

an approved scheme,

ii

a relevant statutory scheme, or

iii

a scheme set up by a government outside the United Kingdom for the benefit of its employees or primarily for their benefit, or

b

any such scheme or fund as was described in section 221(1) and (2) of ICTA 1970 (schemes to which payments could be made without charge to tax under section 220 of ICTA 1970).

3

In this section—

“approved scheme” has the meaning given by section 612(1) of ICTA,

“relevant statutory scheme” has the meaning given by section 611A of ICTA, and

“retirement benefits scheme” has the meaning given by section 611 of ICTA.

408Exception for contributions to tax-exempt pension schemes

1

This Chapter does not apply to a contribution to a tax-exempt pension scheme or approved personal pension arrangements if the contribution is made—

a

as part of an arrangement relating to the termination of a person’s employment, and

b

in order to provide benefits for the person in accordance with the terms of the scheme or approved personal pension arrangements.

2

For this purpose—

“tax-exempt pension scheme” has the same meaning as in section 407(2), and

“approved” and “personal pension arrangements” have the meaning given by section 630(1) of ICTA.

409Exception for payments and benefits in respect of employee liabilities and indemnity insurance

1

This Chapter does not apply to a payment or other benefit received by an individual if or to the extent that—

a

in the case of a cash benefit, it is provided for meeting the cost of a deductible amount, or

b

in the case of a non-cash benefit, it is or represents a benefit equivalent to the cost of paying a deductible amount.

2

For the purposes of this section “deductible amount” means an amount which meets conditions A to C.

3

Condition A is that the amount is paid by the individual.

4

Condition B is that a deduction for the amount would have been allowed under section 346 from earnings from the relevant employment, if the individual still held the employment when the amount was paid.

5

Condition C is that the amount is paid at a time which falls within the run-off period.

6

In this section and section 410—

“relevant employment” means the employment mentioned in section 401(1);

“run-off period” means the period which—

starts with the day on which the relevant employment terminated, and

ends with the last day of the sixth tax year following the tax year in which the period started.

under a Royal Warrant, Queen’s Order or Order in Council relating to members of Her Majesty’s forces, or

b

by way of payment in commutation of annual or other periodical payments authorised by any such Warrant or Order.

412Exception for payments and benefits provided by foreign governments etc.

1

This Chapter does not apply to—

a

section 106 (cash equivalent: cost of accommodation over £75,000) applies, and

b

the sum referred to in section 105(2)(b) (the sum made good) exceeds the amount referred to in section 105(2)(a) (the rental value),

the amount to be subtracted under paragraph (b) of step 4 of the calculation in section 106(2) is that excess (and not only the excess rent referred to there).

as income of the person making the loan, or

b

as relevant loan interest to which section 369 of ICTA applies (mortgage interest payable under deduction of tax).

Part 7Employment income: share-related income and exemptions

Chapter 1Introduction

417Scope of Part 7

1

This Part contains special rules relating to directors or employees who acquire—

a

shares in companies, or

b

options relating to such shares,

in connection with their office or employment.

2

The rules are contained in—

Chapter 2 (conditional interests in shares),

Chapter 3 (convertible shares),

Chapter 4 (post-acquisition benefits from shares),

Chapter 5 (share options),

Chapter 6 (approved share incentive plans),

Chapter 7 (approved SAYE option schemes),

Chapter 8 (approved CSOP schemes),

Chapter 9 (enterprise management incentives), and

Chapter 10 (priority share allocations).

3

The following make provision for amounts to count as employment income of directors or employees—

Chapters 2 to 6, and

Chapter 8.

4

The following make provision for exemptions and reliefs from income tax—

Chapter 2, and

Chapters 5 to 10.

5

Chapter 11 contains supplementary provisions relating to employee benefit trusts.

418Other provisions about share-related income and exemptions

1

The following provisions of this Act also deal with share-related income and exemptions—

Chapter 8 of Part 3 (taxable benefits: notional loans in respect of acquisitions of shares),

Chapter 9 of Part 3 (taxable benefits: disposals of shares for more than market value), and

Part 7 of Schedule 7 (transitional provisions relating to share-related income).

2

In addition, share-related income may fall within—

a

Chapter 1 of Part 3 (earnings), or

b

Chapter 10 of Part 3 (taxable benefits: residual liability to charge).

3

In view of section 49 of FA 2000 (phasing out of APS schemes) the following are not rewritten in this Act and continue in force unaffected by the repeals made by this Act—

section 186 of ICTA (APS schemes) and section 187 of that Act (interpretation) so far as relating to APS schemes,

Schedule 9 to ICTA (approval of share schemes) so far as relating to APS schemes and Schedule 10 to that Act (further provisions about APS schemes).

“APS schemes” means profit sharing schemes approved under Schedule 9 to ICTA.

4

Sections 138 to 140 of ICTA (share acquisitions by directors and employees) continue to apply in relation to shares or interests in shares acquired before 26th October 1987 (see paragraph 57 of Schedule 7).

419Duties to provide information

1

The following contain duties to supply information about the acquisition of shares or interests in shares by directors or employees—

section 432 (provision of conditional interest in shares),

section 465 (general duty to notify acquisition of shares or interests in shares by employees or directors).

2

The following contain duties to supply information about other matters that may result in amounts counting as employment income of directors or employees—

section 433 (events resulting in charge under section 427),

section 445 (conversion of shares),

section 466 (chargeable events and receipt of chargeable benefits).

3

Section 486 contains a duty to provide information about the grant of share options and other matters relating to them.

4

Paragraph 52 of Schedule 5 (enterprise management incentives) contains a duty to deliver annual returns where a company’s shares are subject to a qualifying option within the meaning of that Schedule.

2

In this Chapter—

“the employee’s interest” means the beneficial interest in shares acquired by the employee as mentioned in subsection (1);

“the employer company” means the company as a director or employee of which the employee’s interest is acquired;

“the shares” means the shares mentioned in subsection (1)(a);

and “director” and “employee” have the extended meaning given by section 434(1).

423Interests in shares acquired “as a director or employee”

1

For the purposes of this Chapter a person (“E”) acquires an interest in shares “as a director or employee” of a company if E acquires the interest in pursuance of—

a

a right conferred on, or opportunity offered to, E by reason of E’s office or employment as a director or employee of the company;

b

a right or opportunity assigned to E, having been conferred on or offered to some other person by reason of E’s office or employment as a director or employee of the company; or

c

an assignment, the interest having been acquired by some other person by reason of E’s office or employment as a director or employee of the company.

2

The references in subsection (1) to a right or opportunity conferred or offered by reason of E’s office or employment include—

a

one so conferred or offered after E has ceased to hold the office or employment, and

b

one that arises from the fact that shares—

i

which E acquired as a director or employee (or is treated as so acquiring by virtue of this paragraph), or

ii

in which E so acquired an interest,

were convertible shares.

3

A person who—

the shares are unpaid or partly paid and may be forfeited for non-payment of calls, in a case where there is no restriction on the meeting of calls by that person;

b

the articles of association of the company require the shares to be offered for sale or transferred, if that person ceases to hold a relevant office or employment;

c

that person may be required to offer the shares for sale or transfer them on ceasing, as a result of misconduct, to hold a relevant office or employment;

d

in the case of an interest in a security, the security may be redeemed on payment of any amount.

3

In subsection (1)(a) the references, in relation to the terms of a person’s entitlement, to circumstances arising include references to—

a

the expiry of a period specified in or determined under those terms,

b

the death of that or any other person, and

c

the exercise by any person of a power conferred on that person by or under those terms.

4

For the purposes of subsection (1)(b) the market value of the interest is to be determined as if there were no provision for transfer, reversion or forfeiture.

5

In subsection (2)(b) “articles of association” includes, in the case of a company incorporated under the law of a country outside the United Kingdom, any equivalent document relating to the company.

6

The references in subsection (2)(b) and (c) to a person ceasing to hold a relevant office or employment are to that person ceasing to be an officer or employee of the company in question, or of one or more group companies or of any group company.

7

For the purposes of subsection (6)—

a

a company is a “group company” in relation to another company if they are members of the same group, and

b

companies are taken to be members of the same group if, and only if, one is a 51% subsidiary of the other or both are 51% subsidiaries of a third company.

425Cases where this Chapter does not apply

1

This Chapter does not apply where a person acquires a beneficial interest in shares as a director or employee of a company if the earnings from the office or employment in question were not (or would not have been if there had been any) general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in the UK).

2

This Chapter does not apply by virtue of section 423(2)(a) (right or opportunity conferred or offered after person has ceased to hold office or employment) if it would not apply if the right or opportunity had been conferred or offered in the last tax year in which the office or employment was held.

Tax exemption

426No charge in respect of acquisition of employee’s interest in certain circumstances

The taxable amount for the purposes of section 427 (charge on interest in shares ceasing to be only conditional or on disposal) is—

MV-DA math

where—

MV is the market value of the employee’s interest immediately after it ceases to be only conditional or, as the case may be, at the time of the sale or other disposal, and

DA is the total of any deductible amounts.

2

For the purposes of subsection (1) each of the following is a “deductible amount”—

a

the amount or value of any consideration given for the employee’s interest;

b

any amount that constitutes earnings from the employee’s employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employee’s interest;

c

any amount that is treated as earnings from the employee’s employment under Chapter 8 of Part 3 (taxable benefits: notional loans in respect of acquisitions of shares) in respect of the acquisition; and

d

if the employee’s interest was acquired by the exercise of a share option, any amount that counts as employment income of the employee under section 476 (charge on employee on exercise etc. of option) in respect of the exercise.

3

If, not later than the event referred to in section 427(1)(a) or (b) occurred in relation to the employee’s interest, a different event occurred in respect of the shares by virtue of which an amount counts as employment income of the employee under—

a

section 449 (charge on occurrence of chargeable event), or

b

section 453 (charge on increase in value of shares of dependent subsidiary),

that amount is a “deductible amount” for the purposes of subsection (1).

4

The references in subsection (3) to an event include the expiry of a period.

5

Section 541(2) (effects of the EMI code on other income tax charges) also provides that an amount is to be regarded as a “deductible amount” for the purposes of subsection (1).

Supplementary provisions

429Amount or value of consideration given for employee’s interest

1

This section applies for the purposes of section 428 (amount of charge) in determining the amount or value of the consideration given for the employee’s interest.

2

Subject to the following provisions of this section, that consideration is any given in respect of the acquisition of an interest in the shares by—

a

the employee, or

b

if section 423(1)(c) applies, the person by whom the interest in the shares was acquired.

3

The amount or value of the consideration given by a person for an interest in the shares includes the amount or value of any consideration given—

a

for a right to acquire the shares, and

b

for anything by virtue of which the employee’s interest in the shares ceases to be only conditional.

4

If any consideration is given partly in respect of one thing and partly in respect of another, the amount given in respect of the different things is to be determined on a just and reasonable apportionment.

5

The consideration which for the purposes of this section is taken to be given wholly or partly for anything does not include the performance of any duties of, or in connection with, the office or employment by reference to which the interest in the shares in question has been acquired by a person as a director or employee of a company.

6

No amount is to be counted more than once in calculating the amount or value of any consideration.

430Amount or value of consideration given for right to acquire shares

1

This section applies for the purposes of section 429(3)(a) in determining the amount or value of any consideration given for a right to acquire shares.

2

Subsection (3) applies if the right to acquire shares (“the new option”) is the whole or part of the consideration for the assignment or release of another right to acquire shares (“the old option”).

3

The amount or value of the consideration given for the new option is to be treated as being the sum of—

a

the amount by which the amount or value of the consideration given for the grant of the old option exceeds the amount or value of any consideration for the assignment or release of the old option, apart from the new option, and

b

any valuable consideration given for the grant of the new option, apart from the old option.

4

Two or more transactions are to be treated for the purposes of subsection (2) as a single transaction by which a right to acquire shares is assigned for a consideration which consists of or includes another right to acquire shares if—

a

the transactions result in—

i

a

the person providing the interest in shares, and

b

the employer company,

must provide the Inland Revenue with particulars in writing of the interest and its provision.

3

The particulars must be provided before 7th July in the tax year following that in which the interest is provided.