Select Committee on Joint Commitee on Tax Law Rewrite Bills Memoranda


Memorandum of evidence submitted by the Tax Law Rewrite Project

  1.  This memorandum of evidence has been prepared by the Tax Law Rewrite Project to assist the Joint Committee's consideration of the Income Tax (Earnings and Pensions) Bill as introduced in the House of Commons on 5 December 2002 (referred to hereafter in this evidence as "the Bill" or "this Bill").

  2.  The memorandum is designed to embrace information on all six bullet points mentioned in the Clerk's letter of 17 December 2002 to the Director of the Project, Mr Peter Michael, CBE.

EXTRA-STATUTORY CONCESSIONS AND MINOR AMENDMENTS IN THE BILL

  1.  There are a total of 183 minor changes made in the Bill, as recorded in Annex 1 to the Explanatory Notes.

  2.  These changes fall into a number of categories:

    (a)  incorporating extra-statutory concessions or published Statements of Practice or similar;

    (b)  making the legislation shorter, simpler, clearer, more certain or more consistent with other legislation;

    (c)  correcting points overlooked in the course of consolidation Acts, missed consequential amendments to earlier legislation, or other technical defects;

    (d)  removing an anomaly which is patently unfair;

    (e)  making clear the intended and accepted interpretation of legislation that is currently somewhat opaque; and

    (f)  filling a gap in the legislation.

  5.  Some minor changes may be made for a combination of the above reasons. Appendix 1 to this Memorandum contains a list of the Changes grouped by reference to the main reason for making them.

  6.  The Bill incorporates 20 extra-statutory concessions, representing the majority of those that affect employment income, pension income or social security income.

  7.  There are 12 other extra-statutory concessions directly relevant to employment income, pension income or social security income. Appendix 2 to this Memorandum lists those concessions and explains why they are not included in the Bill.

EFFECTS OF THE CHANGES, AND POSSIBLE CHANGES IN THE BURDEN AND INCIDENCE OF TAX

  8.  Many of the changes have no practical effect on the burden or incidence of tax on individual taxpayers. For example, a miner receiving free coal currently exempt under ESC A6 will pay no more tax just because that ESC is incorporated in this Bill under clause 306.

  9.  Likewise, a gap in the current legislation that this Bill fills in line with Inland Revenue practice will not change anyone's tax liability.

  10.  At the end of each of the changes listed in Annex 1 to the Explanatory Notes is a summary of the effect of the change, both in principle and in practice.

  11.  None of the changes have any significant effect on taxpayer's liabilities either in principle or in practice.

  12.  Included in Appendix 1 to the Memorandum is a summary of the effect that each change will have in practice.

  13.  A number of clauses in this Bill have been italicised to indicate that they incorporate a possible increase in the burden of tax (and for this purpose the "in principle" effect is considered as well as the effect in practice).

  14.  Appendix 3 to this memorandum contains more detailed information about the possible increase in the burden of tax in respect of each of the italicised provisions.

DEFINITION OF EARNINGS AND THE MOVE AWAY FROM SCHEDULES AND CASES

Earnings

  15.  The core component of employment income is earnings, currently known as "emoluments" in tax legislation.

  16.  The definition of "emoluments" is currently in section 131(1) of ICTA (Income and Corporation Taxes Act 1988) as follows:

    "the expression emoluments shall include all salaries, fees, wages, perquisites and profits whatsoever."

  17.  This wide definition means that most employees receive "emoluments". Many employees do not receive anything from their employment other than "emoluments".

  18.  In this Bill this core concept has been made clearer in four main ways:

    —  the rather antiquated term "emoluments" is replaced with "earnings", a word which has more immediate relevance to employees and employers;

    —  the equally antiquated phrase "perquisites and profits whatsoever" is replaced with "any gratuity or other profit or incidental benefit of any kind obtained by the employee";

    —  the definition of "earnings" is given more prominence. It is defined in clause 62, right at the beginning of Part 3 of the Bill, which deals with most of the "incomings" from employment before consideration of exemptions in Part 4 and deductions in Part 5;

    —  the definition of "earnings" is expanded to bring in a proviso from long-standing case law that in order for a gratuity, profit or incidental benefit to be "earnings" it must be money or money's worth. (See Note 13 in Annex 2 to the Explanatory Notes).

  19.  There are many employees who would not have to look any further than clause 62 to determine the extent of their earnings for tax purposes.

  20.  For those employees who receive benefits that are outside the clause 62 definition, the Benefits Code in Chapters 2 to 11 of Part 3 sets out what, if anything should be treated as earnings in respect of those benefits.

  21.  Clause 62 earnings and amounts treated as earnings by the Benefits Code are added together to form "general earnings" for the year. The extent to which those general earnings are taxable in the year is determined by the rules in Part 2 of the Bill.

The move away from Schedules and Cases

  22.  It is not just the status of the income that is relevant in determining the charge to tax, but also the residence and domicile of the employee (and in some cases the location of the performance of duties and the residence of the employer).

  23.  Currently, in the case of emoluments and amounts treated as emoluments by the various provisions dealing with benefits, these factors are applied by means of the three Cases of Schedule E. For example, an employee who is resident, ordinarily resident and domiciled in the UK is within Case I of Schedule E. But the labels "Case I" and "Schedule E" are meaningless to anyone other than a tax expert.

  24.  This Bill adopts a different approach. Instead of "Schedule E" it uses phraseology that people can more readily understand: employment income.

  25.  Instead of applying the Cases of Schedule E, the Bill sets out, in Part 2, what tax treatment of general earnings applies in the various sets of circumstances that may apply.

  26.  About 98 per cent of employees subject to UK tax are resident, ordinarily resident and domiciled in the UK—so this group of taxpayers (currently within Case I of Schedule E) are covered first in Chapter 4: Taxable earnings: rules applying to employee resident, ordinarily resident and domiciled in UK.

  27.  Chapter 5 sets out what tax treatment applies if the employee is resident, ordinarily resident and/or domiciled outside the UK, dealing with each permutation in turn in descriptively headed clauses.

  28.  It is worth noting that the cases of Schedule E only apply to emoluments and amounts treated as emoluments ("general earnings" in this Bill). There are other kinds of employment income chargeable under Schedule E. The income subject to these free-standing charges is described as specific employment income in this Bill, enabling it to be distinguished from general earnings. The basis of assessment and any residence etc tests pertinent to specific employment income are contained in the relevant Chapter in Part 6 or 7 setting out that charge.

The result

  29.  The majority of employees have uncomplicated tax affairs—this Bill makes it easy for them to see which clauses are applicable to them.

  Part 1 sets out how the Bill is arranged.

  Part 2 explains how to work out the amount of employment income charged to tax. The arrangement of Part 2 means that most employees would not need to go beyond Chapter 4 of that Part to work out their taxable earnings.

  Part 3 sets out what is earnings or treated as earnings. The arrangement of Part 3 means that many employees would not need to look beyond clause 62 in Chapter 1.

  Parts 4 and 5 deal with exemptions and deductions respectively (and will not be relevant to many employees).

  Parts 6 and 7 deal with specific employment income (again not relevant to many employees).

OPERATION OF APPROVED INCENTIVE SHARE SCHEMES

  30.  Companies often wish to reward employees by allowing them to acquire shares on advantageous terms; and successive Governments have decided that they wish to confer tax advantages on various schemes and plans. Five schemes or plans exist at present, listed below in the order in which they were originally introduced:

    —  Approved profit sharing schemes. Legislation relating to these schemes was contained in FA 1978. These schemes are now being phased out, and they are not included in this Bill or discussed further in this evidence.

    —  Approved save as you earn ("SAYE") option schemes. Legislation relating to these schemes was contained in FA 1980, and later consolidated in sections 185 and 187 of, and Schedule 9 to, ICTA.

    —  Approved company share option plans ("CSOPs"). Legislation relating to these plans was contained in FA 1984, and later consolidated in sections 185 and 187 of, and Schedule 9 to, ICTA.

    —  Approved share incentive plans ("SIPs"). Legislation relating to these plans is contained in Schedule 8 to FA 2000 under the name "Employee share ownership plans".

    —  Enterprise management incentives ("EMI"). Legislation relating to EMIs is contained in Schedule 14 to FA 2000.

  31.  Legislation to confer tax advantages on a scheme, needs to cover a number of topics:

    —  the characteristics that the scheme must possess;

    —  if the scheme requires approval, the procedure to be undertaken;

    —  the tax advantages to be conferred on the scheme;

    —  any tax charges that will apply if the shares or options are removed from the scheme or plan (or other "inappropriate" actions are undertaken); and

    —  any supplementary provisions.

  32.  The current legislation does not deal with these topics consistently. In the cases of SAYE option schemes and CSOPs, some provisions are in sections of ICTA; the remainder are in Schedule 9 to that Act. ICTA also amalgamates the provisions relating to the two different schemes. From time to time the legislation needs to distinguish between the two schemes, and this need affects the way in which provisions are organised. The legislation relating to SIPs and EMI is set out, in its entirety, in two Schedules to FA 2000; but those Schedules also deal with matters outside the scope of this Bill: for there is also material relating to corporation tax, capital gains tax and stamp duty.

  33.  This Bill brings the treatment of the four schemes into better alignment. Each scheme is dealt with separately (and, as a result, ICTA's amalgamation of the provisions relating to SAYE option schemes and CSOPs has been reversed). The rewritten legislation deals with comparable material in the same order. In each case some provisions have been placed in an individual Chapter in Part 7 of the Bill, and others in a Schedule dealing with different aspects of the scheme.

  34.  In this Bill :

    —  SIPs are covered in Chapter 6 of Part 7 and Schedule 2.

    —  SAYE option schemes are covered in Chapter 7 of Part 7 and Schedule 3.

    —  CSOPs are covered in Chapter 8 of Part 7 and Schedule 4.

    —  EMI is covered in Chapter 8 of Part 7 and Schedule 5.

  35.  The Chapters in Part 7 deal with the topics that affect the employee directly. After introductory clauses, the Chapters set out the tax advantages conferred on participants in the scheme. Those advantages are dealt with in a coherent order with, for example in SIPs, the tax advantages relating to the award of shares being followed by those relating to the holding of shares and then by those relating to shares that cease to be subject to the scheme. As necessary, the provisions relating to tax advantages are then followed by provisions setting out the tax charges that may arise. Those charges are also dealt with in a coherent order. Chapter 6 of Part 7 (dealing with SIPs) also contains clauses dealing with the impact of PAYE; and, where appropriate, the Chapters in Part 7 conclude by indicating other provisions in tax law that may be relevant.

  36.  Schedules 2 to 5 to the Bill deal with the other matters listed in paragraph Legislation to confer tax advantages on a scheme, needs to cover a number of topics:. These matters do not concern the employee directly: the detail in these Schedules may well be of more interest to those setting up and administering schemes, and to their professional advisers. All four Schedules are divided into Parts, of which the first is introductory. The first major topic dealt with—sometimes, of necessity, at considerable length—is the required characteristics for the scheme in question. Within this topic, comparable material continues to be dealt with in the same general order. General requirements are dealt with first, followed by requirements relating to the eligibility of individuals to participate in the scheme, and then (in the cases of Schedules 2 to 4) by requirements relating to the shares that may be acquired by the individual. The requirements that apply only to the scheme in question are dealt with later. The second major topic dealt with (as necessary) is the procedure to be undertaken if the scheme requires approval; and the third major topic dealt with (in the final Part of each Schedule) consists of supplementary provisions.

  37.  This Bill includes making a certain number of minor changes to the law designed to bring the rewritten legislation relating to share schemes into better alignment. For example, the restrictions to which scheme shares may be subject have been amended, in the cases of SAYE option schemes and CSOPs, so that they are now aligned with those applying for SIPs (see Change 168 in Annex 1); and the approval procedure relating to SIPs has been amended to bring it into alignment with that applying for SAYE option schemes and CSOPs (see Change 164 in Annex 1).

  38.  Various drafting techniques have also been used to achieve better alignment across the share scheme provisions. There is, for example, an "Index of defined expressions" at the end of each Schedule—a feature used in the provisions currently applying for SIPs and EMI and replicated in this Bill for SAYE and CSOPs too. And the legislation relating to each scheme is described as a "code", a term suggested by the term "benefits code" in clause 63 of the Bill.

  39.  The use of the terms "SIP code" and "EMI code" is helpful for dealing with those provisions in Schedules 8 and 14 to FA 2000 that do not fall within the scope of this Bill—because they are relevant for corporation tax, capital gains tax or stamp duty. Schedule 6 to the Bill (Consequential amendments) provides for this material to be placed elsewhere—in ICTA, TCGA 1992 and in FA 2001. The use of the two terms enables the "repositioned" material to be linked with the relevant material in this Bill, so that expressions used in the relevant code also apply to the "repositioned" material.

  40.  This reorganisation and redrafting of the material relating to share schemes and share option schemes has been developed in consultation with share scheme practitioners, who confirm that the provisions are indeed clearer and easier to understand. The Share Schemes Lawyers group are on record as saying:

    "The Share Scheme Lawyers Group has had a most constructive series of meetings with the TLR project team. As far as the share scheme legislation is concerned, we believe that the objectives of the rewrite project have been very substantially accomplished. The new text is clearer, more logically ordered and more user friendly while preserving the effect of the present legislation apart from minor policy changes (some of which we proposed and all of which we welcome)."

THE TREATMENT OF BENEFITS IN KIND

  41.  Before 1948 benefits in kind were only taxable if they fell within the definition of "emoluments", as interpreted by case law to mean money or money's worth.

  42.  Finance Act 1948 saw the first charge based on the cost of other provided benefits and since then there have been various piecemeal additions to the body of tax legislation to bring various types of benefit within the charge to tax.

  43.  All of the charging provisions for the various benefits work by treating an amount as if it were an emolument. Various forms of words are used to achieve this:

    —  "treated as an emolument and accordingly chargeable to income tax under Schedule E"—Chapter 2 of Part 5 of ICTA;

    —  "treated as having received an emolument"—sections 141 and 142 of ICTA; and

    —  "treated for the purposes of Schedule E as being in receipt of an emolument"—sections 145 and 146 of ICTA.

  44.  Many, but not all, of the charging provisions are contained in Chapter 2 of Part 5 of ICTA, which applies to directors and employees earning £8,500 a year or more. The other charging provisions apply to all employees, irrespective of rate of earnings.

  45.  As there are now only a minority of employees earning less than £8,500 a year, it seemed sensible to draw together all the provisions charging benefits to tax into a coherent code. A short chapter at the end of that code excludes employees who are lower paid (those earning less than £8,500 a year) who are not directors from those provisions deriving from Chapter 2 of Part 5 of ICTA.

  46.  Appendix 4 to this Memorandum shows how the previous scattering of provisions has been reorganised into a structured Benefits Code in this Bill.

BEFORE AND AFTER EXAMPLES

  47.  Appendix 5 to this Memorandum contains examples of the way in which various provisions look "before and after" the rewrite.

  48.  The first two examples, looking at the rewrite of sections 166 and 199 of ICTA, demonstrate how the rewrite has tackled long sentences containing densely packed concepts.

  49.  The third example is the rewrite of section 195 of ICTA. This shows how one lengthy section with 13 subsections has been divided into three sections, each with fewer subsections; and the position of the employee is now dealt with separately from that of the employee's spouse and children (in clauses 373 and 374 respectively). As a result of the restructuring of the deductions provisions in Part 5 of the Bill, section 195(11) needs no direct successor, and the proposition in section 195(12) has been brought within the wider ambit of clause 330(1).

  50.  The fourth example shows how material from various sections in ICTA has been drawn together to form clause 125 in the Bill.

 
Change in actual effect on taxpayers
Change NoDescription More tax?Less tax? Timing1[1]Admin2[2]
Changes incorporating extra-statutory concessions or published Statements of Practice or similar
Change 4Taxable earnings: exception from tax on general earnings from overseas Crown employment subject to United Kingdom tax: clause 28 --- -
Change 19Taxable benefits: non-cash vouchers: reduction for meal vouchers: clause 89 --- -
Change 22Taxable benefits: living accommodation: cash equivalent where accommodation provided to more than one employee: clause 108 --- -
Change 27Taxable benefits: cars and car fuel: concession where car available to family members or car is shared: clauses 148, 153 and 169 --- -
Change 29Taxable benefits: loans: exception for advances for necessary expenses: clauses 179 and 716(2)(a) --- -
Change 47Exemptions: travelling and subsistence during public transport strikes: clauses 245, 266 and 267 --- -
Change 48Exemptions: transport between work and home for disabled employees: clauses 246, 247, 266 and 267 --- -
Change 49Exemptions: transport home, late night working and failure of car-sharing arrangements: clauses 248, 266 and 267 --- -
Change 56Exemptions: annual parties and functions: clauses 264, 266 and 716(2)(c) --- -
Change 58Exemptions: non-cash vouchers for free or subsidised meals: clause 266 --- -
Change 59Exemptions: small gifts from third parties: clauses 270, 324 and 716(2)(g) --- -
Change 67Exemptions: daily subsistence allowances paid to experts seconded to the European Commission: clause 304 --- -
Change 68Exemptions: offshore oil and gas workers: mainland transfers: clause 305 --- -
Change 69Exemptions: miners' and former miners' coal and allowances in lieu of coal: clauses 306 and 646 --- -
Change 70Exemptions: death or retirement benefits provision: clause 307 --- -
Change 77Exemptions: free or subsidised meals: clause 317 --- -
Change 78Exemptions: suggestion awards: clauses 321, 322 and 716(2)(e) --- -
Change 79Exemptions: long service awards: clauses 323 and 716(2)(f) --- -
Change 80Exemptions: expenses incidental to a transfer of a kind not normally met by the transferor: clause 326 --- -
Change 84Deduction for professional membership fees: meaning of "professional fee": clause 343(2) -- -
Change 100Fixed sum deductions for repairing and maintaining work equipment: clause 367 --- -
Change 108Payments and benefits on termination of employment etc.: exception for contributions to tax-exempt pension schemes: clause 408 --- -
Change 121Share-related income: share options: exception where share option exercised, assigned or released by certain people after the death of the person to whom it was granted: clause 477(4) -- -
Change 141Pension income: exemptions: wounds and disability pensions: clause 641(1) --- -
Change 142Pension income: exemptions: disablement pensions: clause 644 --- -
Change 146Social security income: foreign benefits: exemptions: clause 681 --- -
Change 173Share-related income: SAYE option schemes and CSOP schemes: jointly owned companies: paragraph 46 of Schedule 3 and paragraph 34 of Schedule 4 --- -
Changes making the legislation shorter, simpler, clearer, more certain or more consistent with other legislation
Change 1Taxable earnings: time when general earnings are received: clauses 18 and 31 -- -
Change 2Taxable earnings: time when non-money earnings are received: clauses 19 and 32 --- -
Change 5Taxable earnings: relief for delayed remittances: remittances in respect of which a claim may be made and conditions for granting relief: clause 35(1) and (2) -- -
Change 7Taxable earnings: election in respect of delayed remittances: election regarding allocation of income to earlier tax years: clause 36 --- -
Change 9Appeal against Board's decision on domicile or ordinary residence: introduction of a straightforward appeal procedure: clause 43(1) --- -
Change 16Taxable benefits: dispensations: changes in procedure to reflect existing practice: clauses 65 and 96 --- -


Change 26Taxable benefits: cars: reduction of cash equivalent where car capable of running on road fuel gas: clause 146(2) ---
Change 28Replacement of references to 365 days with references to the number of days in the year in order to cover leap years: clauses 152(4), 158(3), 163(1) and 183(3) --
Change 32Taxable benefits: loans: extension of time limit for giving notice of the application of the alternative method of calculating interest: clause 183(2) --- -
Change 40Taxable benefits: residual liability to charge: scholarships: cost of benefit: clause 214 --- -
Change 41Exemption of modest private use of heavy goods vehicles: widening of exemption: clause 238(1) --- -
Change 42Exemption of expenses payments connected with taxable cars and vans and heavy goods vehicles: widening of exemption: clause 239(2) --- -
Change 44Exemptions: incidental overnight expenses: deductibility of expenses: clause 240 --- -
Change 45Exemptions: works transport services: widening of exemption: clause 242(1) --- -
Change 46Exemptions: support for public bus services: widening of exemption: clause 243(1) --- -
Change 50Exemptions: transport, travel and subsistence: definition of qualifying journey: clause 249 -- -
Change 51Exemptions: work-related training: widening of exemption: clause 250(1) --- -
Change 52Exemptions: work-related training and contributions to individual learning account training provided by third parties: clauses 250(1) and 255(1) --- -
Change 53Exemptions: work-related training and individual learning account training: incidental expenses: clauses 250(2)(a) and 255(3)(a) --- -
Change 54Exemptions: work-related training and individual learning account training: travelling and subsistence expenses: clauses 252(3) and 257(3) -- -
Change 55Exemptions: contributions to individual learning account training: widening of exemption: clause 255(1) --- -
Change 57Exemptions: third party entertainment: widening of exemption: clause 265(1) --- -
Change 61Exemption of removal benefits: benefits and expenses relating to loans on disposal of residences: clauses 279(5) and 284(2)(b) --- -
Change 65Exemption of removal benefits: replacement of domestic goods: deduction of sale proceeds: clause 285 -- -
Change 71Exemptions: counselling and other outplacement services and retraining courses: clauses 310 and 311 and Part 1 of Schedule 6 --- -
Change 72Exemptions: counselling and other outplacement services and retraining courses: clauses 310 and 311 and Part 1 of Schedule 6 --- -
Change 73Exemptions: counselling and other outplacement services and retraining courses: deductibility of travel expenses: clauses 310 and 311 -- -
Change 74Exemptions: retraining courses: undertaking courses with a view to retraining: clause 311 and Part 1 of Schedule 6 --- -
Change 81Deductions for employee's expenses: requirement for payment out of the emoluments of the employment: clause 329 and Chapters 2 to 6 of Part 5 generally --- -
Change 82Fixed sum deductions: prevention of double deductions: clauses 330 and 367 --- -
Change 83Deductions for employee's expenses: deductions operating through section 198(1) of ICTA: clauses 340 to 342 --- -
Change 85Deduction for professional membership fees: new power for Board to extend "professional fee": clauses 343(3) and (4) and 717 ---
Change 86Deduction for annual subscriptions: approval of bodies for purpose of receiving subscriptions: notice of decision by Inland Revenue: clause 344(4) --- -
Change 88Decisions of the Inland Revenue in relation to approval of bodies: clause 345(1) ---
Change 89Decisions of the Inland Revenue in relation to approval of bodies: appeals to the Special Commissioners: clause 345(2) ---
Change 90Deduction of expenses of ministers of religion: clause 351 and paragraph 47 of Schedule 6 -- -
Change 91Deduction of expenses of ministers of religion: determination of deduction for rent by inspectors: clause 351(2) ---
Change 92Deductions: agency fees paid by entertainers: application of limit of 17.5% of earnings: clause 352 -- -


Change 93Deductions for corresponding payments by non-domiciled employees with foreign employers: clause 355 ---
Change 97Deductions: disallowance of certain accommodation expenses of MPs and other representatives: clause 360 --- -
Change 98Deductions from benefits code emoluments: limit on amount of deductions: clauses 362 to 365 --- -
Change 99Deductions from benefits code emoluments: references to deductibility under specific provisions: clauses 362 to 365 --- -
Change 101Deductions for emoluments representing benefits or reimbursed expenses: clause 369 and Chapter 5 of Part 5 generally -- -
Change 102Deductions for travel benefits and expenses of non-domiciled employees where duties performed in UK: 5 year limit: clauses 373(3) and 374(3) --- -
Change 103Deductions from seafarers' earnings: taking account of other deductions: clause 381 --- -
Change 106Benefits from non-approved pension schemes: certain lump sums: reduction of amount which counts as employment income: clause 397 --- -
Change 110Payments and benefits on termination of employment etc: valuation of benefits: application of benefits code rules: clause 415 -- -
Change 111Share-related income: extending the time limits for the supply of particulars: clauses 432(3), 433(3), 445(3) and 466(3) ---
Change 112Share-related income: convertible shares: amount of charge: "event" to include the expiry of a period: clause 439(7) --- -
Change 119Share-related income: share options: value of longer-term option for purposes of liability to tax in respect of receipt: clause 475(2) --- -
Change 124Share-related income: share options: requiring an apportionment of consideration to be reasonable as well as just: clause 484(2) --- -
Change 130Share-related income: the EMI code: disqualifying events relating to employee: clause 535 -- -
Change 132Share-related exemptions: priority share allocations: definitions of "director" and "shares": clause 548 --- -
Change 136Marine pilots' benefit fund: unauthorised payments: clause 587 --- -
Change 138Other employment-related annuities: income chargeable: foreign annuities: clause 613 --- -
Change 139Pension income: return of surplus employee additional voluntary contributions: clause 623 --- -
Change 140Pension income: exemption for certain lump sums: clause 637 --- -
Change 144United Kingdom social security income: exemptions: income support: taxable maximum: basis of calculation: clause 668 -- -
Change 145Social security income: foreign benefits: introduction of charge to tax: clause 678 --- -
Change 147PAYE: power to make different provision for different cases or classes of case and incidental, consequential, supplementary and transitional provision: clause 684(2) --- -
Change 150PAYE: inclusion in the Bill of provision relating to organised arrangements for sharing tips made by subordinate legislation: clause 692 --- -
Change 154Donations to charity: payroll deduction scheme: operation of deduction from payments of PAYE income: clause 713(3), (4), and (5); Schedule 6, paragraphs 72 and 73 --- -
Change 155Donations to charity: payroll deduction scheme: meaning of "approved agent": clause 714(2) --- -
Change 156Donations to charity: approval of payroll deduction schemes: regulation by the Treasury: clause 715(3) --- -
Change 158References to "the Inland Revenue": clause 720 --- -
Change 159Definition of "personal representatives" and replacement of the expression "executors or administrators" with "personal representatives": clause 721 --- -
Change 163Share-related income: share incentive plans: duration of accumulation periods: paragraph 51 of Schedule 2 --- -
Change 164Share-related income: share incentive plans: approval procedure: paragraph 81 of Schedule 2 --- -
Change 165Share-related income: share incentive plans: effect of plan termination notice: paragraph 90 of Schedule 2 --- -


Change 166Share-related income: SAYE option schemes: all-employee nature of schemes: paragraph 6 of Schedule 3 --- -
Change 167Share-related income: SAYE option schemes and CSOP schemes: disregarding of interests in SIPs: paragraph 13 of Schedule 3 and paragraph 11 of Schedule 4 -- -
Change 168Share-related income: SAYE option schemes and CSOP schemes: restrictions to which scheme shares may be subject: paragraph 21 of Schedule 3 and paragraph 19 of Schedule 4 --- -
Change 170Share-related income: SAYE option schemes and CSOP schemes: notice to be given by Inland Revenue of decision to grant, refuse or withdraw approval of scheme etc: paragraphs 40, 42 and 43 of Schedule 3 and paragraphs 28, 30 and 31 of Schedule 4 --- -
Change 171Share-related income: SAYE option schemes and CSOP schemes: appeals against decisions by Inland Revenue to grant, refuse or withdraw approval of schemes: paragraphs 41 and 44 of Schedule 3 and paragraphs 29 and 32 of Schedule 4 --- -
Change 172Share-related income: SAYE option schemes and CSOP schemes: information to be given to Inland Revenue: paragraph 45 of Schedule 3 and paragraph 33 of Schedule 4 ---
Change 176Share-related income: the EMI code: "eligible employees": paragraph 26 of Schedule 5 -- -
Change 178Share-related income: the EMI code: notices following notification of option: paragraphs 45 and 46 of Schedule 5 --- -
Change 179Share-related income: the EMI code: information to be given to Inland Revenue: paragraph 51 of Schedule 5 --- -
Change 180Share-related income: the EMI code: amendment of monetary limits: paragraph 54 of Schedule 5 -- -
Change 181Relief from tax on annual payments under certain insurance policies: section 580A(7) of ICTA: paragraph 65 of Schedule 6 --- -
Change 182Deductible payments: combined claims: paragraph 217 of Schedule 6 ---
Changes correcting points overlooked in the course of consolidation Acts, missed consequential amendments to earlier legislation, or other technical defects
Change 6Taxable earnings: relief for delayed remittances: replacement of references to income "arising" with references to income "received": clause 35(2) and (4) --- -
Change 23Taxable benefits: living accommodation and residual liability to charge: calculation of annual values: clauses 110 and 207 --- -
Change 24Taxable benefits: living accommodation and residual liability to charge: meaning of "all usual tenant's rates and taxes": clauses 110 and 207 --- -
Change 75Exemptions: living accommodation: exemption where rates etc. discharged for employee: clause 314 --- -
Change 95Deduction of business entertainment and gifts expenses: exception where employer's expenses disallowed: tonnage tax companies: clause 357(4) --- -
Change 109Payments and benefits on termination of employment etc: reduction in cases of foreign service: clause 414 --- -
Change 113Share-related income: post-acquisition benefits from shares: amount of charge where increase in value of shares of dependent subsidiaries: clause 455 --- -
Change 114Shares: post-acquisition benefits from shares: deemed acquisitions by director or employee: clauses 457 and 463 --- -
Change 115Share-related income: post-acquisition benefits from shares: restriction of liability to tax on special benefits from shares: clause 460 --- -
Change 117Share-related income: post-acquisition benefits from shares: meaning of "interest in shares": clause 470 --- -
Change 125Share-related income: share options: correcting consolidation error in section 136(2)(b) of ICTA: clause 485(5)(b) and corresponding provisions --- -
Change 161Share-related income: share incentive plans: information to be given about performance targets and measures: paragraph 40 of Schedule 2 --- -
Change 162Share-related income: share incentive plans: authorisation of deductions from salary under partnership share agreements: paragraph 44 of Schedule 2 --- -


Change 175Share-related income: the EMI code: "qualifying trade" (leasing of ships): paragraph 18 of Schedule 5 -- -
Change 177Share-related income: the EMI code: further requirements to be met as to replacement option: paragraphs 41 and 43 of Schedule 5 --- -
Change 183PAYE: paragraph 10 of Schedule 2 to the Tax Credits Act 1999: paragraph 241 of Schedule 6 --- -
Changes removing an anomaly which is patently unfair
Change 3Taxable earnings: deductions to be made in calculating "chargeable overseas earnings": clauses 23 and 24 -- -
Change 12Intermediaries: widening of the category of associated companies to which paragraph 3(2) of Schedule 12 to FA 2000 applies: clause 51(2) -- -
Change 15Taxable benefits: relationship between earnings and benefits code: clause 64 --- -
Change 18Taxable benefits: vouchers and credit-tokens: exceptions where voucher or token provided for personal reasons or is of a kind made available to the public generally: clauses 73(2), 78, 82(2), 85, 90(2) and 93 --- -
Change 20Taxable benefits: vouchers and credit-tokens: extension of disregard for money, goods or services obtained: clause 95 --- -
Change 21Taxable benefits: living accommodation: special rule for calculating cost of providing accommodation: clause 107 -- -
Change 25Taxable benefits: cars: modification of provisions where car temporarily replaced: clause 145(2) --- -
Change 30Taxable benefits: loans: exception for loans totalling not more than £5,000: clause 180 --- -
Change 34Taxable benefits: loans: prevention of double charge under section 421 of ICTA where loan released or written off: clause 189(1)(b) --- -
Change 35Taxable benefits: loans: relief where released or written off loan is subsequently repaid: clause 191(3) -- -
Change 36Taxable benefits: notional loans in respect of acquisitions of shares: taking account of advance payments for shares: clauses 193(1)(a) and (b) and 194(2)(a) --- -
Change 37Taxable benefits: notional loans in respect of acquisitions of shares: listing the provisions of Chapter 7 of Part 3 which apply to notional loans: clause193(4) --- -
Change 38Taxable benefits: notional loans in respect of acquisitions of shares: relationship with liability to tax in respect of exercise of share option: clauses 194(2)(c) and 196 --- -
Change 39Taxable benefits: residual liability to charge: scholarships provided under arrangements entered into by the employer or a connected person if the employer is an individual: clause 212 --- -
Change 43Exemption where payments and benefits provided to the lower paid in connection with heavy goods vehicles: clauses 239(8) and 269(4)(b) -- -
Change 60Exemption of removal benefits and expenses: vouchers and credit-tokens: clauses 272 and 287 -- -
Change 63Exemption of removal benefits: exclusion where car and van benefits otherwise taxable: clause 283 --- -
Change 66Exemption of removal benefits and expenses: limit on exemption: clause 287 -- -
Change 76Exemptions: living accommodation: limit on charge to tax on connected expenses: clause 315 -- -
Change 94Deduction of business entertainment and gifts expenses: restriction of disallowance to expenses connected with employer's trade: clause 356(1) --- -
Change 96Deduction of business gifts expenses: exception for advertisements of the donor: other companies in employer's group: clauses 358(3) and (4) and 716(2)(h) -- -
Change 104Payments to non-approved pension schemes: relief where no benefits paid or payable: clauses 386(6) and 392(1) and (3) --- -
Change 105Payments to non-approved pension schemes: exception for seafarers with overseas earnings: clause 391 --- -
Change 118Share-related income: share options: application of rule about the employment by reason of which a share option was granted to the charge in clause 477: clause 473(1) --- -
Change 123Share-related income: share options: deductions for the amount of the liability to tax in respect of the receipt of the share option: clause 478(2) and (3) --- -
Change 151PAYE (gains from share options): limit on the amount of the consideration that is to be treated as a payment of PAYE income: clause 700 --- -


Change 160Share related income: share incentive plans: restriction on participating in both share incentive plan and approved profit sharing scheme in a tax year: paragraph 18 of Schedule 2 -- -
Changes making clear the intended and accepted interpretation of legislation that is currently somewhat opaque
Change 10Application of provisions to agency workers: treatment of services under agency contract: clause 44(2) --- -
Change 11Application of provisions to agency workers: arrangements with agencies: clause 45 --- -
Change 17Taxable benefits: expenses payments: clause 70 --- -
Change 87Deduction for annual subscriptions: approval of bodies for purpose of receiving subscriptions: timing of deduction: clause 344(7) --- -
Change 107Payments and benefits on termination of employment etc: meaning of benefit: clause 402(4) --- -
Change 116Share-related income: post-acquisition benefits from shares: duty to provide information: clause 465 --- -
Change 120Share-related income: share options: value of longer-term option to acquire convertible shares: clause 475(2) --- -
Change 122Share-related income: share options: amount of charge to tax under Case VI of Schedule D: clause 477(6) --- -
Change 126Share-related income: share incentive plans : no charge on increase in value of shares of dependent subsidiary: clause 495 --- -
Change 128Share-related income: share incentive plans: identification of shares ceasing to be subject to plan: clause 508 --- -
Change 129Share-related income: SAYE option schemes and CSOP schemes: no charge in respect of exercise of options: clauses 519 and 524 --- -
Change 131Share-related income: the EMI code: no charge on acquisition of shares as a taxable benefit: clause 540 -- -
Change 134Former employees: deductions for liabilities: start of period during which payment must be made to be deductible from total income: clause 556(1) ---
Change 143United Kingdom social security income: incapacity benefit taxable: clause 660 --- -
Change 148PAYE: directions as to income of non-resident or not ordinarily resident employees to apply only to income paid by or on behalf of the employer: clause 690 --- -
Change 149PAYE: scope of power to give directions as to income of non-resident or not ordinarily resident employees and applications for such directions: clause 690 --- -
Change 152PAYE (gains from share options): cases where the consideration for an assignment or release of a share option is a readily convertible asset in the form of a voucher or credit-token: clause 700 --- -
Changes filling a gap in the legislation
Change 8Board to determine disputes as to domicile or ordinary residence: widening of the availability of the procedure: clause 42(3) ---
Change 13Intermediaries: treating all relevant engagements as the duties of a continuous employment: clause 54(6) --- -
Change 14Intermediaries: normal timing rules to apply for determining when a non-cash benefit is to be treated as received: clause 55(5) --- -
Change 31Taxable benefits: loans: method of calculating the amount of interest payable at the official rate: clauses 182 and 183(1) ---
Change 33Taxable benefits: loans: method of calculating the cash equivalent of the benefit of a loan which is replaced: clause 186(3) --- -
Change 62Exemption of removal benefits: travelling and subsistence costs of relevant children where employee in temporary accommodation: clause 281 -- -
Change 64Exemption of removal benefits: bridging loan expenses: interest partially exempt: clause 284(4) and (5) --- -
Change 127Share-related income: share incentive plans: no charge in respect of incidental expenditure: clause 499 -- -
Change 133Share-related income: employee benefit trusts: "qualifying disposals": clause 551 --- -
Change 135Pension income and social security income: person chargeable: clauses 572, 579, 582, 592, 597, 600, 618, 622, 636 and 662 --- -
Change 137Approved personal pension schemes: annuities: income chargeable: clause 596 --- -
Change 153PAYE: tax accounted for under PAYE on a notional payment to be credited to the employee in respect of his liability to income tax: clause 710 --- -
Change 157Control: application of the definition in section 840 of ICTA for the purposes of paragraphs 3(2) and (4) and 19(3) of Schedule 12 to FA 2000: clause 719 --- -
Change 169Share-related income: SAYE option schemes and CSOP schemes: price for acquisition of shares: paragraph 28 of Schedule 3 and paragraph 22 of Schedule 4 --- -
Change 174Share-related income: the EMI code: meaning of "qualifying subsidiary": paragraph 11 of Schedule 5 -- -
1[1]  Affects the time when income is taken into account for tax purposes
2[2]  Affects only administrative procedures relating to tax


APPENDIX 2

EXTRA-STATUTORY CONCESSIONS NOT REWRITTEN

  1.  Many concessions are made to deal with minor or transitory anomalies under the legislation. Others meet cases of hardship at the margins of the tax code for which a legislative remedy would be difficult to devise or would run to a length out of proportion to the intrinsic importance of the matter. The Bill does not therefore include concessions which are obsolete or have very limited application. It also does not include concessions which are too complicated to legislate, either because of complexity within the concession itself or because of difficulties in fitting various strands of the concession into the legislation in a coherent manner.

  2.  The ESCs omitted on grounds of complexity are:

    —  A4—Travelling expenses of directors and employees earning £8,500 a year or more.

    —  A10—Lump sums from overseas pension schemes.

    —  A37—Tax treatment of directors' fees received by partnerships and other companies.

    —  A61—Clergymen's heating and lighting, etc expenses.

    —  A68—Payments out of a discretionary trust which are emoluments taxable under Schedule E.

    —  A81—Termination payments and legal costs.

  3.  The ESCs omitted because they are obsolescent or of very limited application are:

    —  A44—Education allowances under Overseas Service Aid Scheme.

    —  A49—Widow's pension paid to widow of Singapore nationality, resident in the United Kingdom, whose husband was a United Kingdom national employed as a Public Officer by the Government of Singapore.

    —  A60—Agricultural workers' board and lodging.

  4.  Other ESCs omitted are:

    —  A40—Adoption allowances payable under The Adoption Allowance Regulations 1991 and Section 51, Adoption (Scotland) Act 1978:

      As the allowances are sometimes paid by adoption agencies (rather than by local or central government), this Bill is not the right place to rewrite the concession. The Inland Revenue view is that the allowances are chargeable to tax (if at all) as "annual payments", under Schedule D Case III. So the better place for the exemption seems to be the Exempt Income Part of next rewrite Bill.

    —  A55—Arrears of foreign pension:

      This cannot be rewritten until the main Schedule D Case V rules are rewritten. This will be done in the next rewrite Bill.

    —  A56—Benefits in kind: the tax treatment of accommodation in Scotland provided for employees.

    —  A91(b)—Living accommodation provided by reason of employment.

  These concessions both hang from the Inland Revenue practice of taking the gross rateable value of provided living accommodation as a proxy for the annual value in computing the cash equivalent of the benefit of that accommodation. Since the General Rate Act 1967 was repealed in 1988, the concept of gross rateable value does not have any statutory definition and so is a term that cannot be incorporated in this Bill.

APPENDIX 3

PROVISIONS APPEARING IN ITALICS IN THE BILL

  1.  As explained in paragraph 13 of this memorandum, a number of clauses in this Bill have been italicised to indicate that they incorporate a possible increase in the burden of tax (and for this purpose the "in principle" effect is considered as well as the effect in practice).

  2.  In many cases the italicisation of a provision represents a theoretical increase in the burden of tax rather than a real possibility. In others the increase is likely to occur only in isolated instances. None of the provisions in this Bill would increase the tax burden on any individual by any significant amount, nor would any of the provisions apply to increase the tax burden of all employees.

  3.  The following table summarises the changes (using the numbers from Annex 1 to the Explanatory Notes) that have led to provisions being italicised (wholly or in part) in the Bill, with a brief description of the likely impact of the change.
Change NoClauses italicised Likely impact of change
118, 31Time when general earnings are received: this change will only change the time when an amount is treated as being received in the case of a cash benefit that is

—  chargeable under Chapter 10 of the benefits code rather than under clause 62; and

—  credited to a director's account with the company before the director becomes entitled to payment.

Cash benefits chargeable under Chapter 10 are likely to be very rare (most cash payments are chargeable under clause 62 or Chapter 2 of the benefits code). It is very unlikely (although possible) that such a cash benefit would to be credited to a director's account in advance of entitlement.

If this combination of circumstances did arise, it would change the time when the cash benefit is brought into account. If it moved it from one tax year to another, in a minority of cases a different (higher or lower) rate of tax might be applied as a result.

Any overall tax effect would be both rare and negligible.
635Relief for delayed remittances: referring to income "received" instead of "arising": this relief works by reallocating income to earlier tax years to avoid a large lump of delayed remittances all being taxed in one year (pushing the taxpayer into a higher tax band). Currently the relief is worded so that it reallocates the remitted income to the earlier tax year(s) in which it arose (dating back to the time when Schedule E was charged on an "arising" basis). In practice, since the receipts basis has applied, the income is instead allocated to the previous tax year in which it is received.

There may be cases where income is received in a different tax year to that in which it arises, and in a minority of cases a different (higher or lower) rate of tax might be applied as a result.

As this change is in line with current Inland Revenue practice it will have no actual impact on tax liabilities.
1455Intermediaries: applying normal rules to decide when a non-cash benefit is received: the current rule to determine when a non-cash benefit should be treated as received for the purposes of calculating the deemed Schedule E payment is that it should be treated as received when it is used or enjoyed. But there are cases where a non-cash benefit can be used and enjoyed over a period rather than at any one point. This change provides rules (in line with normal charging provisions) to determine when such payments should be treated as received. It is difficult to see what other method could have been used to determine timing of receipt, but if there was some other method and this was used to change the time of receipt from one tax year to another. In a minority of cases, this could lead to a different (higher or lower) rate of tax being applied as a result; any overall tax effect would be both rare and negligible.


28
152, 158, 163 Using Y = days in a year rather than a fixed 365 days: in the calculations relating to benefits arising on the provision of cars, vans and fuel in clauses 143(3), 152(4), 158(3) and 163(1) "Y" is used to represent the number of days in a year. In the first of those instances that is a direct rewrite of the source legislation. In the other three instances "Y" replaces an unvarying "365". The change means that the calculation can deal accurately with a leap year.

The effect of the replacement is marginally unfavourable to the taxpayer in each of the last three instances. There is more detail on this point in Change 28 in Annex 2 to the Bill. This change (and its proposed application across the whole of the Bill) was approved by respondents to the consultation on the Draft Bill.

In Step 3 of the calculation in clause 183(3) the same approach has been used, although there "Y" is not used, the clause referring instead to "the number of days in the tax year". In this instance the change works in the taxpayer's favour, as it does in clause 183(3)(loans). There is, therefore, an element of "swings and roundabouts" to this change, but all amounts involved are small.


44
240Incidental overnight expenses exemption: deductibility of expenses: this expenses and benefits exemption is only due where a deduction is not available under certain listed provisions. We have substituted general references to deductibility for the current references to deductibilty under those specific provisions. By doing so we have widened the list of deductions and have therefore theoretically restricted the scope of this exemption. In practice the current lists in the legislation identify the only deductions covered by the general reference that are likely to be relevant so that the use of a general reference will not affect anyone's tax liability.


90
Sch 6, Para 47 Deduction of expenses of ministers of religion: ICTA allows deductions against profits, fees or emoluments of the profession or vocation of a minister of religion in assessing the income tax chargeable whether under Schedule E or any other schedule.

The provisions of this Bill do not allow such cross-schedular deductions.

Most ministers of religion are chargeable under Schedule E although a few are chargeable under Schedule D. We are not aware of any who are chargeable under both Schedule D and Schedule E. (Income from articles or radio talks by an office-holding minister are not chargeable as income from the profession of a minister under Schedule D Case II but under Case VI.)

If a minister is chargeable under both this Bill and Schedule D and makes a loss in either his self-employment or his office then he may set off that loss against his other source of income as a minister. We believe that this will cover any possible case of hardship.


97
360Deductions: disallowances of certain accommodation expenses of MPs: this provision restricts the availability of a deduction for certain accommodation expenses, because allowances paid to meet those expenses are exempt. We have substituted general references to deductions for the current references to deductions under specific provisions. By doing so we have widened the list of deductions to which this restriction applies and so we have theoretically widened the scope of this disallowance. In practice the general reference does not include any additional provisions under which a deduction for accommodation expenses could be obtained anyway. This means that the use of a general reference will not affect anyone's tax liability.


98
364Limit of amount of deductions from benefits code earnings:

In ICTA this limit is expressed as "such amounts as would have been... deductible if the accommodation had been paid for by the employee out of his emoluments." This could theoretically be interpreted as the amount which the employee would have had to pay regardless of the amount taken as the cost of provision to form benefit code earnings. That could result in a deduction equal to the whole of the amount charged in respect of only a small percentage use for the purposes of the employment because the gross annual value was used for the charge, but a full commercial rent is used to calculate the deduction. The source legislation is ambiguous but it is clear that the intention of the legislation must have been to allow a deduction based on the amount charged to tax in respect of the accommodation. The Inland Revenue apply this interpretation in practice, so there is expected to be no actual difference in anyone's tax liability.


103
381Taking account of other deductions for the purpose of seafarers' FED: Other deductions from income are generally allowed first (so that they are effectively allowed against all income and not wholly against the income not subject to the FED). There is a list of the other deductions in ICTA, but it is incomplete. By replacing the list by a more general reference to deductions under Part 5 we are adding to the deductions which have to be spread across the earnings for the whole year instead of being allowed wholly against income not eligible for the FED. In fact current Inland Revenue practice is to take into account these other deductions (which are few in number and relatively insignificant) so that there is not expected to be any practical effect on anyone's tax liability.


113
455Post-acquisition benefits from shares : amount of charge on increase in value of shares in dependent subsidiaries: the existing legislation is clearly defective—it requires the gain to be measured by reference to the value of the shares at acquisition where the subsidiary only became dependent at a later date. Correcting this defect means that (as share values can go up or down over time) the change could result in a smaller or greater amount charged to tax. However, as the Inland Revenue practice is to measure the gain by reference to when the subsidiary became dependent anyway (thus informally correcting the defect), this change is not expected to have any practical effect on anyone's tax liability.


114
457, 463 Post-acquisition benefits from shares: deemed acquisition by director or employee. This corrects two technical defects identified in the course of drafting of the Bill which we are not aware have ever been noticed before. The Inland Revenue have always considered that the charge runs where the special benefit accrues to any person in a case where the employee is treated as retaining the beneficial interest in the shares. Clause 457 makes the position clear. Clause 463 ensures that shares which were acquired by a connected person (and have been deemed to have been acquired by the employee under section 83(1)) are still deemed to be held by the employee when the connected person disposes of them other than by a bargain at arm's length with an unconnected person. That is the intention behind the source legislation and that is the way that the provision has always been interpreted and applied. As the Inland Revenue have consistently applied these interpretations (thus informally correcting the defects), this change is not expected to have any practical effect on anyone's tax liability.


120
475Share options: value of longer-term option to acquire convertible shares: this clarifies what value should be used for the purposes of computing tax liability on receipt of a share option where the option is over shares that may themselves be exchanged for other shares. It is in line with the Inland Revenue interpretation and so is not expected to have any practical effect on anyone's tax liability.


143
660Incapacity benefit: this makes clear that incapacity benefit is taxable. Under section 139 of FA 1994, it is quite clear that incapacity benefit is taxable, but in the effort to make sure that this benefit was taxable only once (and not subject to a double charge), one consequential amendment was missed, which could suggest that the benefit is not chargeable at all. Thus two parts of the tax law are in conflict on this issue. This Bill resolves the conflict in line with established practice and so is not expected to have any practical effect on anyone's tax liability.


145
687Social security income: foreign benefits: this change introduces an explicit charge on foreign social security benefits. These are currently taxed under Schedule D, Case V, on the grounds that they arise from rights under foreign social security law. Although the creation of this explicit charge would appear to be adverse to taxpayers, it will have the same practical effect as the current charge taken under Case V of Schedule D and so is not expected to have any practical effect on anyone's tax liability.


147 to 153

183
684, 690, 692, 700, 710

Sch 6, para 241
PAYE: in the normal course of events PAYE cannot impose tax

—  it is a system of payments on account;

—  there is a reckoning after the end of the year; and

—  the taxpayer may then be found to owe a bit more or be owed a bit back.

but in some very exceptional circumstances it is not quite that simple and a change in the law for PAYE might in theory lead to a different person paying the tax.

For instance, a change which is generally seen as helpful because it makes clear that tax does not have to be deducted from particular payments could in theory mean that an employee is disadvantaged. That is because an employee whose employer has wilfully failed to deduct tax from any payments (salary, bonus or the particular payments) loses the ability, but purely in relation to the particular payments, to argue:

—  that the employer ought to have deducted tax;

—  so the employer (rather than the employee) should pay.

The explanatory notes which accompany the Bill draw attention to all these possibilities—no matter how remote, and the relevant parts of the Bill are in italics. But it is (so far as the Project can tell) all hypothetical. Consultation revealed no concern that these minor changes might actually change who pays what tax.


154
713

Sch 6,

Paras 72 & 73
Donations to charity: payroll deduction scheme: the current legislation allows a deduction for such donations as "an expense" for the year of assessment in which they are withheld. This gives rise to a problem where the income from which the donation is withheld is not taxable in the year in which the donation is made. The "expense" would then be allowed in a different year to that in which the income is taxable. This Bill makes clear that the deduction is given in taxing the income out of which the donation has been made. In rare cases this may move the deduction from one year to another and in a minority of cases a different (higher or lower) rate of tax might be applied as a result. But since in practice deductions are allowed from the income from which the deduction is made, this change is not expected to affect anyone's tax liability.


  4.  In addition to the changes which have led to italicisation of provisions in the Bill, there are three changes in Annex 1 to the Explanatory Notes where the summary in bold italics at the end of the change contains words suggesting that it affects the incidence an existing charge to tax. In order to clarify the position, the changes and a brief explanation of their effect is given below.

    —  Change 2 The summary says the change "affects" when tax is paid (in principle but not in practice). In fact the burden of the text of the change is that the change will have no practical effects, ie the effect of the new rules will be the same as that of the old ones. So in the context "affects" really means "concerns" rather than "has an effect on".

    —  Change 135 The summary says that the change "affects" the person who pays the tax (in principle but not in practice). In fact we think that the provisions referred to in the change only reflect what a court would hold the position to be if a case ever arose. They also reflect the way that the charges to tax are administered in practice, and respondents were happy with them. So again "affects" equals "concerns".

    —  Change 137 The summary says that the change "affects" the amount of income which is liable to tax in a particular year (in principle but not in practice). In fact, as the text of the change indicates, there is a gap in the existing law: it is unclear whether the annuities in question are taxed on the basis of the amount payable in a year (the accruing basis) or the amount received (the receipts basis). The current practice is that they are charged on the receipts basis, and respondents were happy that this practice should be put on a statutory footing. Given the present gap in the law it is not possible to be sure whether or not the change in fact amounts to a change in the law. As to whether taxpayers would be disadvantaged by the change (assuming it were a change in the law) we think this would happen if a particular taxpayer's circumstances were such that receiving arrears of an annuity in tax year X rather than in the tax year in which they were payable would put him in a higher tax bracket. But by the same token it might be to another taxpayer's advantage to have his tax liability deferred to tax year X because that would mean that the amount of the arrears did not put him in a higher tax year bracket for the year in which they were payable.

 [ARTWORK]

Before and after the Rewrite: examples

BEFORE (1)

ICTA 1988

166.   Notice of nil liability under this Chapter

  (1)  If a person furnishes to the inspector a statement of the cases and circumstances in which payments of a particular character are made, or benefits or facilities of a particular kind are provided, for any employees (whether his own or those of anyone else), and the inspector is satisfied that no additional tax is payable under this Chapter by reference to the payments, benefits or facilities mentioned in the statement, the inspector shall notify the person accordingly; and then nothing in this Chapter applies to those payments, or to the provision of those benefits or facilities, or otherwise for imposing any additional charge to income tax.

  (106 word sentence)

AFTER (1)

65.   Dispensations 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, whether the employees are P's or another's.

  (2)  The "listed provisions" are the provisions listed in section 216(4) (provisions of the benefits code which do not apply to lower-paid employment).

  (3)  If the Inland Revenue are satisfied that no additional tax is payable by virtue of the listed provisions by reference to the payments, benefits or facilities mentioned in the statement, they must give P a dispensation under this section.

  (4)  A "dispensation" is a notice stating that the Inland Revenue agree that no additional tax is payable by virtue of the listed provisions by reference to the payments, benefits or facilities mentioned in the statement supplied by P.

  (5)  If a dispensation is given under this section, nothing in the listed provisions applies to the payments, or the provision of the benefits or facilities, covered by the dispensation or otherwise has the effect of imposing any additional liability to tax in respect of them.

BEFORE (2)

ICTA 1988

199.   Expenses necessarily incurred and defrayed from official emoluments

  (1)  Subject to the provisions of subsection (2) below, where the Treasury are satisfied with respect to any class of persons in receipt of any salary, fees or emoluments payable out of the public revenue that such persons are obliged to lay out and expend money wholly, exclusively and necessarily in the performance of the duties in respect of which such salary, fees or emoluments are payable, the Treasury may fix such sum as in the opinion of the Treasury represents a fair equivalent of the average annual amount laid out and so expended by persons of that class, and in charging income tax on that salary or those fees or emoluments there shall be deducted from the amount thereof the sums so fixed by the Treasury.

  (126 word sentence)

AFTER (2)

368.   Fixed sum deductions from earnings payable out of public revenue

  (1)  A deduction is allowed from earnings payable out of the public revenue for the employee's fixed sum expenses in respect of the duties to which the earnings relate.

  (2)  "Fixed sum expenses" means the sum, if any, fixed by the Treasury as in their opinion representing the average annual expenses which employees of the employee's description are obliged to pay wholly, exclusively and necessarily in the performance of duties to which such earnings relate.

BEFORE 3

ICTA 1988

195.   Travel expenses of employees not domiciled in the United Kingdom

  (1)  Subject to subsection (2) below, this section applies in the case of an office or employment in respect of which a person ("the employee") who is not domiciled in the United Kingdom is in receipt of emoluments for duties performed in the United Kingdom.

  (2)  This section does not apply unless subsection (3) below is satisfied in respect of a date on which the employee arrives in the United Kingdom to perform duties of the office or employment; and where subsection (3) is so satisfied, this section applies only for a period of five years beginning with that date.

  (3)  This subsection is satisfied in respect of a date if the employee:

    (a)  was not resident in the United Kingdom in either of the two years of assessment immediately preceding the year of assessment in which the date falls; or

    (b)  was not in the United Kingdom for any purpose at any time during the period of two years ending with the day immediately preceding the date.

  (4)  Where subsection (3) above is satisfied (by virtue of paragraph (a) of that subsection) in respect of more than one date in any year of assessment, only the first of those dates is relevant for the purposes of this section.

  (5)  Subsection (7) below applies to any journey by the employee:

    (a)  from his usual place of abode to any place in the United Kingdom in order to perform any duties of the office or employment there; or

    (b)   to his usual place of abode from any place in the United Kingdom after performing such duties there.

  (6)  Where the employee is in the United Kingdom for a continuous period of 60 days or more for the purpose of performing the duties of one or more offices or employments in the case of which this section applies, subsection (7) below applies to any journey by his spouse, or any child of his, between his usual place of abode and the place of performance of any of those duties in the United Kingdom, if the journey:

    (a)  is made to accompany his at the beginning of that period or to visit him during it; or

    (b)  is a return journey following a journey falling within paragraph (a) above;

  but subsection (7) as it applies by virtue of this subsection does not extend to more than two journeys to the United Kingdom and two return journeys by the same person in any year of assessment.

  (7)  Subject to subsection (8) below, where:

    (a)  travel facilities are provided for any journey to which this subsection applies and the cost of them is borne by or on behalf of a person who is an employer in respect of any office or employment in the case of which this section applies; or

    (b)  expenses are incurred out of the emoluments of any office or employment in the case of which this section applies on such a journey and those expenses are reimbursed by or on behalf of the employer;

  there shall be allowed, in charging tax under Case I or II of Schedule E on the emoluments from the office or employment concerned, a deduction of an amount equal to so much of that cost or, as the case may be, those expenses as falls to be included in those emoluments.

  (8)  If a journey is partly for a purpose mentioned in subsection (5) or (6) above and partly for another purpose, only so much of the cost or expenses referred to in subsection (7) as is properly attributable to the former purpose shall be taken into account in calculating any deduction made under subsection (7) as it applies by virtue of subsection (5) or, as the case may be, (6).

  (9)  For the purposes of this section a person's usual place of abode is the country (outside the United Kingdom) in which he normally lives.

  (10)  In subsection (6) above "child" includes a step—Child and an illegitimate child but does not include a person who is aged 18 or over at the beginning of the journey to the United Kingdom.

  (11)  References in the Income Tax Acts (including any provision of this Act, but without prejudice to any express reference to subsection (7) above) to section 198 and to deductions allowable under section 198, 199, 201 or 332 shall be construed as including a reference to subsection (7) above and to deductions allowable under it.

  (12)  Where apart from this subsection a deduction in respect of any cost or expenses is allowable under a provision of this section and a deduction in respect of the same cost or expenses is also allowable under another provision of this section or of any other enactment, a deduction in respect of the cost or expenses may be made under either, but not both, of those provisions.

  (13)  Where by virtue of subsection (3) of section 38 of the Finance Act 1986 any provision of section 37 of that Act applied in the case of any employee at any time during the year 1984-85 or 1985-86 (and that section applied to him immediately before 6th April 1988), this section shall apply in his case for the years 1988-89 to 1990-91 as if the following were substituted for subsections (2) to (4):

    "(2) This section does not apply after 5th April 1991.".

AFTER (3)

373.   Non-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.

  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.


374.   Non-domiciled employee's spouse's or child'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's spouse or child, 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 conditions A to C are met.

  (3)  Condition A is that the journey:

    (a)  is made between the country outside the United Kingdom in which the employee normally lives and a place in the United Kingdom, and

    (b)   ends on, or during the period of five 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 employee is in the United Kingdom for a continuous period of at least 60 days for the purpose of performing the duties of one or more employments from which the employee receives earnings for duties performed in the United Kingdom.

  (5)  Condition C is that the employee's spouse or child is—

    (a)  accompanying the employee at the beginning of that period,

    (b)  visiting the employee during that period, or

    (c)  returning to the country outside the United Kingdom in which the employee normally lives, after so accompanying or visiting the employee.

  (6)  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.

  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.

375.   Meaning 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 two 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 two tax years preceding the tax year in which the date falls.

  If, in a case where condition B applies, there are two 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.

BEFORE (4) (WHERE ONE HAS TO LOOK TO FIND THE MEANING OF "ACCESSORY" ETC)

Section 168A(9)

  (9)  For the purposes of this section—

    (a)  the inclusive price is the price inclusive of any charge for delivery by the manufacturer, importer or distributor to the seller's place of business and of any relevant tax and, in the case of an accessory, of any charge for fitting it,

    (b)  the relevant day is the day immediately before the date of the relevant car's first registration,

    (c)  a standard accessory is an accessory equivalent to an accessory which, in arriving at the price published as mentioned in subsection (2) above, is assumed to be available with cars of the same kind as the relevant car, and

    (d)  an optional accessory is an accessory other than a standard accessory; and "relevant tax" here means any customs or excise duty, any tax chargeable as if it were a duty of customs, any value added tax and any car tax.

Section 168A(10)

  (10)  For the purposes of this section a qualifying accessory is an accessory which—

    (a)  is made available for use with the car without any transfer of the property in it,

    (b)  is made available by reason of the employee's employment,

    (c)  is attached to the car (whether or not permanently), and

    (d)  is not an accessory necessarily provided for use in the performance of the duties of the employee's employment.

Section 168A(11)

  (11)  For the purposes of this section "accessory" includes any kind of equipment, but does not include a mobile telephone within the meaning given by section 155AA(2) or equipment which falls within section 168AA or 168AB(1).

Section 168AB(1)

  (1)  Equipment by means of which the car is capable of running on road fuel gas shall not be regarded as an accessory for the purposes of section 168A.

Section 168AB(4)

  (4)  This section does not apply in relation to cars to which paragraph 5 of Schedule 6 to this Act applies (bi-fuel cars taxed by reference to CO2 emissions figure).

Section 168B(8)

  (8)  Subsections (10) to (12) of section 168A apply for the purposes of this section as they apply for the purposes of that.

Section 168C(3)

  (3)  Subsections (10) to (12) of section 168A apply for the purposes of this section as they apply for the purposes of that.

Section 168D(5)

  (5)  Subsections (10) and (11) of section 168A apply for the purposes of this section as they apply for the purposes of that.

Section 168F(9)

  (9)  Subsections (10) and (11) of section 168A apply for the purposes of this section as they apply for the purposes of that.

AFTER (4)

125.   Meaning of "accessory" and related terms

  (1)  In this Chapter "qualifying accessory" means an accessory which—

    (a)  is made available for use with the car without any transfer of the property in the accessory,

    (b)  is made available by reason of the employment, and

    (c)  is attached to the car (whether permanently or not).

  (2)  For the purposes of this Chapter "accessory" includes any kind of equipment but does not include:

    (a)  equipment necessarily provided for use in the performance of the duties of the employment;

    (b)  equipment by means of which a car is capable of running on road fuel gas;

    (c)  equipment to enable a disabled person to use a car (see section 172);

    (d)  a mobile telephone (within the meaning given in section 319(2)).

  (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.


 
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