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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 3 — Payments and benefits on termination of employment etc.

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 404   How the £30,000 threshold applies

     (1)    For the purpose of the £30,000 threshold in section 403(4) and (5), the payments

and other benefits provided in respect of an employee or former employee

which are to be aggregated are those provided—

           (a)           in respect of the same employment,

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           (b)           in respect of different employments with the same employer, and

           (c)           in respect of employments with employers who are associated.

     (2)    For this purpose employers are “associated” if on a termination or change

date—

           (a)           one of them is under the control of the other, or

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           (b)           one of them is under the control of a third person who on that

termination or change date or another such date controls or is under the

control of the other.

     (3)    In subsection (2)—

           (a)           references to an employer, or to a person controlling or controlled by an

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employer, include the successors of the employer or person, and

           (b)           “termination or change date” means a date on which a termination or

change occurs in connection with which a payment or other benefit to

which this Chapter applies is received in respect of the employee or

former employee.

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     (4)    If payments and other benefits are received in different tax years, the £30,000 is

set against the amount of payments and other benefits received in earlier years

before those received in later years.

     (5)    If more than one payment or other benefit is received in a tax year in which the

threshold is exceeded—

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           (a)           the £30,000 (or the balance of it) is set against the amounts of cash

benefits as they are received, and

           (b)           any balance at the end of the year is set against the aggregate amount

of non-cash benefits received in the year.

Exceptions and reductions

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 405   Exception for certain payments exempted when received as earnings

     (1)    This Chapter does not apply to any payment received in connection with the

termination of a person’s employment which, were it received for the

performance of the duties of the employment, would fall within section 308

(exemption of contributions to approved personal pension arrangements).

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     (2)    This Chapter does not apply to any payment received in connection with any

change in the duties of, or earnings from, a person’s employment to the extent

that, were it received for the performance of the duties of the employment, it

would fall within 271(1) (limited exemption of removal benefits and expenses).

 406   Exception for death or disability payments and benefits

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This Chapter does not apply to a payment or other benefit provided—

           (a)           in connection with the termination of employment by the death of an

employee, or

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 3 — Payments and benefits on termination of employment etc.

    204

 

           (b)           on account of injury to, or disability of, an employee.

 407   Exception 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—

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                  (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.

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     (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

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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—

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                    “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.

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 408   Exception 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

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           (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

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                    “approved” and “personal pension arrangements” have the meaning

given by section 630(1) of ICTA.

 409   Exception 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

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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

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 3 — Payments and benefits on termination of employment etc.

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           (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.

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     (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.

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     (6)    In this section and section 410

                    “relevant employment” means the employment mentioned in section

401(1);

                    “run-off period” means the period which—

                  (a)                 starts with the day on which the relevant employment

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terminated, and

                  (b)                 ends with the last day of the sixth tax year following the tax year

in which the period started.

 410   Exception for payments and benefits in respect of employee liabilities and

indemnity insurance: individual deceased

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     (1)    This Chapter does not apply to a payment or other benefit received by an

individual’s personal representatives 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

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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’s personal

representatives.

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     (4)    Condition B is that a deduction for the amount would have been allowed under

section 346 from earnings from the relevant employment, if—

           (a)           the individual had not died,

           (b)           the amount had been paid by the individual, and

           (c)           the individual still held the employment when the amount was paid.

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     (5)    Condition C is that the amount is paid at a time which falls within the run-off

period.

 411   Exception for payments and benefits for forces

This Chapter does not apply to a payment or other benefit provided—

           (a)           under a Royal Warrant, Queen’s Order or Order in Council relating to

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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.

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 3 — Payments and benefits on termination of employment etc.

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 412   Exception for payments and benefits provided by foreign governments etc.

     (1)    This Chapter does not apply to—

           (a)           a benefit provided under a pension scheme administered by the

government of an overseas territory within the Commonwealth, or

           (b)           a payment of compensation for loss of career, interruption of service or

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disturbance made—

                  (i)                 in connection with any change in the constitution of any such

overseas territory, and

                  (ii)                to a person who was employed in the public service of the

territory before the change.

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     (2)    References in subsection (1) to—

           (a)           an overseas territory,

           (b)           the government of such a territory, and

           (c)           employment in the public service of such a territory,

            have the meanings given in section 615 of ICTA.

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 413   Exception in certain cases of foreign service

     (1)    This Chapter does not apply if the service of the employee or former employee

in the employment in respect of which the payment or other benefit is received

included foreign service comprising—

           (a)           three-quarters or more of the whole period of service ending with the

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date of the termination or change in question, or

           (b)           if the period of service ending with that date exceeded 10 years, the

whole of the last 10 years, or

           (c)           if the period of service ending with that date exceeded 20 years, one-

half or more of that period, including any 10 of the last 20 years.

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     (2)    In subsection (1) “foreign service” means service to which subsection (3), (4) or

(6) applies.

     (3)    This subsection applies to service in or after the tax year 2003-04 such that—

           (a)           the earnings from the employment were not general earnings to which

section 15 or 21 applies (earnings for year when employee resident and

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ordinarily resident in UK), or would not have been had there been any,

or

           (b)           a deduction equal to the whole amount of the earnings from the

employment was or would have been allowable under Chapter 6 of

Part 5 (deductions from seafarers’ earnings).

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     (4)    This subsection applies to service before the tax year 2003-04 and after the tax

year 1973-74 such that—

           (a)           the emoluments from the employment were not chargeable under Case

I of Schedule E, or would not have been so chargeable had there been

any, or

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           (b)           a deduction equal to the whole amount of the emoluments from the

employment was or would have been allowable under a foreign

earnings deduction provision.

     (5)    In subsection (4) “foreign earnings deduction provision” means—

           (a)           paragraph 1 of Schedule 2 to FA 1974,

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           (b)           paragraph 1 of Schedule 7 to FA 1977, or

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 3 — Payments and benefits on termination of employment etc.

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           (c)           section 192A or 193(1) of ICTA.

     (6)    This subsection applies to service before the tax year 1974-75 such that tax was

not chargeable in respect of the emoluments of the employment—

           (a)           in the tax year 1956-57 or later, under Case I of Schedule E, or

           (b)           in earlier tax years, under Schedule E,

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            or it would not have been so chargeable had there been any such emoluments.

 414   Reduction in other cases of foreign service

     (1)    This section applies if—

           (a)           the service of the employee or former employee in the employment in

respect of which the payment or other benefit is received includes

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foreign service, and

           (b)           section 413 (exception in certain cases of foreign service) does not

apply.

     (2)    The taxable person may claim relief in the form of a proportionate reduction of

the amount that would otherwise count as employment income under this

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Chapter.

     (3)    The proportion is that which the length of the foreign service bears to the whole

length of service in the employment before the date of the termination or

change in question.

     (4)    A person’s entitlement to relief under this section is limited as mentioned in

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subsection (5) if the person is entitled—

           (a)           to deduct, retain or satisfy income tax out of a payment which the

person is liable to make, or

           (b)           to charge any income tax against another person.

     (5)    The relief must not reduce the amount of income tax for which the person is

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liable below the amount the person is entitled so to deduct, retain, satisfy or

charge.

     (6)    In this section “foreign service” has the same meaning as in section 413(2).

General and supplementary provisions

 415   Valuation of benefits

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     (1)    In the case of a cash benefit, for the purposes of this Chapter the amount of a

payment or other benefit is taken to be the amount received.

     (2)    In the case of a non-cash benefit, for the purposes of this Chapter the amount

of a payment or other benefit is taken to be the greater of—

           (a)           the amount of earnings (as defined in Chapter 1 of Part 3) that the

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benefit would give rise to if it were received by an employee within

section 15 for performance of the duties of an employment (money’s

worth), and

           (b)           the cash equivalent of the benefit under the benefits code if it were so

received and the code applied to it.

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     (3)    For the purposes of subsection (2), the benefits code has effect with the

modifications in subsections (4), (6) and (7).

 

 

Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 1 — Introduction

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     (4)    References in the benefits code to the employee are to be taken as references to

the taxable person and any other person by whom the benefit is received.

     (5)    For the purposes of subsection (4), section 401(4)(a) is to be disregarded.

     (6)    References in the benefits code to the employer are to be taken as including

references to the former employer.

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     (7)    Where—

           (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),

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            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).

 416   Notional interest treated as paid if amount charged for beneficial loan

     (1)    This section applies if an amount (“the taxable amount”) consisting of, or

including, an amount representing the benefit of a loan counts as a person’s

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employment income in a tax year under section 403.

     (2)    That person is to be treated for the purposes of the Tax Acts (other than this

Chapter) as having paid interest on the loan in the tax year equal to the lesser

of—

           (a)           the amount representing the cash equivalent of the loan, and

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           (b)           the taxable amount.

     (3)    The interest is to be treated—

           (a)           as accruing during the period in the tax year during which the loan is

outstanding, and

           (b)           as paid at the end of the period.

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     (4)    The interest is not to be treated—

           (a)           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 7

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Employment income: share-related income and exemptions

Chapter 1

Introduction

 417   Scope of Part 7

     (1)    This Part contains special rules relating to directors or employees who

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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—

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Income Tax (Earnings and Pensions) Bill
Part 7 — Employment income: share-related income and exemptions
Chapter 1 — Introduction

    209

 

                    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),

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                    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

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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

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                    Chapters 5 to 10.

     (5)    Chapter 11 contains supplementary provisions relating to employee benefit

trusts.

 418   Other provisions about share-related income and exemptions

     (1)    The following provisions of this Act also deal with share-related income and

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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

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                    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).

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     (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,

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                    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.

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     (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).

 

 

 
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