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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 4 — Taxable earnings: rules applying to employee resident, ordinarily resident and domiciled in UK

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Employees resident, ordinarily resident and domiciled in UK

 15    Earnings for year when employee resident, ordinarily resident and domiciled

in UK

     (1)    This section applies to general earnings for a tax year in which the employee is

resident, ordinarily resident and domiciled in the United Kingdom.

5

     (2)    The full amount of any general earnings within subsection (1) which are

received in a tax year is an amount of “taxable earnings” from the employment

in that year.

     (3)    Subsection (2) applies—

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

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           (b)           whether or not the employment is held at the time when the earnings

are received.

Year for which general earnings are earned

 16    Meaning of earnings “for” a tax year

     (1)    This section applies for determining whether general earnings are general

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earnings “for” a particular tax year for the purposes of this Chapter.

     (2)    General earnings that are earned in, or otherwise in respect of, a particular

period are to be regarded as general earnings for that period.

     (3)    If that period consists of the whole or part of a single tax year, the earnings are

to be regarded as general earnings “for” that tax year.

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     (4)    If that period consists of the whole or parts of two or more tax years, the part

of the earnings that is to be regarded as general earnings “for” each of those tax

years is to be determined on a just and reasonable apportionment.

     (5)    This section does not apply to any amount which is required by a provision of

Part 3 to be treated as earnings for a particular tax year.

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 17    Treatment of earnings for year in which employment not held

     (1)    This section applies for the purposes of this Chapter in a case where general

earnings from an employment would otherwise fall to be regarded as general

earnings for a tax year in which the employee does not hold the employment.

     (2)    If that year falls before the first tax year in which the employment is held, the

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earnings are to be treated as general earnings for that first tax year.

     (3)    If that year falls after the last tax year in which the employment was held, the

earnings are to be treated as general earnings for that last tax year.

     (4)    This section does not apply in connection with determining the year for which

amounts are to be treated as earnings under Chapters 2 to 11 of Part 3 (the

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benefits code).

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 4 — Taxable earnings: rules applying to employee resident, ordinarily resident and domiciled in UK

    8

 

When general earnings are received

 18    Receipt of money earnings

     (1)    General earnings consisting of money are to be treated for the purposes of this

Chapter as received at the earliest of the following times—

Rule 1

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

Rule 2

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

earnings.

Rule 3

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            If the employee is a director of a company and the earnings are from

employment with the company (whether or not as director), whichever is the

earliest of—

           (a)           the time when sums on account of the earnings are credited in the

company’s accounts or records (whether or not there is any restriction

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on the right to draw the sums);

           (b)           if the amount of the earnings for a period is determined by the end of

the period, the time when the period ends;

           (c)           if the amount of the earnings for a period is not determined until after

the period has ended, the time when the amount is determined.

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     (2)    Rule 3 applies if the employee is a director of the company at any time in the

tax year in which the time mentioned falls.

     (3)    In this section “director” means—

           (a)           in relation to a company whose affairs are managed by a board of

directors or similar body, a member of that body,

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           (b)           in relation to a company whose affairs are managed by a single director

or similar person, that director or person, and

           (c)           in relation to a company whose affairs are managed by the members

themselves, a member of the company,

            and includes any person in accordance with whose directions or instructions

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the directors of the company (as defined above) are accustomed to act.

     (4)    For the purposes of subsection (3) a person is not to be regarded as a person in

accordance with whose directions or instructions the directors of the company

are accustomed to act merely because the directors act on advice given by that

person in a professional capacity.

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     (5)    Where this section applies—

           (a)           to a payment on account of general earnings, or

           (b)           to sums on account of general earnings,

            it so applies for the purpose of determining the time when an amount of

general earnings corresponding to the amount of that payment or those sums

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is to be treated as received for the purposes of this Chapter.

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK

    9

 

 19    Receipt of non-money earnings

     (1)    General earnings not consisting of money are to be treated for the purposes of

this Chapter as received at the following times.

     (2)    If an amount is treated as earnings for a particular tax year under any of the

following provisions, the earnings are to be treated as received in that year—

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                    section 81 (taxable benefits: cash vouchers),

                    section 94 (taxable benefits: credit-tokens),

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

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

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

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                    Chapter 8 of Part 3 (taxable benefits: notional loans in respect of

acquisitions of shares),

                    Chapter 9 of Part 3 (taxable benefits: disposals of shares for more than

market value),

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

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                    section 222 (payments treated as earnings: payments on account of tax

where deduction not possible),

                    section 223 (payments treated as earnings: payments on account of

director’s tax).

     (3)    If an amount is treated as earnings under section 87 (taxable benefits: non-cash

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vouchers), the earnings are to be treated as received in the tax year mentioned

in section 88.

     (4)    If subsection (2) or (3) does not apply, the earnings are to be treated as received

at the time when the benefit is provided.

Chapter 5

25

Taxable earnings: rules applying to employee resident, ordinarily resident or

domiciled outside UK

Taxable earnings

 20    Taxable earnings under this Chapter: introduction

     (1)    This Chapter sets out for the purposes of this Part what are taxable earnings

30

from an employment in a tax year in cases where any of the following sections

applies to general earnings for a tax year—

           (a)           section 21 (earnings for year when employee resident and ordinarily

resident, but not domiciled, in UK, except chargeable overseas

earnings),

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           (b)           section 22 (chargeable overseas earnings for year when employee

resident and ordinarily resident, but not domiciled, in UK),

           (c)           section 25 (UK-based earnings for year when employee resident, but

not ordinarily resident, in UK),

           (d)           section 26 (foreign earnings for year when employee resident, but not

40

ordinarily resident, in UK),

           (e)           section 27 (UK-based earnings for year when employee not resident in

UK).

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK

    10

 

     (2)    In this Chapter—

           (a)           sections 29 and 30 deal with the year for which general earnings are

earned,

           (b)           sections 31 to 34 deal with the time when general earnings are received

or remitted,

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           (c)           sections 35 to 37 deal with relief for delayed remittances, and

           (d)           sections 38 to 41 deal with the place where the duties of an employment

are performed.

     (3)    In the employment income Parts any reference to the charging provisions of

this Chapter is a reference to any of the sections listed in subsection (1).

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Employees resident and ordinarily resident in UK

 21    Earnings for year when employee resident and ordinarily resident, but not

domiciled, in UK, except chargeable overseas earnings

     (1)    This section applies to general earnings for a tax year in which the employee is

resident and ordinarily resident, but not domiciled, in the United Kingdom

15

except to the extent that they are chargeable overseas earnings for that year.

     (2)    The full amount of any general earnings within subsection (1) which are

received in a tax year is an amount of “taxable earnings” from the employment

in that year.

     (3)    Subsection (2) applies—

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

           (b)           whether or not the employment is held at the time when the earnings

are received.

     (4)    Section 23 applies for calculating how much of an employee’s general earnings

are “chargeable overseas earnings” for a tax year, and are therefore within

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section 22(1) rather than subsection (1) above.

 22    Chargeable overseas earnings for year when employee resident and

ordinarily resident, but not domiciled, in UK

     (1)    This section applies to general earnings for a tax year in which the employee is

resident and ordinarily resident, but not domiciled, in the United Kingdom to

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the extent that the earnings are chargeable overseas earnings for that year.

     (2)    The full amount of any general earnings within subsection (1) which are

remitted to the United Kingdom in a tax year is an amount of “taxable

earnings” from the employment in that year.

     (3)    Subsection (2) applies—

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

           (b)           whether or not the employment is held at the time when the earnings

are remitted;

            but that subsection has effect subject to any relief given under section 35

(delayed remittances: claim for relief).

40

     (4)    Section 23 applies for calculating how much of an employee’s general earnings

are “chargeable overseas earnings” for a tax year, and are therefore within

subsection (1) rather than section 21(1).

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK

    11

 

     (5)    Where any chargeable overseas earnings are taxable earnings under subsection

(2), any deduction taken into account under section 23(3) in calculating the

amount of the chargeable overseas earnings—

           (a)           cannot then be deducted under section 11 from those taxable earnings,

but

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           (b)           may be deducted under that section from any taxable earnings under

section 21.

 23    Calculation of “chargeable overseas earnings”

     (1)    This section applies for calculating how much of an employee’s general

earnings for a tax year are “chargeable overseas earnings” for the purposes of

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sections 21 and 22.

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

           (a)           in that year the employee is resident and ordinarily resident, but not

domiciled, in the United Kingdom,

           (b)           the employment is with a foreign employer, and

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           (c)           the duties of the employment are performed wholly outside the United

Kingdom.

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

            

            Step 1

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            Identify the full amount of the overseas earnings for that year under subsection

(2).

            

            Step 2

            Subtract any amounts that would (assuming they were taxable earnings) be

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allowed to be deducted from those earnings under—

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

           (b)           section 262 of CAA 2001 (capital allowances to be given effect by

treating them as deductions from earnings),

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

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           (d)           section 594 of ICTA (contributions to exempt statutory schemes).

            

            Step 3

            Apply any limit imposed by section 24 (limit where duties of associated

employment performed in UK).

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

 24    Limit on chargeable overseas earnings where duties of associated

employment performed in UK

     (1)    This section imposes a limit on how much of an employee’s general earnings

40

are chargeable overseas earnings for a tax year under section 23 if—

           (a)           in that year the employee holds associated employments as well as the

employment to which subsection (2) of that section applies (“the

relevant employment”), and

           (b)           the duties of the associated employments are not performed wholly

45

outside the United Kingdom.

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK

    12

 

     (2)    The limit is the proportion of the aggregate earnings for that year from all the

employments concerned that is reasonable having regard to—

           (a)           the nature of and time devoted to each of the following—

                  (i)                  the duties performed outside the United Kingdom, and

                  (ii)                 those performed in the United Kingdom, and

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           (b)           all other relevant circumstances.

     (3)    For the purposes of subsection (2) “the aggregate earnings for a year from all

the employments concerned” means the amount produced by aggregating the

full amount of earnings from each of those employments for the year

mentioned in subsection (1) so far as remaining after subtracting any amounts

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of the kind mentioned in step 2 in section 23(3).

     (4)    In this section—

           (a)           “the employments concerned” means the relevant employment and the

associated employments;

           (b)           “associated employments” means employments with the same

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employer or with associated employers.

     (5)    The following rules apply to determine whether employers are associated—

Rule A

            An individual is associated with a partnership or company if that individual

has control of the partnership or company.

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Rule B

            A partnership is associated with another partnership or with a company if one

has control of the other or both are under the control of the same person or

persons.

Rule C

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            A company is associated with another company if one has control of the other

or both are under the control of the same person or persons.

     (6)    In subsection (5)—

           (a)           in rules A and B “control” has the meaning given by section 840 of ICTA

(in accordance with section 719 of this Act); and

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           (b)           in rule C “control” means control within the meaning of section 416 of

ICTA (meaning of expressions relating to close companies).

     (7)    If an amount of chargeable overseas earnings is reduced under step 3 in section

23(3) as a result of applying any limit imposed by this section, the amount of

general earnings corresponding to the reduction remains an amount of general

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earnings within section 21(1).

Employees resident but not ordinarily resident in UK

 25    UK-based earnings for year when employee resident, but not ordinarily

resident, in UK

     (1)    This section applies to general earnings for a tax year in which the employee is

40

resident but not ordinarily resident in the United Kingdom if they are—

           (a)           general earnings in respect of duties performed in the United Kingdom,

or

 

 

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK

    13

 

           (b)           general earnings from overseas Crown employment subject to United

Kingdom tax.

     (2)    The full amount of any general earnings within subsection (1) which are

received in a tax year is an amount of “taxable earnings” from the employment

in that year.

5

     (3)    Subsection (2) applies—

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

           (b)           whether or not the employment is held at the time when the earnings

are received.

     (4)    Section 28 explains what is meant by “general earnings from overseas Crown

10

employment subject to United Kingdom tax”.

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

resident, in UK

     (1)    This section applies to general earnings for a tax year in which the employee is

resident, but not ordinarily resident, in the United Kingdom if they are

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neither—

           (a)           general earnings in respect of duties performed in the United Kingdom,

nor

           (b)           general earnings from overseas Crown employment subject to United

Kingdom tax.

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     (2)    The full amount of any general earnings within subsection (1) which are

remitted to the United Kingdom in a tax year is an amount of “taxable

earnings” from the employment in that year.

     (3)    Subsection (2) applies—

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

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           (b)           whether or not the employment is held at the time when the earnings

are remitted;

            but that subsection has effect subject to any relief given under section 35

(delayed remittances: claim for relief).

     (4)    Section 28 explains what is meant by “general earnings from overseas Crown

30

employment subject to United Kingdom tax”.

Employees not resident in UK

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

     (1)    This section applies to general earnings for a tax year in which the employee is

not resident in the United Kingdom if they are—

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           (a)           general earnings in respect of duties performed in the United Kingdom,

or

           (b)           general earnings from overseas Crown employment subject to United

Kingdom tax.

     (2)    The full amount of any general earnings within subsection (1) which are

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received in a tax year is an amount of “taxable earnings” from the employment

in that year.

 

 

 
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