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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 6 — Taxable benefits: cars, vans and related benefits

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Orders

 170   Orders etc. relating to this Chapter

     (1)    The Treasury may by order substitute a greater amount for that for the time

being specified in—

                    (a) step 4 of section 121(1) (car: maximum interim sum),

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                    (b) section 126(3)(d) (car: minimum price of later accessory),

                    (c) section 132(3)(b) (car: maximum contributions deduction),

                    (d) section 147(1)(b) (classic car: minimum value), or

                    (e) section 147(7)(b) (classic car: maximum contributions deduction).

     (2)    An order under subsection (1) must specify the tax years to which it applies.

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     (3)    The Treasury may by order provide for a “lower threshold” different from that

specified in the Table in section 139(4) (car with a CO2 emissions figure) to

apply for tax years beginning on or after 6th April 2005 or such later date as

may be specified in the order.

     (4)    The Treasury may by regulations provide for the value of the appropriate

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percentage as determined under sections 139 to 141 to be reduced—

           (a)           by such amount,

           (b)           in such circumstances, and

           (c)           subject to such conditions,

            as may be prescribed in the regulations.

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     (5)    The Treasury may by order substitute a different amount for that specified in

section 150(1) (car fuel: cash equivalent).

     (6)    An order under subsection (5) must specify the tax years to which it applies,

being tax years beginning after that in which it is made.

Supplementary

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 171   Minor definitions: general

     (1)    In this Chapter—

                    “business travel”, in relation to any employee, means travelling the

expenses of which, if incurred and paid by the employee, would (if

Chapter 2 of Part 4 did not apply) be deductible under sections 337 to

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342, section 353 or under Chapter 5 of Part 5 (other than section 377);

                    “diesel” means any diesel fuel within the definition in Article 2 of

Directive 98/70/EC of the European Parliament and of the Council;

                    “EC certificate of conformity” means a certificate of conformity issued by

a manufacturer under any provision of the law of a Member State

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implementing Article 6 of Council Directive 70/156/EEC, as amended;

                    “EC type-approval certificate” means a type-approval certificate issued

under any provision of the law of a Member State implementing

Council Directive 70/156/EEC, as amended;

                    “relevant taxes” means any car tax, any value added tax, any customs or

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excise duty and any tax chargeable as if it were a customs duty;

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

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                    “road fuel gas” means any substance which is gaseous at a temperature of

15°C and under a pressure of 1013.25 millibars, and which is for use as

fuel in road vehicles;

                    “UK approval certificate” means a certificate issued under—

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

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                  (b)                 Article 31A(4) or (5) of the Road Traffic (Northern Ireland)

Order 1981 (S.I. 1981/154 (N.I. 1)).

     (2)    In this Chapter references to the date of first registration in relation to a car or

van are to the date on which the vehicle was first registered under VERA 1994

or under corresponding legislation of any country or territory.

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     (3)    In this Chapter references to the age of a car or a van at any time are to the

interval between the date of first registration of the vehicle and that time.

     (4)    In this Chapter “disabled person’s badge” means a badge—

           (a)           which is issued to a disabled person under section 21 of the Chronically

Sick and Disabled Persons Act 1970 (c. 44) or section 14 of the

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Chronically Sick and Disabled Persons (Northern Ireland) Act 1978

(c. 53), or has effect as if it had been issued under one of those

provisions, and

           (b)           which is not required to be returned to the issuing authority under or

by virtue of the provision referred to in paragraph (a).

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 172   Minor definitions: equipment to enable a disabled person to use a car

     (1)    In section 125(2)(c) “equipment to enable a disabled person to use a car” means

equipment—

           (a)           which is designed solely for use by a chronically sick or disabled

person, or

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           (b)           which is made available for use with the car because it enables a

disabled employee to use the car in spite of the disability.

     (2)    In this section—

                    “disabled employee” means an employee who, at the time when the car is

first made available to the employee, holds a disabled person’s badge,

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and

                    “the disability” means the disability entitling the disabled employee to

hold the disabled person’s badge.

Chapter 7

Taxable benefits: loans

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Introduction

 173   Loans to which this Chapter applies

     (1)    This Chapter applies to a loan if it is an employment-related loan.

     (2)    In this Chapter—

           (a)           “loan” includes any form of credit, and

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           (b)           references to making a loan (and related expressions) include

arranging, guaranteeing or in any way facilitating a loan.

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

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     (3)    Sections 288 and 289 make provision for exemption and relief for certain

bridging loans connected with employment moves.

 174   Employment-related loans

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

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

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           (b)           of a class described in subsection (2).

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

A

            A loan made by the employee’s employer.

B

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            A loan made by a company or partnership over which the employee’s

employer had control.

C

            A loan made by a company or partnership by which the employer (being a

company or partnership) was controlled.

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D

            A loan made by a company or partnership which was controlled by a person

by whom the employer (being a company or partnership) was controlled.

E

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

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                   (a)                 a close company which was the employer, had control over

the employer or was controlled by the employer, or

                   (b)                 a company or partnership controlling that close company.

     (3)    In this section—

                    “employee” includes a prospective employee, and

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                    “employer” includes a prospective employer.

     (4)    References in this section to a loan being made by a person extend to a person

who—

           (a)           assumes the rights and liabilities of the person who originally made the

loan, or

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           (b)           arranges, guarantees or in any way facilitates the continuation of a loan

already in existence.

     (5)    A loan is not an employment-related loan if—

           (a)           it is made by an individual in the normal course of the individual’s

domestic, family or personal relationships, or

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           (b)           it is made to a relative of the employee and the employee derives no

benefit from it.

     (6)    For the purposes of this section a person (“X”) is a relative of another (“Y”) if X

is—

           (a)           Y’s spouse,

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           (b)           a parent, child or remoter relation in the direct line either of Y or of Y’s

spouse,

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

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           (c)           a brother or sister of Y or of Y’s spouse, or

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

Benefit of taxable cheap loan treated as earnings

 175   Benefit of taxable cheap loan treated as earnings

     (1)    The cash equivalent of the benefit of an employment-related loan is to be

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treated as earnings from the employee’s employment for a tax year if the loan

is a taxable cheap loan in relation to that year.

     (2)    For the purposes of this Chapter an employment-related loan is a “taxable

cheap loan” in relation to a particular tax year if—

           (a)           there is a period consisting of the whole or part of that year during

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which the loan is outstanding and the employee holds the employment,

           (b)           no interest is paid on it for that year, or the amount of interest paid on

it for that year is less than the interest that would have been payable at

the official rate, and

           (c)           none of the exceptions in sections 176 to 179 apply.

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     (3)    The cash equivalent of the benefit of an employment-related loan for a tax year

is the difference between—

           (a)           the amount of interest that would have been payable on the loan for

that year at the official rate, and

           (b)           the amount of interest (if any) actually paid on the loan for that year.

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     (4)    If there are two or more employment-related loans, this section applies to each

separately.

     (5)    This section is subject to—

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

                    section 186 (replacement loans).

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 176   Exception for loans on ordinary commercial terms

     (1)    A loan on ordinary commercial terms is not a taxable cheap loan.

     (2)    In this section a “loan on ordinary commercial terms” means a loan—

           (a)           made by a person (“the lender”) in the ordinary course of a business

carried on by the lender which includes—

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                  (i)                 the lending of money, or

                  (ii)                the supplying of goods or services on credit, and

           (b)           in relation to which condition A, B or C is met.

     (3)    Condition A is met if—

           (a)           at the time the loan was made comparable loans were available to all

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those who might be expected to avail themselves of the services

provided by the lender in the course of the lender’s business,

           (b)           a substantial proportion of the loans (consisting of the loan in question

and the comparable loans) made by the lender at or about the time the

loan in question was made were made to members of the public,

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           (c)           the loan in question is held on the same terms as comparable loans

generally made by the lender to members of the public at or about the

time the loan in question was made, and

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

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           (d)           where those terms differ from the terms applicable immediately after

the loan in question was first made, they were imposed in the ordinary

course of the lender’s business.

     (4)    For the purposes of condition A a loan is comparable to another loan if it is

made for the same or similar purposes and on the same terms and conditions.

5

     (5)    Condition B is met if—

           (a)           the loan has been varied before 6th April 2000,

           (b)           a substantial proportion of the relevant loans were made to members of

the public,

           (c)           the loan in question is held on the same terms as relevant loans

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generally made by the lender to members of the public at or about the

relevant time, and

           (d)           where those terms differ from the terms applicable immediately after

the relevant time, they were imposed in the ordinary course of the

lender’s business.

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     (6)    Condition C is met if—

           (a)           the loan has been varied on or after 6th April 2000,

           (b)           a substantial proportion of the relevant loans were made to members of

the public,

           (c)           at the relevant time members of the public who had loans from the

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lender for similar purposes had a right to vary their loans on the same

terms and conditions as applied in relation to the variation of the loan

in question,

           (d)           the loan in question as varied is held on the same terms as any existing

loans so varied, and

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           (e)           where those terms differ from the terms applicable immediately after

the relevant time, they were imposed in the ordinary course of the

lender’s business.

     (7)    For the purposes of condition B and C—

           (a)           the “relevant time” is the time of the variation of the loan in question,

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and

           (b)           the “relevant loans” are—

                  (i)                 the loan in question,

                  (ii)                any existing loans which were varied at or about the relevant

time so as to be held on the same terms as the loan in question

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after it was varied, and

                  (iii)               any new loans which were made by the lender at or about that

time and are held on those terms.

     (8)    No account is to be taken of amounts which are incurred on fees, commission

or other incidental expenses by the person to whom a loan is made for the

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purpose of obtaining the loan—

           (a)           in determining for the purposes of condition A whether loans made by

a lender before 1st June 1994 are made or held on the same terms or

conditions, or

           (b)           in determining for the purposes of condition B or C whether rights to

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vary loans are exercisable on the same terms and conditions or loans

are held on the same terms.

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

    85

 

     (9)    No account is to be taken of amounts which are incurred on penalties, interest

or similar amounts by the person to whom a loan is made as a result of varying

the loan in determining for the purposes of condition B or C whether rights to

vary loans are exercisable on the same terms and conditions or loans are held

on the same terms.

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     (10)   For the purposes of this section a “member of the public” means a member of

the public at large with whom the lender deals at arm’s length.

 177   Exceptions for loans at fixed rate of interest

     (1)    A fixed rate loan made on or after 6th April 1978 is not a taxable cheap loan by

reason only of an increase in the official rate of interest since the year in which

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the loan was made if the condition in subsection (2) is met.

     (2)    The condition in this subsection is met if the amount of interest paid on the loan

for the tax year in which it was made was equal to or greater than the interest

that would have been payable at the official rate for that year.

     (3)    A fixed rate loan made before 6th April 1978 is not a taxable cheap loan if the

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condition in subsection (4) is met.

     (4)    The condition in this subsection is met if the rate of interest for the loan is equal

to or greater than the rate which could have been expected to apply to a loan

made—

           (a)           at the same time as the loan in question,

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           (b)           on the same terms (other than as to the rate of interest), and

           (c)           between persons not connected with each other dealing at arm’s length.

     (5)    In this section a “fixed rate loan” means a loan—

           (a)           made for a fixed period which cannot be changed, and

           (b)           made at a fixed rate of interest which cannot be changed during that

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period.

 178   Exception for loans where interest qualifies for tax relief

A loan is not a taxable cheap loan in relation to a particular tax year if,

assuming interest is paid on the loan for that year (whether or not it is in fact

paid), the whole of that interest—

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           (a)           is eligible for relief under section 353 of ICTA (general provision for

relief for payments of interest, excluding MIRAS),

           (b)           would be eligible for relief under that section but for the fact that it is a

payment of relevant loan interest to which section 369 of ICTA applies

(mortgage interest payable under deduction of tax),

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           (c)           is deductible in computing the amount of the profits to be charged

under Case I or II of Schedule D in respect of a trade, profession or

vocation carried on by the person to whom the loan is made, or

           (d)           is deductible in computing the amount of the profits to be charged

under Schedule A in respect of a Schedule A business carried on by that

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person.

 179   Exception for certain advances for necessary expenses

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

           (a)           necessary expenses, or

 

 

Income Tax (Earnings and Pensions) Bill
Part 3 — Employment income: earnings and benefits etc. treated as earnings
Chapter 7 — Taxable benefits: loans

    86

 

           (b)           incidental overnight expenses,

            is not a taxable cheap loan in relation to a particular tax year if the following

conditions are met.

     (2)    The conditions are—

           (a)           that at all times in the tax year in question the amount outstanding on

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such advances made by the employer to the employee does not exceed

£1,000,

           (b)           that the advance is spent within 6 months after the date on which it is

made, and

           (c)           that the employee accounts to the employer at regular intervals for the

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expenditure of the amount advanced.

     (3)    If, on an application made by the employer, the Inland Revenue are satisfied

that there is good reason to do so in the case of a particular advance, they may

authorise that either or both of the following limits are increased in relation

that advance—

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           (a)           the sum of money specified in subsection (2)(a);

           (b)           the time limit specified in subsection (2)(b).

     (4)    An application under subsection (3)—

           (a)           must be in writing, and

           (b)           must contain such particulars and be supported by such evidence as the

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Inland Revenue may require.

     (5)    In this section “necessary expenses” are expenses (including travel expenses)

which—

           (a)           the employee is obliged to incur and pay as holder of the employment,

and

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           (b)           are necessarily incurred in the performance of the duties of the

employment.

     (6)    In this section “incidental overnight expenses” are expenses which—

           (a)           are incidental to the employee’s absence from the place where the

employee normally lives,

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           (b)           relate to a continuous period of such absence in relation to which the

overnight stay conditions are met, and

           (c)           would not be deductible under Part 5 if the employee incurred and paid

them and Chapter 2 of Part 4 (mileage allowances and passenger

payments) did not apply.

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     (7)    In subsection (6)(b) “the overnight stay conditions” has the same meaning as in

section 240 (exemption for incidental overnight expenses) (see section 240(4)).

 180   Threshold for benefit of loan to be treated as earnings

     (1)    The cash equivalent of the benefit of an employment-related loan is not to be

treated as earnings of the employment for a tax year under section 175(1)—

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

           (b)           where the loan is a non-qualifying loan and that threshold is exceeded,

if the £5,000 threshold for non-qualifying loans is not exceeded.

     (2)    The normal £5,000 threshold is not exceeded if at all times in the year the

amount outstanding on the loan (or, if two or more employment-related loans

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