House of Lords - Explanatory Note
Income Tax (Earnings And Pensions) Bill - continued          House of Lords

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Chapter 6: Exemptions: Non-cash vouchers and credit-tokens

Overview

1084.     This Chapter provides exemptions which apply to non-cash vouchers and credit-tokens. Anything provided by way of a non-cash voucher or credit-token which is not in the exemptions provided by this Chapter remains chargeable, even if it would be exempt where provided direct. Bringing these exemptions together is a change in approach.

1085.     The derivations of the exemptions in this Chapter are those given for the exemptions applying to equivalent direct provision.

1086.     The different wording used in each subsection and clause in this Chapter reflects the different ways in which vouchers and credit-tokens may be used and the circumstances in which the exemption will apply.

Clause 266: Exemption of non-cash vouchers for exempt benefits

1087.     Subsection (1) derives from sections 141(6A), and (6B) and 197A of ICTA, section 49(1) of FA 1999, and ESCs A59 and A66. All these exemptions apply to non-cash vouchers to the extent that they are used to obtain the exempt item. The inclusion of the exemptions provided by the ESCs is a minor change to the law. See Changes 48 and 49 in Annex 1.

1088.     Subsection (2) derives from sections 197AA, 197AB(5) and 197AC(5) of ICTA. In each of these provisions the voucher is not handed over, but is used as evidence of entitlement.

1089.     Subsection (3) derives from sections 197(2) and 197G(1) of ICTA and ESCs A58, A70B and A74. For each of these the voucher is used only for the exempt purpose. The inclusion of the exemptions provided by the ESCs is a minor change to the law. See Changes 47, 56 and 58 in Annex 1.

1090.     Subsection (4) provides the voucher exemption in respect of something exempted by use of the regulations in respect of minor benefits.

1091.     Subsection (5) ensures that exemptions under this clause apply even if the employee is in lower-paid employment. Unlike other benefits charges, chargeability for non-cash vouchers and credit-tokens applies to all employees.

Clause 267: Exemption of credit-tokens used for exempt benefits

1092.     This clause derives from section 142(3A) and (3B) of ICTA, section 49(1) and (2) of FA 1999, and ESCs A58, A59, A66 and A74. The inclusion of the exemptions provided by the ESCs is a minor change to the law. See Changes 47, 48 and 49 in Annex 1.

Clause 268: Exemption of vouchers and tokens for incidental overnight expenses

1093.     This clause exempts from charge by virtue of Chapter 4 of Part 3 both non-cash vouchers and credit-tokens used to meet "incidental overnight expenses". It derives mainly from sections 141(6C) and 142(3C) of ICTA.

1094.     Subsection (1) sets out the terms of the exemption where the voucher or token is used to obtain goods, services or money.

1095.     Subsections (2) to (5) set out the conditions to be satisfied.

1096.     Subsection (6) provides definitions of terms used in the clause by cross-reference to the exemption in clauses 240 (incidental overnight expenses and benefits) and 241 (incidental overnight expenses and benefits: overall exemption limit) for equivalent direct provision.

Clause 269: Exemption where benefits or money obtained in connection with taxable car or van or exempt heavy goods vehicle

1097.     This clause exempts from charge by virtue of Chapter 4 of Part 3 both non-cash vouchers and credit-tokens used for expenditure on taxable cars or vans, or on exempt heavy goods vehicles.

1098.     Subsection (1) sets out the exemption. It derives from sections 157(3)(b), 159AA(3)(b) and 159AC(3)(b) of ICTA.

1099.     Subsection (2) qualifies the exemption by reference to the provisions of clause 149 (benefit of car fuel treated as earnings) where what is obtained is fuel for a car.

1100.     Subsections (3) and (4) provide definitions of terms used in the clause and make clear the tax year for which the car, van or heavy goods vehicle is taxable or exempt. See Note 33 in Annex 2.

1101.     The definition of how a heavy goods vehicle is "exempt" for the purposes of this clause ensures that the exemption applies where the employee is in lower-paid employment. This is a minor change to the law. See Change 43 in Annex 1.

Clause 270: Exemption for small gifts of vouchers and tokens from third parties

1102.     This clause provides there is no liability to tax by virtue of Chapter 4 of Part 3, in respect of small gifts from third parties which take the form of a non-cash voucher or credit-token, where conditions are satisfied. It derives from ESC A70A and is a minor change to the law. See Change 59 in Annex 1.

1103.     Subsection (1) sets out the terms of the exemption where the conditions are satisfied.

1104.     Subsections (2) to (4) set out the conditions, in part by cross-reference to the provisions of clause 324 (small gifts from third parties).

Chapter 7: Exemptions: Removal benefits and expenses

Clause 271: Limited exemption of removal benefits and expenses: general

1105.     This clause gives details of the limited exemption for removal expenses. It sets out the general proposition that no liability to income tax arises in respect of any removal benefits or reimbursed removal expenses listed in this Chapter, up to the limit set out in clause 287. The clause derives from parts of paragraph 1 of Schedule 11A to ICTA.

1106.     Subsection (1) sets out the basic proposition that the exemption is available. The opening words of paragraph 1(1) of Schedule 11A, "where by reason of a person's employment" have not been rewritten. Those words are not necessary because there is no tax charge in respect of benefits or reimbursed expenses unless they arise "by reason of a person's employment". The exemptions in this Chapter only apply where there is the possibility of such a charge.

1107.     Subsection (2) reproduces the effect of the exclusion, by virtue of paragraph 1(1) of Schedule 11A, of certain income from the exemption because it is within Case III of Schedule E. Paragraph 2 of Schedule 11A ensures that the exemption from charge under Cases I and II of Schedule E does not result in the benefits or expenses being chargeable under Case III of Schedule E, as a result of the operation of section 131(2) of ICTA. In this Bill, by virtue of the provisions that define "taxable earnings" for the purposes of Chapter 4 of Part 2, it is no longer possible for the same earnings to fall within one of those provisions and also within "taxable earnings" as defined for the purposes of Chapter 5 of Part 2. As a consequence there is no need to rewrite paragraph 2.

1108.     Subsection (3) gives a signpost to the clause containing the limit on the exemption.

Clause 272: Removal benefits and expenses to which section 271 applies

1109.     This clause identifies the types of benefits and expenses that qualify for the exemption. It derives from paragraphs 3, 4, 7 and 16 of Schedule 11A to ICTA.

1110.     Subsection (1) lists all the benefits potentially within the scope of the limited exemption set out in clause 271. It gives signposts to the clauses that contain the detailed descriptions of those benefits and states the overriding conditions that must be satisfied.

1111.     Subsection (2) ensures that if a voucher or credit-token is used to obtain goods or services or money to pay for them such benefits are within the scope of the exemption. See Change 60 in Annex 1.

1112.     Subsection (3) lists the types of expenses that qualify for the exemption. It relies largely on the list in subsection (1) and adds, in paragraph (c), one expense for which there is no corresponding benefit.

1113.     One of the conditions for the exemption to be available is that the benefits must be provided or that the reimbursed expenses must be incurred on or before a particular day. In the source legislation that day is called the "relevant day" and is defined in paragraph 6 of Schedule 11A to ICTA. That label has been changed to "the limitation day", which is defined in clause 274.

Clause 273: Conditions applicable to change of residence

1114.     This clause gives more details about the three conditions referred to in clause 272(1)(a). The clause derives from paragraph 5 of Schedule 11A to ICTA. The words in brackets in paragraphs 5(1)(b) and (c) of Schedule 11A have not been reproduced, as they do not add anything.

1115.     Subsection (1) introduces the three subsections that give details of the conditions.

1116.     Subsection (2) identifies the three possible events that can trigger the exemption.

1117.     Subsection (3) is concerned with the reason for the change of residence.

1118.     Subsection (4) contains a restriction on the application of the exemption if a change of residence would be unnecessary.

Clause 274: Meaning of "the limitation day"

1119.     This clause defines "the limitation day", which rewrites the idea labelled "the relevant day" in ICTA, using a reference to a new concept, "the employment change". The clause derives from paragraph 6 of Schedule 11A to ICTA.

1120.     Subsection (1) defines "the limitation day", subject to subsection (2).

1121.     Subsection (2) gives scope for the Inland Revenue to extend the period before the limitation day, if it seems reasonable to do so. The reference to "Inland Revenue" reflects the practice whereby the Board of Inland Revenue delegates the initial decision on this matter to the Officer in Charge of the local district concerned. See Change 158 in Annex 1.

Clause 275: Meaning of "the employment change"

1122.     This clause is pure drafting, which defines the new label "the employment change".

1123.     A number of the later paragraphs in Schedule 11A to ICTA refer to the circumstances set out in paragraph 5(1). The relevant change in those circumstances, now rewritten in clause 273(2), has been given the label "the employment change" to make the rewriting of those references more straightforward.

Clause 276: Meaning of "residence", "former residence" and "new residence" etc.

1124.     This clause defines three labels related to the employee's various possible residences, including a definition of "residence" itself. The clause derives from section 191B(16) of ICTA and paragraph 25 of Schedule 11A to ICTA.

1125.     In subsection (1) there is no longer a reference to an employee's "sole or main residence". Instead the residence in question is defined more closely as being the employee's main residence.

1126.     Subsection (2) defines "former residence" and "new residence".

1127.     Subsection (3) defines what is meant by "an interest in a residence".

Clause 277: Acquisition benefits and expenses

1128.     This clause combines two similar provisions and so cuts out duplication. It sets out the benefits and expenses associated with the acquisition of a residence that come within the Chapter. The same approach (of combining the rules for benefits and expenses) has been adopted in a number of the following clauses. The clause derives from paragraphs 9 (expenses) and 18 (benefits) of Schedule 11A to ICTA.

1129.     Subsection (1) makes it clear that the interest in the new residence need not be held exclusively or indeed at all by the employee, provided it is held (either exclusively or jointly) by one or more members of the employee's family or household.

1130.     Subsection (2) identifies the types of benefit within the section.

1131.     Subsection (3) identifies the types of expenses within the section, by building on the description of some of the benefits covered and adding those expenses where there is no equivalent benefit.

1132.     Subsection (4) broadens the scope of who can raise a loan, other than or as well as the employee, in similar terms to those applying to an interest in the new residence covered in subsection (1).

1133.     Subsection (5) defines terms used in subsection (3)(d).

Clause 278: Abortive acquisition benefits and expenses

1134.     This clause brings together in one clause the provisions relating to expenses and benefits connected with an abortive acquisition of a new residence. It describes the circumstances that could lead to it being applied and relates back to clause 277 to identify the type of benefits or expenses covered. The clause derives from paragraphs 10 (expenses) and 19 (benefits) of Schedule 11A to ICTA.

Clause 279: Disposal benefits and expenses

1135.     This clause brings together in one clause the provisions relating to expenses and benefits connected with the disposal of the employee's former residence. The clause derives from paragraphs 8 (expenses) and 17 (benefits) of Schedule 11A to ICTA.

1136.     Subsection (1) describes the circumstances in which the section applies.

1137.     Subsection (2) identifies the types of benefit within the section.

1138.     Subsection (3) identifies the types of expenses within the section, by building on the description of some of the benefits covered and adding those expenses where there is no equivalent benefit.

1139.     Subsection (4) broadens the scope of who can have an interest in the former residence, other than or as well as the employee, in similar terms to those applying to an interest in the new residence as covered in clause 277(1), dealt with in paragraph 1129.

1140.     Subsection (5) defines what is meant by "related loan" for the purposes of this section. The Bill widens the scope of loans that qualify for exemption under this clause. See Change 61 in Annex 1.

Clause 280: Transporting belongings

1141.     This clause brings together in one clause the provisions relating to expenses and benefits connected with the transportation of belongings. It derives from paragraphs 11 (expenses) and 20 (benefits) of Schedule 11A to ICTA.

1142.     Subsection (1) identifies the types of benefit within the section.

1143.     Subsection (2) identifies the types of expenses within the section, by reference to the description of the benefits covered.

1144.     Subsection (3) defines "domestic belongings" and "transportation".

Clause 281: Travelling and subsistence

1145.     This clause brings together in one clause the provisions relating to expenses and benefits connected with travelling and subsistence. It derives from paragraphs 12 (expenses), 21 (benefits) and 28 of Schedule 11A to ICTA.

1146.     Subsection (1) identifies the types of benefit within the section. Subsection (1)(f) introduces a new label "education-linked living accommodation". Subsection (1)(g) introduces a new label "the employee's accommodation". It also widens the scope of the exemption for travel to and from such accommodation. See Change 62 in Annex 1.

1147.     Subsection (2) defines "education-linked living accommodation".

1148.     Subsection (3) defines "the employee's accommodation".

1149.     Subsection (4) identifies the types of expenses within the section, by reference back to the description of the benefits covered.

1150.     Subsection (5) identifies some exclusions from the exemptions provided by this section, by reference to circumstances described in subsequent sections.

1151.     Subsection (6) defines "new duties", "former area", "new area", "relevant child" and "subsistence".

Clause 282: Exclusion from section 281 of benefits and expenses where deduction allowed

1152.     This clause identifies benefits and expenses that are excluded from the exemptions provided for in this Chapter. It derives from paragraphs 12(4) and 21(7) and (8) of Schedule 11A to ICTA.

1153.     Subsection (1) states the general proposition about exclusion of certain benefits or expenses by reference to an amount being deductible under other provisions.

1154.     Subsection (2) identifies those provisions.

1155.     Subsection (3) deals with the circumstance where a deduction might be allowed for only part of a benefit provided. In that case the other part of the benefit might still be exempt.

Clause 283: Exclusion from section 281 of taxable car and van facilities

1156.     This clause provides that the exemption does not apply to car or van benefits. It derives from paragraphs 21(2) and (4) to (6) of Schedule 11A to ICTA.

1157.     Subsection (1) provides that the exemption in clause 281(1) does not apply to car or van benefits. The Bill widens the scope of the exemption when compared with a strict interpretation of the source legislation. See Change 63 in Annex 1.

1158.     Subsection (2) identifies the sections containing the definitions of the terms used in subsection (1).

Clause 284: Bridging loan expenses

1159.     This clause deals with bridging loan expenses (interest) connected with an employee's change of residence resulting from an employment change. It derives from paragraph 13 of Schedule 11A to ICTA.

1160.     Subsection (1)(a) combines the first two conditions that the bridging loan must satisfy, which are in paragraph 13(1)(a) and (b) of Schedule 11A. Subsections (1)(b) and (c) list the other conditions.

1161.     Subsection (2) gives a restricted definition of interest that falls within the clause. Paragraphs 13(4) and (5) of Schedule 11A set out the purpose for which the loan must have been used. The Bill combines those provisions without any change in effect. The same change as described in paragraph 1140 in relation to clause 279 has been made here. See Change 61 in Annex 1.

1162.     Subsection (3) places a further restriction on the amount of interest that can come within the section.

1163.     The source legislation does not specify how to allocate the total loan interest between exempt and non-exempt parts of the loan where paragraph 13(3) and (4) of Schedule 11A both apply. Subsection (4) recognises that possibility by introducing the idea of "the appropriate fraction". See Change 64 in Annex 1.

1164.     Subsection (5) includes a method statement to explain how to arrive at the appropriate fraction. See Change 64 in Annex 1.

1165.     Subsection (6) combines in one subsection the provisions from paragraph 13(7) of Schedule 11A that extend the meaning of interest payable by an employee and paragraph 13(8) of Schedule 11A that apply a parallel extension in meaning to references to a loan being raised by the employee.

Clause 285: Replacement of domestic goods

1166.     This clause brings together in one clause the provisions relating to expenses and benefits connected with replacing domestic goods. The heading in the source legislation, "duplicate expenses", does not really describe what this provision is about. The new heading is more informative. The clause derives from paragraphs 14 (expenses) and 22 (benefits) of Schedule 11A to ICTA.

1167.     Subsection (1) describes the circumstances in which the section operates. Under paragraph 14(2) of Schedule 11A if an employee sells any of the domestic goods replaced by the new goods covered by paragraph 14(1) of Schedule 11A, the sale proceeds have to be deducted from the amount that qualifies under that paragraph. This subsection does not reproduce that requirement to deduct the sale proceeds of replaced domestic goods. See Change 65 in Annex 1.

1168.     Subsection (2) broadens the scope of who can have an interest in the new and/or former residence(s), other than or as well as the employee, in similar terms to those applying to an interest in the new residence as covered in clause 277(1), dealt with in paragraph 1129.

Clause 286: Power to amend sections 279 to 285

1169.     This clause brings together the provisions dealing with the Treasury's regulation-making powers. It derives from paragraphs 15 (expenses) and 23 (benefits) of Schedule 11A to ICTA.

1170.     Subsection (1) provides powers that allow the Treasury to make regulations to extend clauses 279 to 285 to bring within their scope benefits or expenses not otherwise covered.

1171.     Subsections (2) and (3) allow the Treasury some latitude in what they may do and how they may do it.

Subsection (4) prevents the Treasury from making retrospective regulations under the powers in this clause.

Clause 287: Limit on exemption

1172.     This clause sets out the limit on the total amount of the exemption available under this Chapter. It derives from paragraph 24 of Schedule 11A to ICTA.

1173.     Subsection (1) states the limit that applies to the amount of benefits and expenses that can be exempted.

1174.     Subsection (2) includes a list of items that count towards the £8,000 limit. Subsection (2)(b) states that the benefit code earnings, which in this Bill includes amounts related to the use of vouchers and/or credit-tokens, are to be counted towards the value of the exemption. See Change 60 in Annex 1.

1175.     Subsection (3) explains what is meant in subsection (2) by "the section 62 earnings".

1176.     Subsection (4) explains what is meant in subsection (2) by "the benefits code earnings". In combination with subsection (2)(b) it prevents any possible double counting of an amount. See Change 66 in Annex 1.

1177.     The source provisions also go into great detail about how to quantify the amount of benefit relating to the provision of living accommodation in paragraph 24(4) to (8) of Schedule 11A. Subsection (5) amalgamates all that detail. It brings together the various permutations for the computation of amounts chargeable in such cases.

Clause 288: Limited exemption of certain bridging loans connected with employment moves

1178.     This clause gives details of what kind of loan is covered. It contains a formula for working out the day by which the loan must be repaid if there is to be no charge to tax under what was section 160 of ICTA (rewritten in Chapter 7 of Part 3, mainly in clause 175). It also includes some interpretative provisions. The clause derives from section 191B(1) to (6), (10) to (12) and parts of (8), (9) and (13) of ICTA.

1179.     Subsection (1) describes the circumstances in which the exemption arises.

1180.     Subsection (2) describes in what circumstances a loan is within the term "a removal benefit" as used in subsection (1).

1181.     Subsection (3) describes how there can be "unused removal benefit exemption" as mentioned in subsection (1).

1182.     Subsection (4) shows how to calculate the amount of "the exempted loan discharge period", as mentioned in subsection (1).

1183.     Subsection (5) broadens the scope of who can raise a loan that qualifies for the exemption. Similarly it broadens who can have an interest in the new and/or former residence(s), other than, or as well as, the employee. It does that in similar terms to those applying to an interest in the new residence as covered in clause 277(1), dealt with in paragraph 1129.

1184.     Subsection (6) provides for the tax payable to be decided on a provisional basis, should the whole circumstances surrounding the loan not be known at the time the need to make a decision arises.

Clause 289: Relief for certain bridging loans not qualifying for exemption under section 288

1185.     This clause provides a measure of relief for those loans that do not qualify under the provisions of the clause 288. It derives from section 191B(8) and (13) of ICTA.

1186.     Subsection (1) describes the circumstances in which this section applies.

1187.     An employee who has a bridging loan that would otherwise come within the provisions of the preceding clause may not repay that loan until after the day determined by the formula set out in clause 288(4). If so, the employee would not come within the exemption now set out in that clause. In such a case the employee's liability in respect of the beneficial loan under clause 175 is worked out as if the loan had been made on the day determined by that formula. Subsection (2) rewrites the corresponding provision from the source legislation.

1188.     Subsection (3) maintains the position in the source legislation whereby that extension only applies to those matters covered by what was section 160 of ICTA and not to the matters covered by what was section 161 of ICTA.

1189.     Subsection (4) provides for the tax payable to be decided on a provisional basis, should the whole circumstances surrounding the loan not be known at the time the need to make a decision arises.

 
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Prepared: 17 February 2003