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

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Clause 338: Travel for necessary attendance

1455.     This clause allows a deduction from earnings for travel expenses if the expenses are attributable to the employee's necessary attendance at any place in the performance of the duties of the employment. However, the deduction allowed by this clause is not available for the expenses of "ordinary commuting" or "private travel".

1456.     The clause is the second of two dealing with the proposition that a deduction is allowed for qualifying travelling expenses. This clause deals with the part of that definition in section 198(1A)(b) of ICTA. That provision mentions "ordinary commuting" and "private travel" in section 198(1A)(b)(ii) but those expressions are only defined in paragraph 2 of Schedule 12A to that Act. Paragraph 3 of that Schedule contains a gloss on paragraph 2 and this clause also deals with that gloss.

1457.     This clause derives from section 198(1)(a) and (1A)(b) of ICTA and from paragraphs 2 and 3 of Schedule 12A to that Act. The statutory material has been reorganised so that the definitions of "ordinary commuting" and "private travel" are placed near the propositions to which they apply; and the gloss upon the definitions has been incorporated in the subsections setting out the effect of "ordinary commuting" and "private travel".

1458.     Subsection (6) provides that this clause needs to be read with clause 359, which prohibits a deduction if a mileage allowance is paid or if mileage allowance relief is available.

Clause 339: Meaning of "workplace" and "permanent workplace"

1459.     This clause defines the terms "workplace" and "permanent workplace", which are used in the definitions of "ordinary commuting" and "private travel" in clause 338.

1460.     The clause derives from paragraphs 2(3) and 4 to 7 of Schedule 12A to ICTA.

Clause 340: Travel between group employments

1461.     This clause allows a deduction from earnings for travel expenses where an employee, who has employments with more than one company in the same group, travels from a place of employment with one group company to another place of employment with another group company.

1462.     The clause derives from section 198(1B) of ICTA, which provides that the travel expenses are treated as necessarily expended in the performance of the duties to be performed at the destination.

1463.     Subsections (2) to (5) set out all the conditions that need to be met for the deduction to be allowed. The condition that it is the holder of the employment who is obliged to incur the expenses has not been included, because the Inland Revenue does not rely on this condition before the deduction is allowed. See Change 83 in Annex 1.

1464.     Subsection (6) defines the term "group" for the purposes of this clause. The definition is more concise than in the legislation from which this subsection derives.

1465.     Subsection (7) does not set out the general proposition, to be found in the source legislation, that the travel expenses are necessarily expended in the performance of the duties to be performed at the destination. Instead, the operation of the provision has been confined to the two clauses (mentioned in this subsection) where this proposition may have an impact.

1466.     Subsection (8) provides that this clause needs to be read with clause 359, which prohibits a deduction if a mileage allowance is paid or if mileage allowance relief is available.

Clause 341: Travel at start or finish of overseas employment

1467.     This clause allows a deduction from earnings for starting travelling expenses and finishing travelling expenses if the duties of the employment are performed wholly outside the United Kingdom.

1468.     The clause derives from section 193(2) and (3) of ICTA.

1469.     Section 193(3) begins with the words "For the purposes of section 198(1)". This clause sets out all the conditions that have to be met in each case, as opposed to referring to clause 336, the successor provision to section 198(1).

1470.     Subsections (2) to (4), however, do not reproduce the condition from section 198(1) that the holder of the employment is obliged to incur and defray the expenses, because the Inland Revenue does not rely on this condition before allowing the deduction from earnings. See Change 83 in Annex 1.

1471.     Subsection (4) is one of the provisions that make use of the new term "foreign employer", defined in clause 721 for the purposes of this Bill as a whole.

1472.     Subsections (6) and (7) derive from section 132(2) of ICTA. These subsections ensure that a deduction under this section is still available if duties of the employment are performed in the United Kingdom which are merely incidental to the duties of the employment performed outside the United Kingdom.

1473.     Subsection (8) defines the new terms "starting travel expenses" and "finishing travel expenses", which describe travel to take up an overseas employment and travel home after it has finished. This subsection also extends the meaning of the term "employee" to include a person who is to be, or has ceased to be, an employee.

1474.     Subsection (9) provides that this clause needs to be read with clause 359, which prohibits a deduction if a mileage allowance is paid or if mileage allowance relief is available.

Clause 342: Travel between employments where duties performed abroad

1475.     This clause allows a deduction from earnings for travel expenses where an employee, who has performed duties of one employment at the place of departure, travels to perform duties of another employment at the destination, and the place of departure or the destination, or both, are outside the United Kingdom.

1476.     The clause derives from section 193(5) and (6) of ICTA.

1477.     Section 193(6) begins with the words "For the purposes of section 198(1)". This clause sets out all the conditions that have to be met in each case, as opposed to referring to clause 336, the successor provision to section 198(1).

1478.     Subsections (2) to (7), however, do not reproduce the condition from section 198(1) that the holder of the employment is obliged to incur and defray the expenses, because the Inland Revenue does not rely on this condition before the deduction is allowed. See Change 83 in Annex 1.

1479.     Subsection (7) is one of the provisions that make use of the new term "foreign employer", defined for the purposes of this Bill as a whole in clause 721.

1480.     Subsection (9) provides that this clause needs to be read with clause 359, which prohibits a deduction if a mileage allowance is paid or if mileage allowance relief is available.

Fees and Subscriptions

Introduction

1481.     The following three clauses rewrite section 201 of ICTA. The sorts of fees and contributions that are covered by section 201(2) have to be paid before an employee can, lawfully, begin to practise the particular profession or occupation to which the fees relate. They do not therefore meet the "in the performance of the duties" test in section 198 of ICTA, rewritten in clause 336(1)(b). The subscriptions covered by section 201(3) are voluntary in nature, in the sense that employees do not have to join the body concerned, and so do not meet the "necessarily" test in section 198, again rewritten in clause 336(1)(b).

1482.     There is another distinction between the expenses allowable under those two subsections. Subsection 201(2) of ICTA lists the fees paid that qualify for deduction. Subsection 201(3) gives a general description of the sorts of bodies that are eligible to apply to the Board of Inland Revenue for approval under that subsection, by reference to their character and the activities they pursue.

1483.     The names of the bodies that the Board approves are published in a booklet called "Fees and subscriptions paid to Professional Bodies and Learned Societies (List 3)". That information is also published on the Inland Revenue's web site. The vast majority of the bodies in List 3 have been approved under subsection 201(3). Where fees paid to a body qualify for deduction under subsection 201(2) their entry in List 3 normally records that fact.

Clause 343: Deduction for professional membership fees

1484.     This clause provides for a deduction for fees paid by employees to enable them, lawfully, to pursue their professions or occupations. The clause derives from parts of section 201(1), (2) and (5) of ICTA.

1485.     Subsection (1) states the basic principle that a deduction from earnings is allowed for certain specified payments. Each such payment is described as a "professional fee". The requirement in the source legislation that, to be allowable, the payment must have been made "out of the emoluments of the employment" has not been reproduced here. Instead that general requirement is stated in the introduction to the provisions relating to deductions in Part 5 of the Bill. See Change 81 in Annex 1.

1486.     Subsection (2) defines what is meant by "professional fee". There are more fees listed in subsection (2) than appeared in section 201(2) of ICTA. See Change 84 in Annex 1.

1487.     The Bill presents the different types of fees payable in tabular form. The fees are grouped by reference to the occupational sectors to which they relate.

1488.     Subsections (3) and (4) together provide a new power for the Board of Inland Revenue to make an order adding a new, qualifying fee to the Table in subsection (2). See Change 85 in Annex 1.

Clause 344: Deduction for annual subscriptions

1489.     This clause provides for a deduction for annual subscriptions to bodies having certain specified characteristics, established for stated objects related to the advancement of knowledge, the maintenance or improvement of standards of conduct within the profession and the protection of its members against claims. The clause derives from parts of section 201(1), (3), (4), (5) and (6) of ICTA.

1490.     Subsection (1) states the basic principle of the availability of a deduction from earnings for subscriptions paid to approved bodies. As in clause 343(1), the requirement in the source legislation that, to be allowable, the payment must have been made "out of the emoluments of the employment" has not been reproduced here. See Change 81 in Annex 1.

1491.     Subsection (2) describes the types of bodies, by reference to their activities, whose subscriptions are eligible, subject to approval of the body by the Inland Revenue, to be deducted.

1492.     Subsection (3) provides for the Inland Revenue to approve a body of persons. This reflects the practice on the application of section 201(3) whereby the power of the Board of Inland Revenue to approve such bodies is delegated to the technical specialist. See Change 158 in Annex 1.

1493.     The requirement in subsection (4) that the Inland Revenue give notice of their decision on an application simply enacts Inland Revenue practice. See Change 86 in Annex 1.

1494.     Subsections (5) and (6) give the Inland Revenue the power to determine the part of a subscription that is allowable under subsection (1). That reflects the existing practice on how the power of the Board of Inland Revenue to make such a determination is exercised. See Change 158 in Annex 1.

1495.     The rule in subsection (7) about when a payment is treated as having been made to an approved body makes clear how the Inland Revenue have always allowed such payments. See Change 87 in Annex 1.

Clause 345: Decisions of the Inland Revenue under section 344

1496.     This clause provides powers for the Inland Revenue to withdraw or vary any approval given to or any determination made in respect of a body. The clause derives from section 201(6) and (7) of ICTA.

1497.     In subsection (1) the power to vary a decision on the approval or otherwise of a body for the purposes of section 344 rests with the Inland Revenue as opposed to the Board in the source legislation. See Change 158 in Annex 1.

1498.     The Bill requires the Inland Revenue to give notice of their decision. See Change 88 in Annex 1.

1499.     In subsections (2) and (3) the move to a straightforward appeal procedure is intended to simplify matters. Section 48(2) of TMA 1970 provides that various provisions of that Act as regards proceedings before the Commissioners apply to "appeals other than appeals against assessments" and to "proceedings..to be heard and determined in the same way as an appeal". There is therefore no real difference in law or practice in this instance between provisions that refer to an appeal and those that refer to proceedings where the Special Commissioners shall "hear and determine the matter in like manner as an appeal". See Changes 158 and 89 in Annex 1.

Clause 346: Deduction for employee liabilities

1500.     This is the first of a group of five clauses that give relief for payments made against liabilities arising from an office or employment. It provides for a deduction for certain employee liabilities. The clause derives from section 201AA(7), (8) and (9) and part of section 201AA(1) of ICTA.

1501.     Subsections (1) and (2) define the payments for which a deduction may be claimed.

1502.     Subsection (3) defines "premium" and provides some explanatory detail.

Clause 347: Payments made after leaving the employment

1503.     This clause provides that deductions allowable under section 346 are restricted to those relating to liabilities arising in a current employment. It also gives a signpost to the corresponding provisions that deal with payments made after the employee has ceased the particular employment in relation to which the liability to make a payment arises. The clause derives from part of section 201AA(1) of ICTA.

Clause 348: Liabilities related to the employment

1504.     This clause defines the types of liability that can give rise to payments that qualify for relief. It derives from section 201AA(2) of ICTA.

Clause 349: Meaning of "qualifying insurance contract"

1505.     This clause defines "qualifying insurance contract". It derives from section 201AA(3)(a) to (d) and (4) of ICTA.

1506.     Subsections (2) to (5) state the conditions that have to be met for an insurance contract to come within clause 346(1).

Clause 350: Connected contracts

1507.     This clause provides rules to determine whether insurance contracts are connected for the purposes of clause 349. It derives from section 201AA (5) and (6) of ICTA.

1508.     Subsections (1) to (3) define when insurance contracts are connected.

1509.     Subsections (4) to (7) provide for such a connection to be ignored in certain circumstances.

Clause 351: Expenses of ministers of religion

1510.     This clause allows a deduction for expenses from the earnings of a minister of religion. These include a proportion of the rent of a house used in the performance of the duties and, where premises are occupied in which a charity or ecclesiastical corporation holds an interest and those premises are used in the performance of the duties, a proportion of the expenses arising in connection with them.

1511.     The clause derives from section 332 of ICTA.

1512.     Unlike section 332 this clause does not allow an expense incurred in respect of the profession of a minister to be deducted from any income from an employment or office as a minister. Deductions are restricted to one particular class of income. See Change 90 in Annex 1, which explains why it is not considered that there are significant consequences for tax liability. Neither should the change affect anyone's liability to NIC. Expenses incurred in earning the profits of a minister are not available to reduce the employee's Class 1 NIC.

1513.     Subsection (1) allows a deduction from the earnings of a minister for amounts incurred wholly, exclusively and necessarily in the performance of the duties.

1514.     Subsection (2) allows a deduction from earnings for a quarter of the rent paid where a part of the house is used mainly and substantially in carrying out the duties of a minister. Where the part of the house so used is less than one quarter of the whole house an appropriate, lower proportion of the rent paid may be deducted.

1515.     Section 332(3) allows a deduction for "such part of the rent as the inspector by whom the assessment is made allows". The inspector's decision is subject to appeal to the Commissioners. Since this rule does not fit comfortably with Self Assessment the provision in this clause makes the deduction available without reference to the inspector on a just and reasonable apportionment basis. See Change 91 in Annex 1.

1516.     Subsection (3) provides for a deduction from earnings for part of the expenses borne by the minister in connection with premises which are owned by a charity or ecclesiastical corporation and in which he resides for the purposes of carrying out his duties.

1517.     Subsection (4) gives the formula for the deduction allowable under the previous subsection.

1518.     Subsection (5) defines "charity". The definition of "charity" is the same as that in section 506(1) of ICTA. See Note 34 in Annex 2.

1519.     Subsection (6) requires subsection (1) to be read with clause 359 (disallowance of travel expenses: mileage allowances and reliefs) which prevents a deduction where mileage allowance payments are received.

Clause 352: Limited deduction for agency fees paid by entertainers

1520.     This clause provides for a deduction for entertainers in respect of fees paid to their agents for finding them work. The clause derives from part of section 201A of ICTA.

1521.     Section 201A was introduced to allow entertainers who are in employment to get relief for the fees they pay to their agents for finding them work. Such fees are not deductible under the general rule for the deduction of expenses in section 198(1) of ICTA (rewritten in clause 336) for two reasons. First, they are paid to put the performer in the position to earn from the employment. They are not, therefore expended "in the performance of the duties of the employment". Secondly, as not every entertainer uses the services of an agent, the expense does not pass the "necessarily" test.

1522.     Subsection (1) states the basic principle that a deduction is allowed, subject to certain conditions being met.

1523.     In subsection (2) the way the limit of 17.5% of the taxable earnings is expressed differs slightly from the source legislation. See Change 92 in Annex 1.

1524.     Subsection (4) defines "entertainer" for the purposes of this clause.

1525.     Subsection (5) defines "agency fees", by reference to the contract or arrangement under which the entertainer pays them. The use of the word "paid" in this subsection means that it is not sufficient for the employee only to have incurred the liability to pay the fee. The employee has to have transferred value to the agent by way of payment for the deduction to be allowed.

1526.     Subsection (6) restricts the scope of what counts as a "co-operative society" for the purposes of the clause. It also gives a signpost to the external definition of "employment agency".

1527.     Section 201A(6), which contains the commencement date, has not been reproduced because it is now spent.

Clause 353: Deductions from earnings charged on remittance

1528.     This clause deals with deductions from earnings charged on remittance, an expression defined in clause 335(4).

1529.     The clause derives from section 198(3) of ICTA.

1530.     Subsection (1) provides for a deduction to be allowed from earnings charged on remittance for expenses within subsection (2) if the condition in subsection (3) is met.

1531.     Subsection (2) specifies the expenses to which this clause applies. Paragraph (a) refers both to expenses paid by the employee out of the relevant earnings and to expenses paid on the employee's behalf by another person and included in those earnings. This wording did not appear in the source legislation, but it corresponds to the wording used in clause 333 (scope of this Chapter). See Note 36 in Annex 2.

1532.     Subsection (3) states a condition that must be met before this clause may operate: that the earnings would have been deductible under clauses 336 to 342 if the earnings had been earnings charged on receipt in the tax year in which the expenses were incurred. (The expression "earnings charged on receipt" is defined in clause 335(4)). The reference to "sections 336 to 342" derives from the reference to "subsection (1)" in section 198(3) of ICTA. Clauses 341 and 342 do not derive directly from section 198(1) of ICTA, but these have been included in the new reference because the provisions from which they do derive (section 193(3) and (6) of ICTA) operate through section 198(1).

1533.     Subsection (4), which is a drafting addition, deals with points that may arise where this clause applies. The earnings from the employment may consist in part of "chargeable overseas earnings" (see clause 23(3)) and in part of other earnings. If so, deductions must be made from the other earnings before determining the amount of the chargeable overseas earnings.

Clause 354: Disallowance of expenses relating to earnings taxed on different basis or untaxed

1534.     This clause applies in certain cases where some of the earnings are taxed on one basis while the remainder are either taxed on a different basis or are not within the charge to income tax. This clause prevents a deduction relating to earnings in the first category from being given against earnings in the second category in those cases. The clause derives from provisions in section 198(2) of ICTA.

1535.     Subsection (1) prohibits a deduction under sections 336 to 342 if the expenses relate to earnings from the employment which are either not liable to income tax or are taxed on the remittance basis under clause 26.

Example

1536.     Suppose that F, a Frenchman, is resident and ordinarily resident in France. He performs most of the duties of his employment in France where he receives the earnings for those duties. F does not remit any of those earnings to the United Kingdom, so they are not chargeable to income tax in the United Kingdom. As the holder of his employment, F is also obliged, while in France, to incur expenditure wholly, exclusively and necessarily in the performance of his duties there. However, F also performs a minority of the duties of his employment in the United Kingdom where he receives earnings for these other duties. These earnings are chargeable to income tax in the United Kingdom (see clause 27). This clause prohibits F from deducting the expenditure incurred in France from the income chargeable to tax in the United Kingdom.

1537.     Subsection (2) prohibits a deduction under section 353 if the expenses relate to earnings from the employment which are not taxed on remittance under clause 326.

1538.     Subsection (3) provides that this section is to be disregarded for the purposes of the deductibility provisions. See Note 37 in Annex 2.

Clause 355: Deduction for corresponding payments by non-domiciled employees with foreign employers

1539.     This clause provides for a non-domiciled employee with a foreign employer to claim a deduction if certain conditions are met.

1540.     This clause derives from section 192(1) and (3) of ICTA.

1541.     Subsections (2) to (5) sets out the conditions that must be met:

  • The employee must not be domiciled in the United Kingdom;

  • The employment must be with a foreign employer (a term defined in clause 721(1));

  • The employee must have made a payment out of earnings from the employment; and

  • The payment did not reduce the employee's liability to United Kingdom income tax, but was made in circumstances corresponding to those in which it would do so.

1542.     Subsection (6) provides for the deduction to be allowed.

1543.     Section 192(3) of ICTA provides for a successful claim to be allowed "as a deduction in computing the amount of the emoluments"; but this clause provides for the claim to be allowed "as a deduction under this Chapter". See Change 93 in Annex 1.

 
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Prepared: 17 February 2003