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

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Clause 244: Cycles and cyclist's safety equipment

990.     This clause derives from section 197AC of ICTA. This prevents an employee being chargeable to income tax under section 154 in respect of the provision of a cycle or associated safety equipment. The part of section 197AC dealing with the provision of a voucher entitling the employee to use a cycle or safety equipment is covered in clause 266.

991.     The exception only applies where the employer provides the cycle or safety equipment for the employee's use rather than transferring it to him. If the cycle or equipment is given to the employee to keep, the benefit arising is still chargeable to tax in the normal way.

992.     The definition of "qualifying journey" in section 197AB(4) of ICTA has been taken to a new interpretative clause, clause 249, and in doing so has been extended by adopting the amendment to section 197AB made by section 33 of FA 2002.

993.     Section 197AC(6) of ICTA includes an interpretation of "employment". This has not been rewritten because the extension of the term to include "offices" is dealt with in clause 5.

Clause 245: Travelling and subsistence during public transport strikes

994.     This clause derives from ESC A58. It exempts payments and benefits in respect of travelling and subsistence when there is a disruption in public transport. Legislating the concession is a minor change to the law. See Change 47 in Annex 1.

995.     In the normal way when the employer pays the cost of, or provides transport for, "ordinary commuting" it would in most cases be chargeable to tax and no deduction would be allowed. Nor would deductions be allowed for accommodation and subsistence paid for or provided near to the permanent workplace. This clause provides an exemption for payments and benefits provided to employees to ensure they are able to get to work when there is a public transport strike.

996.     If the employee is working at a temporary workplace, or on a training course, the provision of transport, accommodation and subsistence is not exempt, but a deduction is allowed under Part 5.

Clause 246: Transport between work and home for disabled employees: general

997.     This and the following clause derive from ESC A59 and some practice as published in the Inland Revenue guidance manuals. Legislating the concession is a minor change to the law. See Change 48 in Annex 1.

998.     The clause provides a complete exemption from income tax where an employer provides help with home to work commuting for a disabled employee, except where a car is provided. No special mention of travelling to training is necessary because such travelling (except where it is in substance "ordinary commuting" eg when the training is held at the normal workplace) is exempt for everyone. Where that example involves a disabled employee this clause provides an exemption.

Clause 247: Provision of cars for disabled employees

999.     This clause also derives from ESC A59 and established Inland Revenue practice and concerns cases where a car is provided for a disabled employee. Legislating the concession and practice is a minor change to the law. See Change 48 in Annex 1.

Clause 248: Transport home: late night working and failure of car-sharing arrangements

1000.     This clause derives from ESC A66. It grants an exemption from income tax in the cases of exceptional late night working and the failure of car-sharing arrangements. Legislating the concession is a minor change to the law. See Change 49 in Annex 1.

1001.     The concession is limited to 60 occasions overall in the tax year. For each occasion after the sixtieth there is liability in the normal way.

1002.     The journeys concerned are from work to home only. The term "ordinary commuting" cannot be used as this would include journeys from home to work.

1003.     The conditions for the exemption require judgements about when it is "not..reasonable to expect" an employee to use public transport - subsection (2)(c)(ii), and what are "unforeseen and exceptional circumstances" in subsection (3)(b). It is not possible to define these questions of judgement further.

Clause 249: Interpretation of this Chapter

1004.     This clause brings together definitions which apply to several provisions in this Chapter. The definition of "qualifying journey" has been extended by the addition of the words "the whole or part of" as made by section 33 of FA 2002 in relation to section 197AB of ICTA (support for public transport bus services). Adopting this extended definition in clauses 242 and 244 is a minor change to the law. See Change 50 in Annex 1.

Chapter 4: Exemptions: education and training

Overview

1005.     This Chapter contains exemptions from income tax on the provision of education and training for an employee by employers and third parties. The clauses derive from sections 200B to 200D of ICTA (work-related training provided by employers etc), and from sections 200E to 200J of ICTA (education and training funded by employers etc).

1006.     The clauses first describe the provision and costs to which they apply. They then define the type of training or education with which they are concerned. Finally, they set out circumstances in which exemption from tax does not apply.

Clause 250: Exemption of work-related training provision

1007.     This clause provides there is no liability to income tax on the provision of work-related training for an employee by the employer or by a person other than the employer.

1008.     It derives from sections 200B (expenditure by the employer) and 200D (expenditure by a third party) of ICTA.

1009.     Although it is possible for an employee to be exempt from tax under both clause 250 and clause 311 (retraining courses), it is not necessary (as in section 200C(4) of ICTA) to exclude provision exempted elsewhere as exemption can be given under either. See Note 30 in Annex 2.

1010.     Subsection (1) sets out the exemption. It covers both the provision and the payment or reimbursement of the cost of provision of the training (and any benefit incidental to the training) plus specified related costs.

1011.     To accord with Inland Revenue practice, the exemption is expressed to cover training and training costs, whether provided or incurred by the employer or by a third party. See Change 52 in Annex 1.

1012.     The exemption is so expressed that no charge arises under Part 2, whether as general earnings or specific employment income, on the provision and costs of work-related training. This reflects Inland Revenue practice not to apply any employment income charge which might arguably apply (say, a specific employment income charge, such as Chapter 3 of Part 6 where the training relates to a change of duties). See Change 51 in Annex 1.

1013.     Subsection (2) specifies the ancillary costs within subsection (1)(b)(ii) to which the exemption applies. See Change 53 in Annex 1.

Clause 251: Meaning of "work-related training"

1014.     This clause defines "work-related training" for the purposes of the exemption. It derives from section 200B of ICTA.

1015.     The definition covers both the objectives of the training and the employment (or related employment) to which the benefit of that training must be relevant.

Clause 252: Exception for non-deductible travel expenses

1016.     This clause deals with travel and subsistence to which the exemption does not apply. It derives from section 200C of ICTA.

1017.     Subsection (1) sets out the conditions to be satisfied if travel and subsistence are not to be excepted from the exemption. Travel must meet condition A or B; subsistence must meet condition B.

1018.     The clause dispenses with a requirement that the expenses are incurred wholly, exclusively and necessarily in undertaking the training. Instead, as a result of cross-reference to other provisions in this Part and in Part 5, it simply requires amounts to be necessarily expended on travelling or subsistence. This accords with Inland Revenue practice and aligns the rules relating to travel and subsistence expenses in this clause with those in clauses 310 and 311 in Chapter 10 of this Part (exemptions: termination of employment). See Change 53 in Annex 1.

1019.     Subsections (2) and (3) set out conditions A and B respectively.

1020.     Travel and subsistence expenses meeting condition B include expenses which, on the assumptions in subsection (4), would be deductible under any provision of Part 5. Under ICTA, the expenses are restricted to expenses deductible only under selected clauses in that Part. See Change 54 in Annex 1.

1021.     This clause is listed in clause 332 (meaning of "the deductibility provisions"). Various provisions in Part 5 then ensure that certain rules in Part 5 do not adversely restrict expenses, deductible under that Part, for the purposes of condition B.

1022.     Subsection (4) sets out the assumptions to be made for the purposes of subsections (2) and (3).

1023.     Subsection (5) provides definitions for the purposes of the clause.

Clause 253: Exception where provision for excluded purposes

1024.     This clause deals with provision to which the exemption does not apply. It derives from section 200C of ICTA.

1025.     Subsection (1) disapplies the exemption to provision for excluded purposes.

1026.     Relief under section 32 Finance Act 1991 (vocational training) was repealed by Finance Act 1999, with effect from 1st September 2000 (SI 2000 No 2004, Finance Act 1999, section 59(3)(b), (Appointed Day) Order). As the exclusion of amounts eligible for vocational training relief from the exemption is obsolete, this Bill does not rewrite section 200C(5) of ICTA.

1027.     Subsections (2) to (4) list and define the excluded purposes.

Clause 254: Exception where unrelated assets are provided

1028.     This clause excepts provision of assets from the exemption, where the assets are not training-related. It derives from section 200C of ICTA.

1029.     Subsections (2) and (3) define "training-related asset" and "training materials".

1030.     The definition of "training materials" consists of an illustrative, rather than exhaustive, list to cater for future development in the means of delivering training without having to amend the list. See Note 31 in Annex 2.

Clause 255: Exemption for contributions to individual learning account training

1031.     This clause provides there is no liability to income tax, from a current or former employment, on the provision of, and payment or reimbursement of the costs of, individual learning account training given by a person other than the trainee's employer (or former employer).

1032.     It derives from sections 200E (education and training funded by employers) and 200J (education and training funded by third parties) of ICTA.

1033.     Although an employee may be exempt from tax under clause 255 and either or both of clauses 250 (work-related training) and 311 (retraining courses), provision exempted elsewhere need not be excluded (as in section 200H of ICTA), because exemption can be given under any of these. This Bill does not therefore rewrite section 200H. See Note 30 in Annex 2.

1034.     Subsection (1) sets out the exemption, which covers the provision of training by a training provider, funding of that training, incidental benefits of training and specified other costs paid or reimbursed.

1035.     To accord with Inland Revenue practice, the exemption is expressed to cover the provision, funding and benefit of individual learning account training, whether funded or provided by the employer (or former employer) or a third party. See Change 52 in Annex 1.

1036.     The exemption is so expressed that no charge arises under Part 2, whether as general earnings or specific employment income, on the funding and provision of individual learning account training. As with work-related training (clause 250), it is Inland Revenue practice not to apply any employment income charge which might arguably apply. See Change 55 in Annex 1.

1037.     Subsection (2) defines the trainees eligible for the exemption as account holders under the Learning and Skills Act 2000 and parties to arrangements under the Education and Training (Scotland) Act 2000.

1038.     Subsection (3) specifies the ancillary costs within subsection (1)(d) to which the exemption applies. See Change 53 in Annex 1.

Clause 256: Meaning of "individual learning account training"

1039.     This clause defines "individual learning account training" for the purposes of the exemption by reference to the Learning and Skills Act 2000 and the Education and Training (Scotland) Act 2000.

1040.     It derives from section 200E of ICTA.

Clause 257: Exception for non-deductible travel expenses

1041.     This clause deals with travel and subsistence to which the exemption does not apply. It derives from section 200F of ICTA.

1042.     Subsection (1) sets out the conditions to be satisfied if travel and subsistence are not to be excepted from the exemption. Travel must meet condition A or B; subsistence must meet condition B.

1043.     The clause dispenses with a requirement that the expenses are incurred wholly, exclusively and necessarily in undertaking the training. Instead, as a result of cross-reference to other provisions in this Part and in Part 5, it simply requires amounts to be necessarily expended on travelling or subsistence. This accords with Inland Revenue practice and aligns the rules relating to travel and subsistence expenses in this clause with those in clauses 310 and 311 in Chapter 10 of this Part (exemptions: termination of employment). See Change 53 in Annex 1.

1044.     Subsections (2) and (3) set out conditions A and B respectively.

1045.     Travel and subsistence expenses meeting condition B include expenses which, on the assumptions in subsection (4), would be deductible under any provision of Part 5. Under ICTA, the expenses are restricted to expenses deductible only under selected clauses in that Part. See Change 54 in Annex 1.

1046.     This clause is listed in clause 332 (meaning of "the deductibility provisions"). Various provisions in Part 5 then ensure that certain rules in Part 5 do not adversely restrict expenses, deductible under that Part, for the purposes of condition B.

1047.     Subsection (4) sets out the assumptions to be made for the purposes of subsections (2) and (3).

1048.     Subsection (5) provides definitions for the purposes of the clause.

Clause 258: Exception where provision for excluded purposes

1049.     This clause deals with provision to which the exemption does not apply. It derives from section 200F of ICTA.

1050.     Subsection (1) disapplies the exemption to provision for excluded purposes.

1051.     Subsections (2) and (3) list and define the excluded purposes.

Clause 259: Exception where unrelated assets are provided

1052.     This clause excepts provision of assets which are not training-related from the exemption. It derives from section 200F of ICTA.

1053.     Subsections (2) and (3) define "training-related asset" and "training materials" similarly to clause 254(2) and (3).

1054.     The definition of "training materials" again consists of an illustrative, rather than exhaustive, list to cater for future development in means of delivering training without having to amend the list. See Note 31 in Annex 2.

Clause 260: Exception where training not generally available to staff

1055.     This clause sets out the requirement that individual learning account training be generally available to an employer's staff or former staff. It derives from section 200G of ICTA.

1056.     Subsection (1) limits the exemption to funding and other costs incurred under "existing arrangements" which cover the making of contributions to such funding and other costs of individual learning account training for employees generally.

1057.     The clause extends contributions made to "existing arrangements" to contributions made by a third party as well as an employer (or former employer).

1058.     Subsection (2) defines "existing arrangements" so as to link the making of contributions to arrangements in place at the time the contributions are made, whether by the employer (or former employer) or by a third party. See Note 32 in Annex 2.

1059.     Subsections (3) to (5) authorise the Treasury to make regulations to determine the employer of Crown servants for the purposes of this clause.

Chapter 5: Exemptions: recreational benefits

Recreational facilities

1060.     The first three clauses in this Chapter deal with the exemption where an employer provides certain sporting or recreational facilities for employees. These clauses derive from section 197G of ICTA. The final two clauses cover annual parties and functions and third party entertainment, the first deriving from an ESC and the second from section 155(7) of ICTA.

1061.     The material in section 197G of ICTA has been reordered. The first clause sets out the benefits to which the exemption applies, and the conditions that must be met for the exemption to apply to those benefits and the second the benefits to which the exemption does not apply. The third clause notes how Treasury powers can apply or not apply these rules.

1062.     In these three clauses "facilities" in the plural has replaced "facility", used in section 197G(3)(c) to (f) and in the opening words to and in section 197G(4)(b) of ICTA, to denote that it is the tangible facilities which are meant and not the opportunity to use them.

Clause 261: Exemption of recreational benefits

1063.     Subsection (1) provides for the exemption from income tax. Subsection (2) makes it clear that both the use of the facilities and the right or opportunity to use them are within the exemption. The availability and use of the facilities must meet the conditions set out in subsections (3) to (5) for the benefit to be exempt.

1064.     The simplest case where this exemption can apply is that of a single employer. If all the conditions in subsections (3) to (5) are met, the exemption applies. In that case "the employer in question", (subsection (3)), is the single employer.

1065.     Two or more employers may provide facilities jointly. In such a case each employer is looked at separately. The condition in subsection (3) requires that the facilities must be available generally to the employees of that employer, the "employer in question". If one employer restricts the availability to certain employees, none of the employees of that employer can claim the exemption.

1066.     The use of the words "members of the public generally" in subsection (4), is to indicate that the exemption cannot apply to facilities available for public use, whether these are public facilities or in-house facilities made available to the "public generally". However, in-house facilities made available for use to a particular sector of "the public", meaning people other than employees, such as a local school allowed to have swimming lessons, does not prevent the exemption from applying, provided the condition in subsection (5) is met.

1067.     The test at subsection (5) looks at actual use of the facilities rather than the people to whom they are made available. There are several different things taken into account here. To simplify this, subsection (5) uses the expression "employment-related" and subsection (6) then defines what that means.

1068.     Under subsections (6) and (7), use by former employees and their families is included, provided the employer has made the facilities available generally to the employees.

1069.     The words in brackets in subsection (5) indicate that where there is provision for the employees of more than one employer, all users must be considered. If an employer has restricted use, so that the test at subsection (5) fails for that employer, it does not prevent the use test being satisfied for other employers. Provided the restricting employer has only small numbers actually using the facilities, the "mainly" test is satisfied. This can best be explained using an example.

1070.     Example. Suppose a facility is:

  • available to a few of A's employees; and

  • available to all of B's employees; but

  • not available to the public generally.

The exemption does not apply to A's employees because the condition in subsection (3) is not satisfied. Subsection (3) is satisfied for B's employees.

The opportunity to use the facilities may be employment-related for B's employees but not for A's. If B's employees who use the facilities substantially outnumber the employees of A, who use them, they will be used mainly by employees whose opportunity to use them is employment-related. The condition in subsection (5) is then satisfied for B's employees, and the exemption will apply for them.

1071.     An employer may provide a non-cash voucher, which the employee must present to use the facilities provided. If the facilities meet the conditions set out, and the voucher can only be used for that purpose, clause 266(3) provides that there is no liability to income tax on the cost of provision of the voucher.

Clause 262: Benefits not exempted by section 261

1072.     Subsection (1) sets out the benefits that are not within the exemption and subsection (2) explains some of the terms in subsection (1).

Clause 263: Power to alter benefits to which section 261 applies

1073.     This clause gives the Treasury the power to limit or extend the scope of the exemption. The administrative procedure is contained in section 828(3) of ICTA.

Clause 264: Annual parties and functions

1074.     This clause derives from, and gives statutory effect to, ESC A70B (Staff Christmas parties). That concession operates to exempt the employee from any income tax liability on specified office parties. See Change 56 in Annex 1. The clause covers office-holders as well as employees although the concession does not expressly do so. See clause 5(2).

1075.     Although the heading to the concession is "Staff Christmas Parties", the extension of the original concession to other parties indicates that it refers to annual functions in general. This is reflected in the less specific heading to this clause: "Annual parties and functions".

1076.     Subsection (1) provides that the section applies to functions available to employees generally. In accordance with how the ESC was understood, it is made clear that there is scope for parties to be held in different locations.

1077.     Subsections (2) to (5) show how the monetary limit is applied. Subsection (4)(b), read together with the whole section, makes it clear that the exemption effectively applies to persons attending as guests of the employees.

1078.     When an ESC contains monetary limits, changes in those limits are made by press release or by republishing the ESC with different amounts. This is not possible for legislation. There are a number of exemptions in current legislation for which the Treasury fixes an amount. This Bill adopts the same approach for rewritten concessions and includes a general power for the Treasury to increase the amounts in clause 716. This provision is listed there.

1079.     The equivalent exemption for the provision by way of a non-cash voucher (for example, a ticket for entry to a function is a voucher) is included in clause 266(3) rather than within this clause.

Clause 265: Third party entertainment

1080.     This clause derives from the exemption in section 155(7) of ICTA. If the provision of the benefit in this case is "by reason of the employment" it would be within the terms of clause 201 without the exemption in subsection (1).

1081.     The conditions in subsections (2) to (5) make it clear that the reason for the entertainment must be gratuitous, and not in any way a reward for past or future services, nor from anyone connected with the employer. If these conditions are not met, there is no exemption.

1082.     The exemption is expressed as there being "no liability to income tax". This is wider than section 155(7) of ICTA which is expressed as an exemption from section 154 of ICTA, the general charging provision for benefits in kind. See Change 57 in Annex 1.

1083.     If the provision of the entertainment is by way of a non-cash voucher or a credit-token, there are corresponding exemptions in clauses 266 and 267. In ICTA these exemptions are in sections 141(6B) and 142(3B).

 
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Prepared: 17 February 2003