Memorandum of evidence submitted by the
Tax Law Rewrite Project
1. This memorandum of evidence has been
prepared by the Tax Law Rewrite Project to assist the Joint Committee's
consideration of the Income Tax (Earnings and Pensions) Bill as
introduced in the House of Commons on 5 December 2002 (referred
to hereafter in this evidence as "the Bill" or "this
2. The memorandum is designed to embrace
information on all six bullet points mentioned in the Clerk's
letter of 17 December 2002 to the Director of the Project, Mr
Peter Michael, CBE.
1. There are a total of 183 minor changes
made in the Bill, as recorded in Annex 1 to the Explanatory Notes.
2. These changes fall into a number of categories:
(a) incorporating extra-statutory concessions
or published Statements of Practice or similar;
(b) making the legislation shorter, simpler,
clearer, more certain or more consistent with other legislation;
(c) correcting points overlooked in the course
of consolidation Acts, missed consequential amendments to earlier
legislation, or other technical defects;
(d) removing an anomaly which is patently
(e) making clear the intended and accepted
interpretation of legislation that is currently somewhat opaque;
(f) filling a gap in the legislation.
5. Some minor changes may be made for a
combination of the above reasons. Appendix 1 to this Memorandum
contains a list of the Changes grouped by reference to the main
reason for making them.
6. The Bill incorporates 20 extra-statutory
concessions, representing the majority of those that affect employment
income, pension income or social security income.
7. There are 12 other extra-statutory concessions
directly relevant to employment income, pension income or social
security income. Appendix 2 to this Memorandum lists those concessions
and explains why they are not included in the Bill.
8. Many of the changes have no practical
effect on the burden or incidence of tax on individual taxpayers.
For example, a miner receiving free coal currently exempt under
ESC A6 will pay no more tax just because that ESC is incorporated
in this Bill under clause 306.
9. Likewise, a gap in the current legislation
that this Bill fills in line with Inland Revenue practice will
not change anyone's tax liability.
10. At the end of each of the changes listed
in Annex 1 to the Explanatory Notes is a summary of the effect
of the change, both in principle and in practice.
11. None of the changes have any significant
effect on taxpayer's liabilities either in principle or in practice.
12. Included in Appendix 1 to the Memorandum
is a summary of the effect that each change will have in practice.
13. A number of clauses in this Bill have
been italicised to indicate that they incorporate a possible increase
in the burden of tax (and for this purpose the "in principle"
effect is considered as well as the effect in practice).
14. Appendix 3 to this memorandum contains
more detailed information about the possible increase in the burden
of tax in respect of each of the italicised provisions.
15. The core component of employment income
is earnings, currently known as "emoluments" in tax
16. The definition of "emoluments"
is currently in section 131(1) of ICTA (Income and Corporation
Taxes Act 1988) as follows:
"the expression emoluments shall include
all salaries, fees, wages, perquisites and profits whatsoever."
17. This wide definition means that most
employees receive "emoluments". Many employees do not
receive anything from their employment other than "emoluments".
18. In this Bill this core concept has been
made clearer in four main ways:
the rather antiquated term "emoluments"
is replaced with "earnings", a word which has more immediate
relevance to employees and employers;
the equally antiquated phrase "perquisites
and profits whatsoever" is replaced with "any gratuity
or other profit or incidental benefit of any kind obtained by
the definition of "earnings"
is given more prominence. It is defined in clause 62, right at
the beginning of Part 3 of the Bill, which deals with most of
the "incomings" from employment before consideration
of exemptions in Part 4 and deductions in Part 5;
the definition of "earnings"
is expanded to bring in a proviso from long-standing case law
that in order for a gratuity, profit or incidental benefit to
be "earnings" it must be money or money's worth. (See
Note 13 in Annex 2 to the Explanatory Notes).
19. There are many employees who would not
have to look any further than clause 62 to determine the extent
of their earnings for tax purposes.
20. For those employees who receive benefits
that are outside the clause 62 definition, the Benefits Code in
Chapters 2 to 11 of Part 3 sets out what, if anything should be
treated as earnings in respect of those benefits.
21. Clause 62 earnings and amounts treated
as earnings by the Benefits Code are added together to form "general
earnings" for the year. The extent to which those general
earnings are taxable in the year is determined by the rules in
Part 2 of the Bill.
The move away from Schedules and Cases
22. It is not just the status of the income
that is relevant in determining the charge to tax, but also the
residence and domicile of the employee (and in some cases the
location of the performance of duties and the residence of the
23. Currently, in the case of emoluments
and amounts treated as emoluments by the various provisions dealing
with benefits, these factors are applied by means of the three
Cases of Schedule E. For example, an employee who is resident,
ordinarily resident and domiciled in the UK is within Case I of
Schedule E. But the labels "Case I" and "Schedule
E" are meaningless to anyone other than a tax expert.
24. This Bill adopts a different approach.
Instead of "Schedule E" it uses phraseology that people
can more readily understand: employment income.
25. Instead of applying the Cases of Schedule
E, the Bill sets out, in Part 2, what tax treatment of general
earnings applies in the various sets of circumstances that may
26. About 98 per cent of employees subject
to UK tax are resident, ordinarily resident and domiciled in the
UKso this group of taxpayers (currently within Case I of
Schedule E) are covered first in Chapter 4: Taxable earnings:
rules applying to employee resident, ordinarily resident and domiciled
27. Chapter 5 sets out what tax treatment
applies if the employee is resident, ordinarily resident and/or
domiciled outside the UK, dealing with each permutation in turn
in descriptively headed clauses.
28. It is worth noting that the cases of
Schedule E only apply to emoluments and amounts treated as emoluments
("general earnings" in this Bill). There are other kinds
of employment income chargeable under Schedule E. The income subject
to these free-standing charges is described as specific employment
income in this Bill, enabling it to be distinguished from general
earnings. The basis of assessment and any residence etc tests
pertinent to specific employment income are contained in the relevant
Chapter in Part 6 or 7 setting out that charge.
29. The majority of employees have uncomplicated
tax affairsthis Bill makes it easy for them to see which
clauses are applicable to them.
Part 1 sets out how the Bill is arranged.
Part 2 explains how to work out the amount of
employment income charged to tax. The arrangement of Part 2 means
that most employees would not need to go beyond Chapter 4 of that
Part to work out their taxable earnings.
Part 3 sets out what is earnings or treated
as earnings. The arrangement of Part 3 means that many employees
would not need to look beyond clause 62 in Chapter 1.
Parts 4 and 5 deal with exemptions and deductions
respectively (and will not be relevant to many employees).
Parts 6 and 7 deal with specific employment
income (again not relevant to many employees).
30. Companies often wish to reward employees
by allowing them to acquire shares on advantageous terms; and
successive Governments have decided that they wish to confer tax
advantages on various schemes and plans. Five schemes or plans
exist at present, listed below in the order in which they were
Approved profit sharing schemes.
Legislation relating to these schemes was contained in FA 1978.
These schemes are now being phased out, and they are not included
in this Bill or discussed further in this evidence.
Approved save as you earn ("SAYE")
option schemes. Legislation relating to these schemes was contained
in FA 1980, and later consolidated in sections 185 and 187 of,
and Schedule 9 to, ICTA.
Approved company share option plans
("CSOPs"). Legislation relating to these plans was contained
in FA 1984, and later consolidated in sections 185 and 187 of,
and Schedule 9 to, ICTA.
Approved share incentive plans ("SIPs").
Legislation relating to these plans is contained in Schedule 8
to FA 2000 under the name "Employee share ownership plans".
Enterprise management incentives
("EMI"). Legislation relating to EMIs is contained in
Schedule 14 to FA 2000.
31. Legislation to confer tax advantages
on a scheme, needs to cover a number of topics:
the characteristics that the scheme
if the scheme requires approval,
the procedure to be undertaken;
the tax advantages to be conferred
on the scheme;
any tax charges that will apply if
the shares or options are removed from the scheme or plan (or
other "inappropriate" actions are undertaken); and
any supplementary provisions.
32. The current legislation does not deal
with these topics consistently. In the cases of SAYE option schemes
and CSOPs, some provisions are in sections of ICTA; the remainder
are in Schedule 9 to that Act. ICTA also amalgamates the provisions
relating to the two different schemes. From time to time the legislation
needs to distinguish between the two schemes, and this need affects
the way in which provisions are organised. The legislation relating
to SIPs and EMI is set out, in its entirety, in two Schedules
to FA 2000; but those Schedules also deal with matters outside
the scope of this Bill: for there is also material relating to
corporation tax, capital gains tax and stamp duty.
33. This Bill brings the treatment of the
four schemes into better alignment. Each scheme is dealt with
separately (and, as a result, ICTA's amalgamation of the provisions
relating to SAYE option schemes and CSOPs has been reversed).
The rewritten legislation deals with comparable material in the
same order. In each case some provisions have been placed in an
individual Chapter in Part 7 of the Bill, and others in a Schedule
dealing with different aspects of the scheme.
34. In this Bill :
SIPs are covered in Chapter 6 of
Part 7 and Schedule 2.
SAYE option schemes are covered in
Chapter 7 of Part 7 and Schedule 3.
CSOPs are covered in Chapter 8 of
Part 7 and Schedule 4.
EMI is covered in Chapter 8 of Part
7 and Schedule 5.
35. The Chapters in Part 7 deal with the
topics that affect the employee directly. After introductory clauses,
the Chapters set out the tax advantages conferred on participants
in the scheme. Those advantages are dealt with in a coherent order
with, for example in SIPs, the tax advantages relating to the
award of shares being followed by those relating to the holding
of shares and then by those relating to shares that cease to be
subject to the scheme. As necessary, the provisions relating to
tax advantages are then followed by provisions setting out the
tax charges that may arise. Those charges are also dealt with
in a coherent order. Chapter 6 of Part 7 (dealing with SIPs) also
contains clauses dealing with the impact of PAYE; and, where appropriate,
the Chapters in Part 7 conclude by indicating other provisions
in tax law that may be relevant.
36. Schedules 2 to 5 to the Bill deal with
the other matters listed in paragraph Legislation to confer tax
advantages on a scheme, needs to cover a number of topics:. These
matters do not concern the employee directly: the detail in these
Schedules may well be of more interest to those setting up and
administering schemes, and to their professional advisers. All
four Schedules are divided into Parts, of which the first is introductory.
The first major topic dealt withsometimes, of necessity,
at considerable lengthis the required characteristics for
the scheme in question. Within this topic, comparable material
continues to be dealt with in the same general order. General
requirements are dealt with first, followed by requirements relating
to the eligibility of individuals to participate in the scheme,
and then (in the cases of Schedules 2 to 4) by requirements relating
to the shares that may be acquired by the individual. The requirements
that apply only to the scheme in question are dealt with later.
The second major topic dealt with (as necessary) is the procedure
to be undertaken if the scheme requires approval; and the third
major topic dealt with (in the final Part of each Schedule) consists
of supplementary provisions.
37. This Bill includes making a certain
number of minor changes to the law designed to bring the rewritten
legislation relating to share schemes into better alignment. For
example, the restrictions to which scheme shares may be subject
have been amended, in the cases of SAYE option schemes and CSOPs,
so that they are now aligned with those applying for SIPs (see
Change 168 in Annex 1); and the approval procedure relating to
SIPs has been amended to bring it into alignment with that applying
for SAYE option schemes and CSOPs (see Change 164 in Annex 1).
38. Various drafting techniques have also
been used to achieve better alignment across the share scheme
provisions. There is, for example, an "Index of defined expressions"
at the end of each Schedulea feature used in the provisions
currently applying for SIPs and EMI and replicated in this Bill
for SAYE and CSOPs too. And the legislation relating to each scheme
is described as a "code", a term suggested by the term
"benefits code" in clause 63 of the Bill.
39. The use of the terms "SIP code"
and "EMI code" is helpful for dealing with those provisions
in Schedules 8 and 14 to FA 2000 that do not fall within the scope
of this Billbecause they are relevant for corporation tax,
capital gains tax or stamp duty. Schedule 6 to the Bill (Consequential
amendments) provides for this material to be placed elsewherein
ICTA, TCGA 1992 and in FA 2001. The use of the two terms enables
the "repositioned" material to be linked with the relevant
material in this Bill, so that expressions used in the relevant
code also apply to the "repositioned" material.
40. This reorganisation and redrafting of
the material relating to share schemes and share option schemes
has been developed in consultation with share scheme practitioners,
who confirm that the provisions are indeed clearer and easier
to understand. The Share Schemes Lawyers group are on record as
"The Share Scheme Lawyers Group has had
a most constructive series of meetings with the TLR project team.
As far as the share scheme legislation is concerned, we believe
that the objectives of the rewrite project have been very substantially
accomplished. The new text is clearer, more logically ordered
and more user friendly while preserving the effect of the present
legislation apart from minor policy changes (some of which we
proposed and all of which we welcome)."
41. Before 1948 benefits in kind were only
taxable if they fell within the definition of "emoluments",
as interpreted by case law to mean money or money's worth.
42. Finance Act 1948 saw the first charge
based on the cost of other provided benefits and since then there
have been various piecemeal additions to the body of tax legislation
to bring various types of benefit within the charge to tax.
43. All of the charging provisions for the
various benefits work by treating an amount as if it were an emolument.
Various forms of words are used to achieve this:
"treated as an emolument and
accordingly chargeable to income tax under Schedule E"Chapter
2 of Part 5 of ICTA;
"treated as having received
an emolument"sections 141 and 142 of ICTA; and
"treated for the purposes of
Schedule E as being in receipt of an emolument"sections
145 and 146 of ICTA.
44. Many, but not all, of the charging provisions
are contained in Chapter 2 of Part 5 of ICTA, which applies to
directors and employees earning £8,500 a year or more. The
other charging provisions apply to all employees, irrespective
of rate of earnings.
45. As there are now only a minority of
employees earning less than £8,500 a year, it seemed sensible
to draw together all the provisions charging benefits to tax into
a coherent code. A short chapter at the end of that code excludes
employees who are lower paid (those earning less than £8,500
a year) who are not directors from those provisions deriving from
Chapter 2 of Part 5 of ICTA.
46. Appendix 4 to this Memorandum shows
how the previous scattering of provisions has been reorganised
into a structured Benefits Code in this Bill.
47. Appendix 5 to this Memorandum contains
examples of the way in which various provisions look "before
and after" the rewrite.
48. The first two examples, looking at the
rewrite of sections 166 and 199 of ICTA, demonstrate how the rewrite
has tackled long sentences containing densely packed concepts.
49. The third example is the rewrite of
section 195 of ICTA. This shows how one lengthy section with 13
subsections has been divided into three sections, each with fewer
subsections; and the position of the employee is now dealt with
separately from that of the employee's spouse and children (in
clauses 373 and 374 respectively). As a result of the restructuring
of the deductions provisions in Part 5 of the Bill, section 195(11)
needs no direct successor, and the proposition in section 195(12)
has been brought within the wider ambit of clause 330(1).
50. The fourth example shows how material
from various sections in ICTA has been drawn together to form
clause 125 in the Bill.
|Change in actual effect on taxpayers
||More tax?||Less tax?
|Changes incorporating extra-statutory concessions or published Statements of Practice or similar
|Change 4||Taxable earnings: exception from tax on general earnings from overseas Crown employment subject to United Kingdom tax: clause 28
|Change 19||Taxable benefits: non-cash vouchers: reduction for meal vouchers: clause 89
|Change 22||Taxable benefits: living accommodation: cash equivalent where accommodation provided to more than one employee: clause 108
|Change 27||Taxable benefits: cars and car fuel: concession where car available to family members or car is shared: clauses 148, 153 and 169
|Change 29||Taxable benefits: loans: exception for advances for necessary expenses: clauses 179 and 716(2)(a)
|Change 47||Exemptions: travelling and subsistence during public transport strikes: clauses 245, 266 and 267
|Change 48||Exemptions: transport between work and home for disabled employees: clauses 246, 247, 266 and 267
|Change 49||Exemptions: transport home, late night working and failure of car-sharing arrangements: clauses 248, 266 and 267
|Change 56||Exemptions: annual parties and functions: clauses 264, 266 and 716(2)(c)
|Change 58||Exemptions: non-cash vouchers for free or subsidised meals: clause 266
|Change 59||Exemptions: small gifts from third parties: clauses 270, 324 and 716(2)(g)
|Change 67||Exemptions: daily subsistence allowances paid to experts seconded to the European Commission: clause 304
|Change 68||Exemptions: offshore oil and gas workers: mainland transfers: clause 305
|Change 69||Exemptions: miners' and former miners' coal and allowances in lieu of coal: clauses 306 and 646
|Change 70||Exemptions: death or retirement benefits provision: clause 307
|Change 77||Exemptions: free or subsidised meals: clause 317
|Change 78||Exemptions: suggestion awards: clauses 321, 322 and 716(2)(e)
|Change 79||Exemptions: long service awards: clauses 323 and 716(2)(f)
|Change 80||Exemptions: expenses incidental to a transfer of a kind not normally met by the transferor: clause 326
|Change 84||Deduction for professional membership fees: meaning of "professional fee": clause 343(2)
|Change 100||Fixed sum deductions for repairing and maintaining work equipment: clause 367
|Change 108||Payments and benefits on termination of employment etc.: exception for contributions to tax-exempt pension schemes: clause 408
|Change 121||Share-related income: share options: exception where share option exercised, assigned or released by certain people after the death of the person to whom it was granted: clause 477(4)
|Change 141||Pension income: exemptions: wounds and disability pensions: clause 641(1)
|Change 142||Pension income: exemptions: disablement pensions: clause 644
|Change 146||Social security income: foreign benefits: exemptions: clause 681
|Change 173||Share-related income: SAYE option schemes and CSOP schemes: jointly owned companies: paragraph 46 of Schedule 3 and paragraph 34 of Schedule 4
|Changes making the legislation shorter, simpler, clearer, more certain or more consistent with other legislation
|Change 1||Taxable earnings: time when general earnings are received: clauses 18 and 31
|Change 2||Taxable earnings: time when non-money earnings are received: clauses 19 and 32
|Change 5||Taxable earnings: relief for delayed remittances: remittances in respect of which a claim may be made and conditions for granting relief: clause 35(1) and (2)
|Change 7||Taxable earnings: election in respect of delayed remittances: election regarding allocation of income to earlier tax years: clause 36
|Change 9||Appeal against Board's decision on domicile or ordinary residence: introduction of a straightforward appeal procedure: clause 43(1)
|Change 16||Taxable benefits: dispensations: changes in procedure to reflect existing practice: clauses 65 and 96
|Change 26||Taxable benefits: cars: reduction of cash equivalent where car capable of running on road fuel gas: clause 146(2)
|Change 28||Replacement of references to 365 days with references to the number of days in the year in order to cover leap years: clauses 152(4), 158(3), 163(1) and 183(3)
|Change 32||Taxable benefits: loans: extension of time limit for giving notice of the application of the alternative method of calculating interest: clause 183(2)
|Change 40||Taxable benefits: residual liability to charge: scholarships: cost of benefit: clause 214
|Change 41||Exemption of modest private use of heavy goods vehicles: widening of exemption: clause 238(1)
|Change 42||Exemption of expenses payments connected with taxable cars and vans and heavy goods vehicles: widening of exemption: clause 239(2)
|Change 44||Exemptions: incidental overnight expenses: deductibility of expenses: clause 240
|Change 45||Exemptions: works transport services: widening of exemption: clause 242(1)
|Change 46||Exemptions: support for public bus services: widening of exemption: clause 243(1)
|Change 50||Exemptions: transport, travel and subsistence: definition of qualifying journey: clause 249
|Change 51||Exemptions: work-related training: widening of exemption: clause 250(1)
|Change 52||Exemptions: work-related training and contributions to individual learning account training provided by third parties: clauses 250(1) and 255(1)
|Change 53||Exemptions: work-related training and individual learning account training: incidental expenses: clauses 250(2)(a) and 255(3)(a)
|Change 54||Exemptions: work-related training and individual learning account training: travelling and subsistence expenses: clauses 252(3) and 257(3)
|Change 55||Exemptions: contributions to individual learning account training: widening of exemption: clause 255(1)
|Change 57||Exemptions: third party entertainment: widening of exemption: clause 265(1)
|Change 61||Exemption of removal benefits: benefits and expenses relating to loans on disposal of residences: clauses 279(5) and 284(2)(b)
|Change 65||Exemption of removal benefits: replacement of domestic goods: deduction of sale proceeds: clause 285
|Change 71||Exemptions: counselling and other outplacement services and retraining courses: clauses 310 and 311 and Part 1 of Schedule 6
|Change 72||Exemptions: counselling and other outplacement services and retraining courses: clauses 310 and 311 and Part 1 of Schedule 6
|Change 73||Exemptions: counselling and other outplacement services and retraining courses: deductibility of travel expenses: clauses 310 and 311
|Change 74||Exemptions: retraining courses: undertaking courses with a view to retraining: clause 311 and Part 1 of Schedule 6
|Change 81||Deductions for employee's expenses: requirement for payment out of the emoluments of the employment: clause 329 and Chapters 2 to 6 of Part 5 generally
|Change 82||Fixed sum deductions: prevention of double deductions: clauses 330 and 367
|Change 83||Deductions for employee's expenses: deductions operating through section 198(1) of ICTA: clauses 340 to 342
|Change 85||Deduction for professional membership fees: new power for Board to extend "professional fee": clauses 343(3) and (4) and 717
|Change 86||Deduction for annual subscriptions: approval of bodies for purpose of receiving subscriptions: notice of decision by Inland Revenue: clause 344(4)
|Change 88||Decisions of the Inland Revenue in relation to approval of bodies: clause 345(1)
|Change 89||Decisions of the Inland Revenue in relation to approval of bodies: appeals to the Special Commissioners: clause 345(2)
|Change 90||Deduction of expenses of ministers of religion: clause 351 and paragraph 47 of Schedule 6
|Change 91||Deduction of expenses of ministers of religion: determination of deduction for rent by inspectors: clause 351(2)
|Change 92||Deductions: agency fees paid by entertainers: application of limit of 17.5% of earnings: clause 352
|Change 93||Deductions for corresponding payments by non-domiciled employees with foreign employers: clause 355
|Change 97||Deductions: disallowance of certain accommodation expenses of MPs and other representatives: clause 360
|Change 98||Deductions from benefits code emoluments: limit on amount of deductions: clauses 362 to 365
|Change 99||Deductions from benefits code emoluments: references to deductibility under specific provisions: clauses 362 to 365
|Change 101||Deductions for emoluments representing benefits or reimbursed expenses: clause 369 and Chapter 5 of Part 5 generally
|Change 102||Deductions for travel benefits and expenses of non-domiciled employees where duties performed in UK: 5 year limit: clauses 373(3) and 374(3)
|Change 103||Deductions from seafarers' earnings: taking account of other deductions: clause 381
|Change 106||Benefits from non-approved pension schemes: certain lump sums: reduction of amount which counts as employment income: clause 397
|Change 110||Payments and benefits on termination of employment etc: valuation of benefits: application of benefits code rules: clause 415
|Change 111||Share-related income: extending the time limits for the supply of particulars: clauses 432(3), 433(3), 445(3) and 466(3)
|Change 112||Share-related income: convertible shares: amount of charge: "event" to include the expiry of a period: clause 439(7)
|Change 119||Share-related income: share options: value of longer-term option for purposes of liability to tax in respect of receipt: clause 475(2)
|Change 124||Share-related income: share options: requiring an apportionment of consideration to be reasonable as well as just: clause 484(2)
|Change 130||Share-related income: the EMI code: disqualifying events relating to employee: clause 535
|Change 132||Share-related exemptions: priority share allocations: definitions of "director" and "shares": clause 548
|Change 136||Marine pilots' benefit fund: unauthorised payments: clause 587
|Change 138||Other employment-related annuities: income chargeable: foreign annuities: clause 613
|Change 139||Pension income: return of surplus employee additional voluntary contributions: clause 623
|Change 140||Pension income: exemption for certain lump sums: clause 637
|Change 144||United Kingdom social security income: exemptions: income support: taxable maximum: basis of calculation: clause 668
|Change 145||Social security income: foreign benefits: introduction of charge to tax: clause 678
|Change 147||PAYE: power to make different provision for different cases or classes of case and incidental, consequential, supplementary and transitional provision: clause 684(2)
|Change 150||PAYE: inclusion in the Bill of provision relating to organised arrangements for sharing tips made by subordinate legislation: clause 692
|Change 154||Donations to charity: payroll deduction scheme: operation of deduction from payments of PAYE income: clause 713(3), (4), and (5); Schedule 6, paragraphs 72 and 73
|Change 155||Donations to charity: payroll deduction scheme: meaning of "approved agent": clause 714(2)
|Change 156||Donations to charity: approval of payroll deduction schemes: regulation by the Treasury: clause 715(3)
|Change 158||References to "the Inland Revenue": clause 720
|Change 159||Definition of "personal representatives" and replacement of the expression "executors or administrators" with "personal representatives": clause 721
|Change 163||Share-related income: share incentive plans: duration of accumulation periods: paragraph 51 of Schedule 2
|Change 164||Share-related income: share incentive plans: approval procedure: paragraph 81 of Schedule 2
|Change 165||Share-related income: share incentive plans: effect of plan termination notice: paragraph 90 of Schedule 2
|Change 166||Share-related income: SAYE option schemes: all-employee nature of schemes: paragraph 6 of Schedule 3
|Change 167||Share-related income: SAYE option schemes and CSOP schemes: disregarding of interests in SIPs: paragraph 13 of Schedule 3 and paragraph 11 of Schedule 4
|Change 168||Share-related income: SAYE option schemes and CSOP schemes: restrictions to which scheme shares may be subject: paragraph 21 of Schedule 3 and paragraph 19 of Schedule 4
|Change 170||Share-related income: SAYE option schemes and CSOP schemes: notice to be given by Inland Revenue of decision to grant, refuse or withdraw approval of scheme etc: paragraphs 40, 42 and 43 of Schedule 3 and paragraphs 28, 30 and 31 of Schedule 4
|Change 171||Share-related income: SAYE option schemes and CSOP schemes: appeals against decisions by Inland Revenue to grant, refuse or withdraw approval of schemes: paragraphs 41 and 44 of Schedule 3 and paragraphs 29 and 32 of Schedule 4
|Change 172||Share-related income: SAYE option schemes and CSOP schemes: information to be given to Inland Revenue: paragraph 45 of Schedule 3 and paragraph 33 of Schedule 4
|Change 176||Share-related income: the EMI code: "eligible employees": paragraph 26 of Schedule 5
|Change 178||Share-related income: the EMI code: notices following notification of option: paragraphs 45 and 46 of Schedule 5
|Change 179||Share-related income: the EMI code: information to be given to Inland Revenue: paragraph 51 of Schedule 5
|Change 180||Share-related income: the EMI code: amendment of monetary limits: paragraph 54 of Schedule 5
|Change 181||Relief from tax on annual payments under certain insurance policies: section 580A(7) of ICTA: paragraph 65 of Schedule 6
|Change 182||Deductible payments: combined claims: paragraph 217 of Schedule 6
|Changes correcting points overlooked in the course of consolidation Acts, missed consequential amendments to earlier legislation, or other technical defects
|Change 6||Taxable earnings: relief for delayed remittances: replacement of references to income "arising" with references to income "received": clause 35(2) and (4)
|Change 23||Taxable benefits: living accommodation and residual liability to charge: calculation of annual values: clauses 110 and 207
|Change 24||Taxable benefits: living accommodation and residual liability to charge: meaning of "all usual tenant's rates and taxes": clauses 110 and 207
|Change 75||Exemptions: living accommodation: exemption where rates etc. discharged for employee: clause 314
|Change 95||Deduction of business entertainment and gifts expenses: exception where employer's expenses disallowed: tonnage tax companies: clause 357(4)
|Change 109||Payments and benefits on termination of employment etc: reduction in cases of foreign service: clause 414
|Change 113||Share-related income: post-acquisition benefits from shares: amount of charge where increase in value of shares of dependent subsidiaries: clause 455
|Change 114||Shares: post-acquisition benefits from shares: deemed acquisitions by director or employee: clauses 457 and 463
|Change 115||Share-related income: post-acquisition benefits from shares: restriction of liability to tax on special benefits from shares: clause 460
|Change 117||Share-related income: post-acquisition benefits from shares: meaning of "interest in shares": clause 470
|Change 125||Share-related income: share options: correcting consolidation error in section 136(2)(b) of ICTA: clause 485(5)(b) and corresponding provisions
|Change 161||Share-related income: share incentive plans: information to be given about performance targets and measures: paragraph 40 of Schedule 2
|Change 162||Share-related income: share incentive plans: authorisation of deductions from salary under partnership share agreements: paragraph 44 of Schedule 2
|Change 175||Share-related income: the EMI code: "qualifying trade" (leasing of ships): paragraph 18 of Schedule 5
|Change 177||Share-related income: the EMI code: further requirements to be met as to replacement option: paragraphs 41 and 43 of Schedule 5
|Change 183||PAYE: paragraph 10 of Schedule 2 to the Tax Credits Act 1999: paragraph 241 of Schedule 6
|Changes removing an anomaly which is patently unfair
|Change 3||Taxable earnings: deductions to be made in calculating "chargeable overseas earnings": clauses 23 and 24
|Change 12||Intermediaries: widening of the category of associated companies to which paragraph 3(2) of Schedule 12 to FA 2000 applies: clause 51(2)
|Change 15||Taxable benefits: relationship between earnings and benefits code: clause 64
|Change 18||Taxable benefits: vouchers and credit-tokens: exceptions where voucher or token provided for personal reasons or is of a kind made available to the public generally: clauses 73(2), 78, 82(2), 85, 90(2) and 93
|Change 20||Taxable benefits: vouchers and credit-tokens: extension of disregard for money, goods or services obtained: clause 95
|Change 21||Taxable benefits: living accommodation: special rule for calculating cost of providing accommodation: clause 107
|Change 25||Taxable benefits: cars: modification of provisions where car temporarily replaced: clause 145(2)
|Change 30||Taxable benefits: loans: exception for loans totalling not more than £5,000: clause 180
|Change 34||Taxable benefits: loans: prevention of double charge under section 421 of ICTA where loan released or written off: clause 189(1)(b)
|Change 35||Taxable benefits: loans: relief where released or written off loan is subsequently repaid: clause 191(3)
|Change 36||Taxable benefits: notional loans in respect of acquisitions of shares: taking account of advance payments for shares: clauses 193(1)(a) and (b) and 194(2)(a)
|Change 37||Taxable benefits: notional loans in respect of acquisitions of shares: listing the provisions of Chapter 7 of Part 3 which apply to notional loans: clause193(4)
|Change 38||Taxable benefits: notional loans in respect of acquisitions of shares: relationship with liability to tax in respect of exercise of share option: clauses 194(2)(c) and 196
|Change 39||Taxable benefits: residual liability to charge: scholarships provided under arrangements entered into by the employer or a connected person if the employer is an individual: clause 212
|Change 43||Exemption where payments and benefits provided to the lower paid in connection with heavy goods vehicles: clauses 239(8) and 269(4)(b)
|Change 60||Exemption of removal benefits and expenses: vouchers and credit-tokens: clauses 272 and 287
|Change 63||Exemption of removal benefits: exclusion where car and van benefits otherwise taxable: clause 283
|Change 66||Exemption of removal benefits and expenses: limit on exemption: clause 287
|Change 76||Exemptions: living accommodation: limit on charge to tax on connected expenses: clause 315
|Change 94||Deduction of business entertainment and gifts expenses: restriction of disallowance to expenses connected with employer's trade: clause 356(1)
|Change 96||Deduction of business gifts expenses: exception for advertisements of the donor: other companies in employer's group: clauses 358(3) and (4) and 716(2)(h)
|Change 104||Payments to non-approved pension schemes: relief where no benefits paid or payable: clauses 386(6) and 392(1) and (3)
|Change 105||Payments to non-approved pension schemes: exception for seafarers with overseas earnings: clause 391
|Change 118||Share-related income: share options: application of rule about the employment by reason of which a share option was granted to the charge in clause 477: clause 473(1)
|Change 123||Share-related income: share options: deductions for the amount of the liability to tax in respect of the receipt of the share option: clause 478(2) and (3)
|Change 151||PAYE (gains from share options): limit on the amount of the consideration that is to be treated as a payment of PAYE income: clause 700
|Change 160||Share related income: share incentive plans: restriction on participating in both share incentive plan and approved profit sharing scheme in a tax year: paragraph 18 of Schedule 2
|Changes making clear the intended and accepted interpretation of legislation that is currently somewhat opaque
|Change 10||Application of provisions to agency workers: treatment of services under agency contract: clause 44(2)
|Change 11||Application of provisions to agency workers: arrangements with agencies: clause 45
|Change 17||Taxable benefits: expenses payments: clause 70
|Change 87||Deduction for annual subscriptions: approval of bodies for purpose of receiving subscriptions: timing of deduction: clause 344(7)
|Change 107||Payments and benefits on termination of employment etc: meaning of benefit: clause 402(4)
|Change 116||Share-related income: post-acquisition benefits from shares: duty to provide information: clause 465
|Change 120||Share-related income: share options: value of longer-term option to acquire convertible shares: clause 475(2)
|Change 122||Share-related income: share options: amount of charge to tax under Case VI of Schedule D: clause 477(6)
|Change 126||Share-related income: share incentive plans : no charge on increase in value of shares of dependent subsidiary: clause 495
|Change 128||Share-related income: share incentive plans: identification of shares ceasing to be subject to plan: clause 508
|Change 129||Share-related income: SAYE option schemes and CSOP schemes: no charge in respect of exercise of options: clauses 519 and 524
|Change 131||Share-related income: the EMI code: no charge on acquisition of shares as a taxable benefit: clause 540
|Change 134||Former employees: deductions for liabilities: start of period during which payment must be made to be deductible from total income: clause 556(1)
|Change 143||United Kingdom social security income: incapacity benefit taxable: clause 660
|Change 148||PAYE: directions as to income of non-resident or not ordinarily resident employees to apply only to income paid by or on behalf of the employer: clause 690
|Change 149||PAYE: scope of power to give directions as to income of non-resident or not ordinarily resident employees and applications for such directions: clause 690
|Change 152||PAYE (gains from share options): cases where the consideration for an assignment or release of a share option is a readily convertible asset in the form of a voucher or credit-token: clause 700
|Changes filling a gap in the legislation
|Change 8||Board to determine disputes as to domicile or ordinary residence: widening of the availability of the procedure: clause 42(3)
|Change 13||Intermediaries: treating all relevant engagements as the duties of a continuous employment: clause 54(6)
|Change 14||Intermediaries: normal timing rules to apply for determining when a non-cash benefit is to be treated as received: clause 55(5)
|Change 31||Taxable benefits: loans: method of calculating the amount of interest payable at the official rate: clauses 182 and 183(1)
|Change 33||Taxable benefits: loans: method of calculating the cash equivalent of the benefit of a loan which is replaced: clause 186(3)
|Change 62||Exemption of removal benefits: travelling and subsistence costs of relevant children where employee in temporary accommodation: clause 281
|Change 64||Exemption of removal benefits: bridging loan expenses: interest partially exempt: clause 284(4) and (5)
|Change 127||Share-related income: share incentive plans: no charge in respect of incidental expenditure: clause 499
|Change 133||Share-related income: employee benefit trusts: "qualifying disposals": clause 551
|Change 135||Pension income and social security income: person chargeable: clauses 572, 579, 582, 592, 597, 600, 618, 622, 636 and 662
|Change 137||Approved personal pension schemes: annuities: income chargeable: clause 596
|Change 153||PAYE: tax accounted for under PAYE on a notional payment to be credited to the employee in respect of his liability to income tax: clause 710
|Change 157||Control: application of the definition in section 840 of ICTA for the purposes of paragraphs 3(2) and (4) and 19(3) of Schedule 12 to FA 2000: clause 719
|Change 169||Share-related income: SAYE option schemes and CSOP schemes: price for acquisition of shares: paragraph 28 of Schedule 3 and paragraph 22 of Schedule 4
|Change 174||Share-related income: the EMI code: meaning of "qualifying subsidiary": paragraph 11 of Schedule 5
|1 Affects the time when income is taken into account for tax purposes
|2 Affects only administrative procedures relating to tax
1. Many concessions are made to deal with minor or transitory
anomalies under the legislation. Others meet cases of hardship
at the margins of the tax code for which a legislative remedy
would be difficult to devise or would run to a length out of proportion
to the intrinsic importance of the matter. The Bill does not therefore
include concessions which are obsolete or have very limited application.
It also does not include concessions which are too complicated
to legislate, either because of complexity within the concession
itself or because of difficulties in fitting various strands of
the concession into the legislation in a coherent manner.
2. The ESCs omitted on grounds of complexity are:
A4Travelling expenses of directors and
employees earning £8,500 a year or more.
A10Lump sums from overseas pension schemes.
A37Tax treatment of directors' fees received
by partnerships and other companies.
A61Clergymen's heating and lighting, etc
A68Payments out of a discretionary trust
which are emoluments taxable under Schedule E.
A81Termination payments and legal costs.
3. The ESCs omitted because they are obsolescent or of
very limited application are:
A44Education allowances under Overseas
Service Aid Scheme.
A49Widow's pension paid to widow of Singapore
nationality, resident in the United Kingdom, whose husband was
a United Kingdom national employed as a Public Officer by the
Government of Singapore.
A60Agricultural workers' board and lodging.
4. Other ESCs omitted are:
A40Adoption allowances payable under The
Adoption Allowance Regulations 1991 and Section 51, Adoption (Scotland)
As the allowances are sometimes paid by adoption agencies
(rather than by local or central government), this Bill is not
the right place to rewrite the concession. The Inland Revenue
view is that the allowances are chargeable to tax (if at all)
as "annual payments", under Schedule D Case III. So
the better place for the exemption seems to be the Exempt Income
Part of next rewrite Bill.
A55Arrears of foreign pension:
This cannot be rewritten until the main Schedule D Case
V rules are rewritten. This will be done in the next rewrite Bill.
A56Benefits in kind: the tax treatment
of accommodation in Scotland provided for employees.
A91(b)Living accommodation provided by
reason of employment.
These concessions both hang from the Inland Revenue practice
of taking the gross rateable value of provided living accommodation
as a proxy for the annual value in computing the cash equivalent
of the benefit of that accommodation. Since the General Rate Act
1967 was repealed in 1988, the concept of gross rateable value
does not have any statutory definition and so is a term that cannot
be incorporated in this Bill.
1. As explained in paragraph 13 of this memorandum, a
number of clauses in this Bill have been italicised to indicate
that they incorporate a possible increase in the burden of tax
(and for this purpose the "in principle" effect is considered
as well as the effect in practice).
2. In many cases the italicisation of a provision represents
a theoretical increase in the burden of tax rather than a real
possibility. In others the increase is likely to occur only in
isolated instances. None of the provisions in this Bill would
increase the tax burden on any individual by any significant amount,
nor would any of the provisions apply to increase the tax burden
of all employees.
3. The following table summarises the changes (using
the numbers from Annex 1 to the Explanatory Notes) that have led
to provisions being italicised (wholly or in part) in the Bill,
with a brief description of the likely impact of the change.
|Change No||Clauses italicised
||Likely impact of change|
|1||18, 31||Time when general earnings are received: this change will only change the time when an amount is treated as being received in the case of a cash benefit that is|
chargeable under Chapter 10 of the benefits code rather than under clause 62; and
credited to a director's account with the company before the director becomes entitled to payment.
Cash benefits chargeable under Chapter 10 are likely to be very rare (most cash payments are chargeable under clause 62 or Chapter 2 of the benefits code). It is very unlikely (although possible) that such a cash benefit would to be credited to a director's account in advance of entitlement.
If this combination of circumstances did arise, it would change the time when the cash benefit is brought into account. If it moved it from one tax year to another, in a minority of cases a different (higher or lower) rate of tax might be applied as a result.
Any overall tax effect would be both rare and negligible.
|6||35||Relief for delayed remittances: referring to income "received" instead of "arising": this relief works by reallocating income to earlier tax years to avoid a large lump of delayed remittances all being taxed in one year (pushing the taxpayer into a higher tax band). Currently the relief is worded so that it reallocates the remitted income to the earlier tax year(s) in which it arose (dating back to the time when Schedule E was charged on an "arising" basis). In practice, since the receipts basis has applied, the income is instead allocated to the previous tax year in which it is received.|
There may be cases where income is received in a different tax year to that in which it arises, and in a minority of cases a different (higher or lower) rate of tax might be applied as a result.
As this change is in line with current Inland Revenue practice it will have no actual impact on tax liabilities.
|14||55||Intermediaries: applying normal rules to decide when a non-cash benefit is received: the current rule to determine when a non-cash benefit should be treated as received for the purposes of calculating the deemed Schedule E payment is that it should be treated as received when it is used or enjoyed. But there are cases where a non-cash benefit can be used and enjoyed over a period rather than at any one point. This change provides rules (in line with normal charging provisions) to determine when such payments should be treated as received. It is difficult to see what other method could have been used to determine timing of receipt, but if there was some other method and this was used to change the time of receipt from one tax year to another. In a minority of cases, this could lead to a different (higher or lower) rate of tax being applied as a result; any overall tax effect would be both rare and negligible.
|152, 158, 163
||Using Y = days in a year rather than a fixed 365 days: in the calculations relating to benefits arising on the provision of cars, vans and fuel in clauses 143(3), 152(4), 158(3) and 163(1) "Y" is used to represent the number of days in a year. In the first of those instances that is a direct rewrite of the source legislation. In the other three instances "Y" replaces an unvarying "365". The change means that the calculation can deal accurately with a leap year.|
The effect of the replacement is marginally unfavourable to the taxpayer in each of the last three instances. There is more detail on this point in Change 28 in Annex 2 to the Bill. This change (and its proposed application across the whole of the Bill) was approved by respondents to the consultation on the Draft Bill.
In Step 3 of the calculation in clause 183(3) the same approach has been used, although there "Y" is not used, the clause referring instead to "the number of days in the tax year". In this instance the change works in the taxpayer's favour, as it does in clause 183(3)(loans). There is, therefore, an element of "swings and roundabouts" to this change, but all amounts involved are small.
|240||Incidental overnight expenses exemption: deductibility of expenses: this expenses and benefits exemption is only due where a deduction is not available under certain listed provisions. We have substituted general references to deductibility for the current references to deductibilty under those specific provisions. By doing so we have widened the list of deductions and have therefore theoretically restricted the scope of this exemption. In practice the current lists in the legislation identify the only deductions covered by the general reference that are likely to be relevant so that the use of a general reference will not affect anyone's tax liability.
|Sch 6, Para 47
||Deduction of expenses of ministers of religion: ICTA allows deductions against profits, fees or emoluments of the profession or vocation of a minister of religion in assessing the income tax chargeable whether under Schedule E or any other schedule. |
The provisions of this Bill do not allow such cross-schedular deductions.
Most ministers of religion are chargeable under Schedule E although a few are chargeable under Schedule D. We are not aware of any who are chargeable under both Schedule D and Schedule E. (Income from articles or radio talks by an office-holding minister are not chargeable as income from the profession of a minister under Schedule D Case II but under Case VI.)
If a minister is chargeable under both this Bill and Schedule D and makes a loss in either his self-employment or his office then he may set off that loss against his other source of income as a minister. We believe that this will cover any possible case of hardship.
|360||Deductions: disallowances of certain accommodation expenses of MPs: this provision restricts the availability of a deduction for certain accommodation expenses, because allowances paid to meet those expenses are exempt. We have substituted general references to deductions for the current references to deductions under specific provisions. By doing so we have widened the list of deductions to which this restriction applies and so we have theoretically widened the scope of this disallowance. In practice the general reference does not include any additional provisions under which a deduction for accommodation expenses could be obtained anyway. This means that the use of a general reference will not affect anyone's tax liability.
|364||Limit of amount of deductions from benefits code earnings: |
In ICTA this limit is expressed as "such amounts as would have been... deductible if the accommodation had been paid for by the employee out of his emoluments." This could theoretically be interpreted as the amount which the employee would have had to pay regardless of the amount taken as the cost of provision to form benefit code earnings. That could result in a deduction equal to the whole of the amount charged in respect of only a small percentage use for the purposes of the employment because the gross annual value was used for the charge, but a full commercial rent is used to calculate the deduction. The source legislation is ambiguous but it is clear that the intention of the legislation must have been to allow a deduction based on the amount charged to tax in respect of the accommodation. The Inland Revenue apply this interpretation in practice, so there is expected to be no actual difference in anyone's tax liability.
|381||Taking account of other deductions for the purpose of seafarers' FED: Other deductions from income are generally allowed first (so that they are effectively allowed against all income and not wholly against the income not subject to the FED). There is a list of the other deductions in ICTA, but it is incomplete. By replacing the list by a more general reference to deductions under Part 5 we are adding to the deductions which have to be spread across the earnings for the whole year instead of being allowed wholly against income not eligible for the FED. In fact current Inland Revenue practice is to take into account these other deductions (which are few in number and relatively insignificant) so that there is not expected to be any practical effect on anyone's tax liability.
|455||Post-acquisition benefits from shares : amount of charge on increase in value of shares in dependent subsidiaries: the existing legislation is clearly defectiveit requires the gain to be measured by reference to the value of the shares at acquisition where the subsidiary only became dependent at a later date. Correcting this defect means that (as share values can go up or down over time) the change could result in a smaller or greater amount charged to tax. However, as the Inland Revenue practice is to measure the gain by reference to when the subsidiary became dependent anyway (thus informally correcting the defect), this change is not expected to have any practical effect on anyone's tax liability.
||Post-acquisition benefits from shares: deemed acquisition by director or employee. This corrects two technical defects identified in the course of drafting of the Bill which we are not aware have ever been noticed before. The Inland Revenue have always considered that the charge runs where the special benefit accrues to any person in a case where the employee is treated as retaining the beneficial interest in the shares. Clause 457 makes the position clear. Clause 463 ensures that shares which were acquired by a connected person (and have been deemed to have been acquired by the employee under section 83(1)) are still deemed to be held by the employee when the connected person disposes of them other than by a bargain at arm's length with an unconnected person. That is the intention behind the source legislation and that is the way that the provision has always been interpreted and applied. As the Inland Revenue have consistently applied these interpretations (thus informally correcting the defects), this change is not expected to have any practical effect on anyone's tax liability.
|475||Share options: value of longer-term option to acquire convertible shares: this clarifies what value should be used for the purposes of computing tax liability on receipt of a share option where the option is over shares that may themselves be exchanged for other shares. It is in line with the Inland Revenue interpretation and so is not expected to have any practical effect on anyone's tax liability.
|660||Incapacity benefit: this makes clear that incapacity benefit is taxable. Under section 139 of FA 1994, it is quite clear that incapacity benefit is taxable, but in the effort to make sure that this benefit was taxable only once (and not subject to a double charge), one consequential amendment was missed, which could suggest that the benefit is not chargeable at all. Thus two parts of the tax law are in conflict on this issue. This Bill resolves the conflict in line with established practice and so is not expected to have any practical effect on anyone's tax liability.
|687||Social security income: foreign benefits: this change introduces an explicit charge on foreign social security benefits. These are currently taxed under Schedule D, Case V, on the grounds that they arise from rights under foreign social security law. Although the creation of this explicit charge would appear to be adverse to taxpayers, it will have the same practical effect as the current charge taken under Case V of Schedule D and so is not expected to have any practical effect on anyone's tax liability.
147 to 153
|684, 690, 692, 700, 710|
Sch 6, para 241
|PAYE: in the normal course of events PAYE cannot impose tax|
it is a system of payments on account;
there is a reckoning after the end of the year; and
the taxpayer may then be found to owe a bit more or be owed a bit back.
but in some very exceptional circumstances it is not quite that simple and a change in the law for PAYE might in theory lead to a different person paying the tax.
For instance, a change which is generally seen as helpful because it makes clear that tax does not have to be deducted from particular payments could in theory mean that an employee is disadvantaged. That is because an employee whose employer has wilfully failed to deduct tax from any payments (salary, bonus or the particular payments) loses the ability, but purely in relation to the particular payments, to argue:
that the employer ought to have deducted tax;
so the employer (rather than the employee) should pay.
The explanatory notes which accompany the Bill draw attention to all these possibilitiesno matter how remote, and the relevant parts of the Bill are in italics. But it is (so far as the Project can tell) all hypothetical. Consultation revealed no concern that these minor changes might actually change who pays what tax.
Paras 72 & 73
|Donations to charity: payroll deduction scheme: the current legislation allows a deduction for such donations as "an expense" for the year of assessment in which they are withheld. This gives rise to a problem where the income from which the donation is withheld is not taxable in the year in which the donation is made. The "expense" would then be allowed in a different year to that in which the income is taxable. This Bill makes clear that the deduction is given in taxing the income out of which the donation has been made. In rare cases this may move the deduction from one year to another and in a minority of cases a different (higher or lower) rate of tax might be applied as a result. But since in practice deductions are allowed from the income from which the deduction is made, this change is not expected to affect anyone's tax liability.
4. In addition to the changes which have led to italicisation
of provisions in the Bill, there are three changes in Annex 1
to the Explanatory Notes where the summary in bold italics at
the end of the change contains words suggesting that it affects
the incidence an existing charge to tax. In order to clarify the
position, the changes and a brief explanation of their effect
is given below.
Change 2 The summary says the change "affects"
when tax is paid (in principle but not in practice). In fact the
burden of the text of the change is that the change will have
no practical effects, ie the effect of the new rules will be the
same as that of the old ones. So in the context "affects"
really means "concerns" rather than "has an effect
Change 135 The summary says that the change "affects"
the person who pays the tax (in principle but not in practice).
In fact we think that the provisions referred to in the change
only reflect what a court would hold the position to be if a case
ever arose. They also reflect the way that the charges to tax
are administered in practice, and respondents were happy with
them. So again "affects" equals "concerns".
Change 137 The summary says that the change "affects"
the amount of income which is liable to tax in a particular year
(in principle but not in practice). In fact, as the text of the
change indicates, there is a gap in the existing law: it is unclear
whether the annuities in question are taxed on the basis of the
amount payable in a year (the accruing basis) or the amount received
(the receipts basis). The current practice is that they are charged
on the receipts basis, and respondents were happy that this practice
should be put on a statutory footing. Given the present gap in
the law it is not possible to be sure whether or not the change
in fact amounts to a change in the law. As to whether taxpayers
would be disadvantaged by the change (assuming it were a change
in the law) we think this would happen if a particular taxpayer's
circumstances were such that receiving arrears of an annuity in
tax year X rather than in the tax year in which they were payable
would put him in a higher tax bracket. But by the same token it
might be to another taxpayer's advantage to have his tax liability
deferred to tax year X because that would mean that the amount
of the arrears did not put him in a higher tax year bracket for
the year in which they were payable.
Before and after the Rewrite: examples
166. Notice of nil liability under this Chapter
(1) If a person furnishes to the inspector a statement
of the cases and circumstances in which payments of a particular
character are made, or benefits or facilities of a particular
kind are provided, for any employees (whether his own or those
of anyone else), and the inspector is satisfied that no additional
tax is payable under this Chapter by reference to the payments,
benefits or facilities mentioned in the statement, the inspector
shall notify the person accordingly; and then nothing in this
Chapter applies to those payments, or to the provision of those
benefits or facilities, or otherwise for imposing any additional
charge to income tax.
(106 word sentence)
65. Dispensations relating to benefits within provisions
not applicable to lower-paid employment
(1) This section applies for the purposes of the listed
provisions where a person (P) supplies the Inland Revenue with
a statement of the cases and circumstances in which
(a) payments of a particular character are made to or
for any employees, or
(b) benefits or facilities of a particular kind are provided
for any employees, whether the employees are P's or another's.
(2) The "listed provisions" are the provisions
listed in section 216(4) (provisions of the benefits code which
do not apply to lower-paid employment).
(3) If the Inland Revenue are satisfied that no additional
tax is payable by virtue of the listed provisions by reference
to the payments, benefits or facilities mentioned in the statement,
they must give P a dispensation under this section.
(4) A "dispensation" is a notice stating that
the Inland Revenue agree that no additional tax is payable by
virtue of the listed provisions by reference to the payments,
benefits or facilities mentioned in the statement supplied by
(5) If a dispensation is given under this section, nothing
in the listed provisions applies to the payments, or the provision
of the benefits or facilities, covered by the dispensation or
otherwise has the effect of imposing any additional liability
to tax in respect of them.
199. Expenses necessarily incurred and defrayed from official
(1) Subject to the provisions of subsection (2) below,
where the Treasury are satisfied with respect to any class of
persons in receipt of any salary, fees or emoluments payable out
of the public revenue that such persons are obliged to lay out
and expend money wholly, exclusively and necessarily in the performance
of the duties in respect of which such salary, fees or emoluments
are payable, the Treasury may fix such sum as in the opinion of
the Treasury represents a fair equivalent of the average annual
amount laid out and so expended by persons of that class, and
in charging income tax on that salary or those fees or emoluments
there shall be deducted from the amount thereof the sums so fixed
by the Treasury.
(126 word sentence)
368. Fixed sum deductions from earnings payable out of
(1) A deduction is allowed from earnings payable out
of the public revenue for the employee's fixed sum expenses in
respect of the duties to which the earnings relate.
(2) "Fixed sum expenses" means the sum, if
any, fixed by the Treasury as in their opinion representing the
average annual expenses which employees of the employee's description
are obliged to pay wholly, exclusively and necessarily in the
performance of duties to which such earnings relate.
195. Travel expenses of employees not domiciled in the
(1) Subject to subsection (2) below, this section applies
in the case of an office or employment in respect of which a person
("the employee") who is not domiciled in the United
Kingdom is in receipt of emoluments for duties performed in the
(2) This section does not apply unless subsection (3)
below is satisfied in respect of a date on which the employee
arrives in the United Kingdom to perform duties of the office
or employment; and where subsection (3) is so satisfied, this
section applies only for a period of five years beginning with
(3) This subsection is satisfied in respect of a date
if the employee:
(a) was not resident in the United Kingdom in either of
the two years of assessment immediately preceding the year of
assessment in which the date falls; or
(b) was not in the United Kingdom for any purpose at any
time during the period of two years ending with the day immediately
preceding the date.
(4) Where subsection (3) above is satisfied (by virtue
of paragraph (a) of that subsection) in respect of more than one
date in any year of assessment, only the first of those dates
is relevant for the purposes of this section.
(5) Subsection (7) below applies to any journey by the
(a) from his usual place of abode to any place in the
United Kingdom in order to perform any duties of the office or
employment there; or
(b) to his usual place of abode from any place in the
United Kingdom after performing such duties there.
(6) Where the employee is in the United Kingdom for a
continuous period of 60 days or more for the purpose of performing
the duties of one or more offices or employments in the case of
which this section applies, subsection (7) below applies to any
journey by his spouse, or any child of his, between his usual
place of abode and the place of performance of any of those duties
in the United Kingdom, if the journey:
(a) is made to accompany his at the beginning of that
period or to visit him during it; or
(b) is a return journey following a journey falling within
paragraph (a) above;
but subsection (7) as it applies by virtue of this subsection
does not extend to more than two journeys to the United Kingdom
and two return journeys by the same person in any year of assessment.
(7) Subject to subsection (8) below, where:
(a) travel facilities are provided for any journey to
which this subsection applies and the cost of them is borne by
or on behalf of a person who is an employer in respect of any
office or employment in the case of which this section applies;
(b) expenses are incurred out of the emoluments of any
office or employment in the case of which this section applies
on such a journey and those expenses are reimbursed by or on behalf
of the employer;
there shall be allowed, in charging tax under Case I or II
of Schedule E on the emoluments from the office or employment
concerned, a deduction of an amount equal to so much of that cost
or, as the case may be, those expenses as falls to be included
in those emoluments.
(8) If a journey is partly for a purpose mentioned in
subsection (5) or (6) above and partly for another purpose, only
so much of the cost or expenses referred to in subsection (7)
as is properly attributable to the former purpose shall be taken
into account in calculating any deduction made under subsection
(7) as it applies by virtue of subsection (5) or, as the case
may be, (6).
(9) For the purposes of this section a person's usual
place of abode is the country (outside the United Kingdom) in
which he normally lives.
(10) In subsection (6) above "child" includes
a stepChild and an illegitimate child but does not include
a person who is aged 18 or over at the beginning of the journey
to the United Kingdom.
(11) References in the Income Tax Acts (including any
provision of this Act, but without prejudice to any express reference
to subsection (7) above) to section 198 and to deductions allowable
under section 198, 199, 201 or 332 shall be construed as including
a reference to subsection (7) above and to deductions allowable
(12) Where apart from this subsection a deduction in
respect of any cost or expenses is allowable under a provision
of this section and a deduction in respect of the same cost or
expenses is also allowable under another provision of this section
or of any other enactment, a deduction in respect of the cost
or expenses may be made under either, but not both, of those provisions.
(13) Where by virtue of subsection (3) of section 38
of the Finance Act 1986 any provision of section 37 of that Act
applied in the case of any employee at any time during the year
1984-85 or 1985-86 (and that section applied to him immediately
before 6th April 1988), this section shall apply in his case for
the years 1988-89 to 1990-91 as if the following were substituted
for subsections (2) to (4):
"(2) This section does not apply after 5th April 1991.".
373. Non-domiciled employee's travel costs and expenses
where duties performed in UK
(1) This section applies if a person ("the employee")
who is not domiciled in the United Kingdom
(a) receives earnings from an employment for duties performed
in the United Kingdom, and
(b) an amount is included in the earnings in respect of
(i) the provision of travel facilities for a journey
made by the employee, or
(ii) the reimbursement of expenses incurred by the
employee on such a journey.
(2) A deduction is allowed from earnings from the employment
which are earnings charged on receipt if the journey meets conditions
A and B.
(3) Condition A is that the journey ends on, or during
the period of 5 years beginning with, a date that is a qualifying
arrival date in relation to the employee (see section 375).
(4) Condition B is that the journey is made
(a) from the country outside the United Kingdom in which
the employee normally lives to a place in the United Kingdom in
order to perform duties of the employment, or
(b) to that country from a place in the United Kingdom
in order to return to that country after performing such duties.
(5) If the journey is wholly for a purpose specified
in subsection (4), the deduction is equal to the included amount.
If the journey is only partly for such a purpose, the deduction
is equal to so much of the included amount as is properly attributable
to that purpose.
374. Non-domiciled employee's spouse's or child's travel
costs and expenses where duties performed in UK
(1) This section applies if a person ("the employee")
who is not domiciled in the United Kingdom
(a) receives earnings from an employment for duties performed
in the United Kingdom, and
(b) an amount is included in the earnings in respect of:
(i) the provision of travel facilities for a journey
made by the employee's spouse or child, or
(ii) the reimbursement of expenses incurred by the
employee on such a journey.
(2) A deduction is allowed from earnings from the employment
which are earnings charged on receipt if conditions A to C are
(3) Condition A is that the journey:
(a) is made between the country outside the United Kingdom
in which the employee normally lives and a place in the United
(b) ends on, or during the period of five years beginning
with, a date that is a qualifying arrival date in relation to
the employee (see section 375).
(4) Condition B is that the employee is in the United
Kingdom for a continuous period of at least 60 days for the purpose
of performing the duties of one or more employments from which
the employee receives earnings for duties performed in the United
(5) Condition C is that the employee's spouse or child
(a) accompanying the employee at the beginning of that
(b) visiting the employee during that period, or
(c) returning to the country outside the United Kingdom
in which the employee normally lives, after so accompanying or
visiting the employee.
(6) If the journey is wholly for the purpose of so accompanying
or visiting the employee or so returning, the deduction is equal
to the included amount.
(7) If the journey is only partly for that purpose, the
deduction is equal to so much of the included amount as is properly
attributable to that purpose.
(8) A deduction is not allowed under this section for
more than two inward journeys and two return journeys by the same
person in a tax year.
In this section "child" includes a stepchild and
an illegitimate child, but not a person who is 18 or over at the
beginning of the inward journey.
375. Meaning of "qualifying arrival date"
(1) For the purposes of sections 373(3) and 374(3), a
date is a qualifying arrival date in relation to a person if
(a) it is a date on which the person arrives in the United
Kingdom to perform duties of an employment from which the person
receives earnings for duties performed in the United Kingdom,
(b) condition A or B is met.
(2) Condition A is that the person has not been in the
United Kingdom for any purpose during the period of two years
ending with the day before the date.
(3) Condition B is that the person was not resident in
the United Kingdom in either of the two tax years preceding the
tax year in which the date falls.
If, in a case where condition B applies, there are two or
more dates in the tax year on which the person arrives in the
United Kingdom to perform duties of an employment from which the
person receives earnings for duties performed in the United Kingdom,
the qualifying arrival date is the earliest of them.
BEFORE (4) (WHERE
(9) For the purposes of this section
(a) the inclusive price is the price inclusive of any
charge for delivery by the manufacturer, importer or distributor
to the seller's place of business and of any relevant tax and,
in the case of an accessory, of any charge for fitting it,
(b) the relevant day is the day immediately before the
date of the relevant car's first registration,
(c) a standard accessory is an accessory equivalent to
an accessory which, in arriving at the price published as mentioned
in subsection (2) above, is assumed to be available with cars
of the same kind as the relevant car, and
(d) an optional accessory is an accessory other than a
standard accessory; and "relevant tax" here means any
customs or excise duty, any tax chargeable as if it were a duty
of customs, any value added tax and any car tax.
(10) For the purposes of this section a qualifying accessory
is an accessory which
(a) is made available for use with the car without any
transfer of the property in it,
(b) is made available by reason of the employee's employment,
(c) is attached to the car (whether or not permanently),
(d) is not an accessory necessarily provided for use in
the performance of the duties of the employee's employment.
(11) For the purposes of this section "accessory"
includes any kind of equipment, but does not include a mobile
telephone within the meaning given by section 155AA(2) or equipment
which falls within section 168AA or 168AB(1).
(1) Equipment by means of which the car is capable of
running on road fuel gas shall not be regarded as an accessory
for the purposes of section 168A.
(4) This section does not apply in relation to cars to
which paragraph 5 of Schedule 6 to this Act applies (bi-fuel cars
taxed by reference to CO2 emissions figure).
(8) Subsections (10) to (12) of section 168A apply for
the purposes of this section as they apply for the purposes of
(3) Subsections (10) to (12) of section 168A apply for
the purposes of this section as they apply for the purposes of
(5) Subsections (10) and (11) of section 168A apply for
the purposes of this section as they apply for the purposes of
(9) Subsections (10) and (11) of section 168A apply for
the purposes of this section as they apply for the purposes of
125. Meaning of "accessory" and related terms
(1) In this Chapter "qualifying accessory"
means an accessory which
(a) is made available for use with the car without any
transfer of the property in the accessory,
(b) is made available by reason of the employment, and
(c) is attached to the car (whether permanently or not).
(2) For the purposes of this Chapter "accessory"
includes any kind of equipment but does not include:
(a) equipment necessarily provided for use in the performance
of the duties of the employment;
(b) equipment by means of which a car is capable of running
on road fuel gas;
(c) equipment to enable a disabled person to use a car
(see section 172);
(d) a mobile telephone (within the meaning given in section
(3) But subsection (2)(b) does not apply in relation
to a car to which section 137 (different CO2 emissions figure
for bi-fuel cars) applies.
(4) In this Chapter:
"standard accessory" means an accessory equivalent
to an accessory assumed to be available with cars of the same
kind as the car in question in arriving at the list price, and
"non-standard accessory" means any other accessory.