Finance (No. 2) Bill (HL Bill 156)

(c) the person receives a payment which can reasonably be taken
to be in respect of the same services as those in respect of
which the underlying chain payment is made.

(2) The payment mentioned in subsection (1)(c) is not required to be
5brought into account in calculating the profits of the trade.

(3) In this section “underlying chain payment” means the payment
whose amount is used at Step 1 of section 61Q(1) of ITEPA 2003 as
the starting point for calculating the amount of the deemed direct
payment mentioned in subsection (1)(b).””

10Part 4 Commencement

15 The amendments made in ITEPA 2003 by Parts 1 and 3 of this Schedule have
effect for the tax year 2017-18 and subsequent tax years.

16 The amendment made by Part 2 of this Schedule has effect in relation to
15deemed direct payments treated as made on or after 6 April 2017, and does
so even if relating to services provided before that date.

17 The payments to which the amendments made in ITTOIA 2005 and CTA
2009 by Part 3 of this Schedule apply include payments made before the
passing of this Act.

Section 8

20SCHEDULE 2 Optional remuneration arrangements

Optional remuneration arrangements

1 In Part 3 of ITEPA 2003 (employment income: earnings and benefits etc
treated as earnings), in Chapter 2 (taxable benefits: the benefits code), after
25section 69 insert—

“69A Optional remuneration arrangements

(1) Subsections (2) to (7) have effect for the purposes of the benefits code.

(2) A benefit provided for an employee is provided under “optional
remuneration arrangements” so far as it is provided under
30arrangements of type A or B (regardless of whether those
arrangements are made before or after the beginning of the person’s
employment).

(3) “Type A arrangements” are arrangements under which, in return for
the benefit, the employee gives up the right (or a future right) to
35receive an amount of earnings within Chapter 1 of Part 3.

(4) “Type B arrangements” are arrangements (other than type A
arrangements) under which the employee agrees to be provided
with the benefit rather than an amount of earnings within Chapter 1
of Part 3.

(5) A benefit provided for an employee is to be regarded as provided
under optional remuneration arrangements (whether of type A or
type B) so far as it is just and reasonable to attribute the provision of
the benefit to the arrangements in question.

(6) 5Where a benefit is provided for an employee under any
arrangements, the mere fact that under the arrangements the
employee makes good, or is required to make good, any part of the
cost of provision is not to be taken to show that the benefit is (to any
extent) provided otherwise than under optional remuneration
10arrangements.

(7) Where a benefit is provided for an employee partly under optional
remuneration arrangements and partly otherwise than under such
arrangements, the benefits code is to apply with any modifications
(including provision for just and reasonable apportionments) that
15may be required for ensuring that the benefit is treated—

(a) in accordance with the relevant provision in the column 2 of
the table so far as it is provided under optional remuneration
arrangements, and

(b) in accordance with the relevant provision in column 1 of the
20table so far as it is provided otherwise than under such
arrangements.

69B Optional remuneration arrangements: supplementary

(1) 35For the purposes of the benefits code “the amount foregone”—

(a) in relation to a benefit provided for an employee under type
A arrangements means the amount of earnings mentioned in
section 69A(3);

(b) in relation to a benefit provided for an employee under type
B arrangements means the amount of earnings mentioned in
section 69A(4);

(c) in relation to a benefit provided for an employee partly under
5type A arrangements and partly under type B arrangements,
means the sum of the amounts foregone under the
arrangements of each type.

(2) Subsection (3) applies where, in order to determine the amount
foregone with respect to a particular benefit mentioned in section
1069A(3) or (4), it is necessary to apportion an amount of earnings to
the benefit.

(3) The apportionment is to be made on a just and reasonable basis.

(4) In this section and section 69A references to a benefit provided for an
employee include a benefit provided for a member of an employee’s
15family or household.

(5) In this section and section 69A—

• “benefit” includes any benefit or facility, regardless of its form
  and the manner of providing it;

• “earnings” means earnings within Chapter 1 of Part 3 (and
  20includes a reference to amounts which would have been such
  earnings if the employee had received them).””

Benefits in kind: amount treated as earnings

2 Part 3 of ITEPA 2003 (employment income: earnings and benefits in kind etc
treated as earnings) is amended as follows.

3 (1) 25Section 81 (benefit of cash voucher treated as earnings) is amended as
follows.

(2) After subsection (1) insert—

“(1A) Where a cash voucher to which this Chapter applies is provided
pursuant to optional remuneration arrangements—

(a) 30subsection (1) does not apply, and

(b) the relevant amount is to be treated as earnings from the
employment for the tax year in which the voucher is received
by the employee.

(1B) In this section “the relevant amount” means—

(a) 35the cash equivalent, or

(b) if greater, the amount foregone with respect to the benefit of
the voucher (see section 69B).””

(3) At the end insert—

“(3) For the purposes of subsection (1B), assume that the cash equivalent
40is zero if the condition in subsection (4) is met.

(4) The condition is that the benefit of the voucher would be exempt
from income tax but for section 228A (exclusion of certain
exemptions).””

4 After section 87 insert—

“87A Benefit of non-cash voucher treated as earnings: optional
remuneration arrangements

(1) Where a non-cash voucher to which this Chapter applies is provided
5pursuant to optional remuneration arrangements—

(a) the relevant amount is to be treated as earnings from the
employment for the tax year in which the voucher is received
by the employee, and

(b) section 87(1) does not apply.

(2) 10To find the relevant amount, first determine which (if any) is the
greater of—

(a) the cost of provision (see section 87(3)), and

(b) the amount foregone with respect to the benefit of the
voucher (see section 69B).

(3) 15If the cost of provision is greater than or equal to the amount
foregone, the “relevant amount” is the cash equivalent of the benefit
of the non-cash voucher (see section 87(2)).

(4) Otherwise, the “relevant amount” is the difference between—

(a) the amount foregone, and

(b) 20any part of the cost of provision that is made good by the
employee, to the person incurring it, on or before 6 July
following the relevant tax year.

(5) If the voucher is a non-cash voucher other than a cheque voucher, the
relevant tax year is—

(a) 25the tax year in which the cost of provision is incurred, or

(b) if later, the tax year in which the employee receives the
voucher.

(6) If the voucher is a cheque voucher, the relevant tax year is the tax
year in which the voucher is handed over in exchange for money,
30goods or services.

(7) For the purposes of subsections (2) and (3), assume that the cost of
provision is zero if the condition in subsection (8) is met.

(8) The condition is that the non-cash voucher would be exempt from
income tax but for section 228A (exclusion of certain exemptions).””

5 35In section 88 (year in which earnings treated as received)—

(a) in subsection (1), after “87” insert “or 87A”;

(b) in subsection (2), after “87” insert “or 87A.”

6 After section 94 insert—

“94A Benefit of credit-token treated as earnings: optional remuneration
40arrangements

(1) If the conditions in subsections (2) and (3) are met in relation to any
occasions on which a credit-token to which this Chapter applies is
used by the employee in a tax year to obtain money, goods or
services—

(a) the relevant amount is to be treated as earnings from the
employment for that year, and

(b) section 94(1) does not apply in relation to the use of the
credit-token on those occasions.

(2) 5The condition in this subsection is that the credit-token is used
pursuant to optional remuneration arrangements.

(3) The condition in this subsection is that AF is greater than the relevant
cost of provision for the tax year.

In this section “AF” means so much of the amount foregone (see
10section 69B) as is attributable on a just and reasonable basis to the use
of the credit-token by the employee in the tax year pursuant to the
optional remuneration arrangements to obtain money, goods or
services.

(4) The “relevant amount” is the difference between—

(a) 15AF, and

(b) any part of the relevant cost of provision for the tax year that
is made good by the employee, to the person incurring it, on
or before 6 July following the tax year which contains the
occasion of use of the credit-token to which the making good
20relates.

(5) But the relevant amount is taken to be zero if the amount given by
paragraph (b) of subsection (4) exceeds AF.

(6) For the purposes of this section the “relevant cost of provision for the
tax year” is determined as follows—

• 25Step 1

• Find the cost of provision with respect to each occasion of use
  of the credit-token by the employee in the tax year pursuant
  to the optional remuneration arrangements to obtain money,
  goods or services.

• 30Step 2

• The total of those amounts is the relevant cost of provision for
  the tax year.

(7) But the relevant cost of provision for the tax year is to be taken to be
zero if the condition in subsection (8) is met.

(8) 35The condition is that use of the credit token by the employee in the
tax year pursuant to the optional remuneration arrangements to
obtain money, goods or services would be exempt from income tax
but for section 228A (exclusion of certain exemptions).

(9) In this section “cost of provision” has the same meaning as in section
4094.”

7 In section 97 (living accommodation to which Chapter 5 applies), in
subsection (1A)(b), for “the cash equivalent of” substitute “an amount in
respect of”.

8 In section 98 (accommodation provided by local authority), in the words
45before paragraph (a), for “This Chapter” substitute “In section 102 (benefit of
accommodation treated as earnings) subsection (1A) (accommodation

provided otherwise than pursuant to optional remuneration
arrangements)”.

9 (1) Section 99 (accommodation provided for performance of duties) is amended
as follows.

(2) 5In subsection (1), for “This Chapter” substitute “In section 102 (benefit of
accommodation treated as earnings) subsection (1A) (accommodation
provided otherwise than pursuant to optional remuneration
arrangements)”.

(3) In subsection (2), for “This Chapter” substitute “In section 102 (benefit of
10accommodation treated as earnings) subsection (1A)”.

10 In section 100 (accommodation provided as result of security threat), in the
words before paragraph (a), for “This Chapter” substitute “In section 102
(benefit of accommodation treated as earnings) subsection (1A)
(accommodation provided otherwise than pursuant to optional
15remuneration arrangements)”.

11 In section 100A (homes outside UK owned by company etc), in subsection
(1), for “This Chapter” substitute “In section 102 (benefit of accommodation
treated as earnings) subsection (1A) (accommodation provided otherwise
than pursuant to optional remuneration arrangements)”.

12 20In section 101 (Chevening House), in the words before paragraph (a), for
“This Chapter” substitute “In section 102 (benefit of accommodation treated
as earnings) subsection (1A) (accommodation provided otherwise than
pursuant to optional remuneration arrangements)”.

13 (1) Section 102 (benefit of living accommodation treated as earnings) is
25amended as follows.

(2) In subsection (1), for the words before paragraph (a) substitute “This section
applies if living accommodation to which this Chapter applies is provided
in any period (“the taxable period”)—”.

(3) The words in subsection (1) from “the cash equivalent” to the end become
30subsection (1A).

(4) After subsection (1A) insert—

“(1B) If the benefit of the accommodation is provided pursuant to optional
remuneration arrangements—

(a) subsection (1A) does not apply, and

(b) 35the relevant amount is to be treated as earnings from the
employment for that tax year.””

(5) Omit subsection (2).

(6) At the end insert—

“(4) Section 103A indicates how the relevant amount is determined.””

14 40In section 103 (method of calculating cash equivalent), in subsection (3), for
“102(2)” substitute “102(1)”.

15 After section 103 insert—

“103A Accommodation provided pursuant to optional remuneration
arrangements: relevant amount

(1) To find the relevant amount, first determine which (if any) is the
5greater of—

(a) the modified cash equivalent of the benefit of the
accommodation (see sections 105(2A) and 106(2A)), and

(b) the amount foregone with respect to the benefit of the
accommodation (see section 69B).

(2) 10If the amount mentioned in subsection (1)(a) is greater than or equal
to the amount mentioned in subsection (1)(b), the “relevant amount”
is the cash equivalent of the benefit of the accommodation (see
section 103).

(3) Otherwise, the “relevant amount” is the difference between—

(a) 15the amount foregone with respect to the benefit of the
accommodation, and

(b) the deductible amount (see subsections (7) and (8)).

(4) If the amount foregone with respect to the benefit of the
accommodation does not exceed the deductible amount, the relevant
20amount is taken to be zero.

(5) For the purposes of subsections (1) and (2), assume that the modified
cash equivalent of the benefit of the accommodation is zero if the
condition in subsection (6) is met.

(6) The condition is that the benefit of the accommodation would be
25exempt from income tax but for section 228A (exclusion of certain
exemptions).

(7) If the cost of providing the living accommodation does not exceed
£75,000, the “deductible amount” means any sum made good, on or
before 6 July following the tax year which contains the taxable
30period, by the employee to the person at whose cost the
accommodation is provided that is properly attributable to its
provision.

(8) If the cost of providing the living accommodation exceeds £75,000,
the “deductible amount” means the total of amounts A and B
35where—

• A is equal to so much of MG as does not exceed RV;

• B is the amount of any excess rent paid by the employee in
  respect of the taxable period;

• MG is the total of any sums made good, on or before 6 July
  40following the tax year which contains the taxable period, by
  the employee to the person at whose cost the accommodation
  is provided that are properly attributable to its provision (in
  the taxable period);

Finance (No. 2) BillPage 147

• RV is the rental value of the accommodation for the taxable
  period as set out in section 105(3) or (4A)(b) (as applicable).

(9) In subsection (8) “excess rent” means so much of the rent in respect
of the taxable period paid—

(a) 5by the employee,

(b) in respect of the accommodation,

(c) to the person providing it, and

(d) on or before 6 July following the tax year which contains the
taxable period,

10as exceeds the rental value of the accommodation.

(10) Where it is necessary for the purposes of subsection (1)(b) and (3)(a)
to apportion an amount of earnings to the benefit of the
accommodation in the taxable period, the apportionment is to be
made on a just and reasonable basis.

15In this subsection “earnings” is to be interpreted in accordance with
section 69B(5).””

16 (1) Section 105 (cash equivalent: cost of accommodation not over £75,000) is
amended as follows.

(2) In subsection (1), after “equivalent” insert “or modified cash equivalent”.

(3) 20After subsection (2) insert—

“(2A) The modified cash equivalent is equal to the rental value of the
accommodation for the taxable period.””

17 (1) Section 106 (cash equivalent: cost of accommodation over £75,000) is
amended as follows.

(2) 25In subsection (1), after “equivalent” insert “or modified cash equivalent”.

(3) After subsection (2) insert—

“(2A) To calculate the modified cash equivalent—

(a) apply steps 1 to 3 in subsection (2), as if the words “cash
equivalent” in step 1 were “modified cash equivalent (for the
30purposes of section 105)”;

(b) calculate the modified cash equivalent by adding together
the amounts calculated under steps 1 and 3 as applied by
paragraph (a).””

18 (1) Section 109 (priority of Chapter 5 over Chapter 1 of Part 3 of the Act) is
35amended as follows.

(2) In subsection (1)(a), for “the cash equivalent of the benefit of living
accommodation” substitute “an amount”.

(3) In subsection (2), for “of the cash equivalent” substitute “mentioned in
subsection (1)(a)”.

(4) 40In subsection (4), in the words before paragraph (a), for “cash equivalent of
the benefit of the living accommodation” substitute “amount mentioned in
subsection (1)(a)”.

19 In section 114 (cars, vans and related benefits), in subsection (2)—

(a) in paragraph (a), for “the cash equivalent of” substitute “an amount
in respect of”;

(b) in paragraph (b), for “the cash equivalent of” substitute “an amount
in respect of”;

(c) 5in paragraph (c), for “the cash equivalent of” substitute “an amount
in respect of”;

(d) in paragraph (d), for “the cash equivalent of” substitute “an amount
in respect of”.

20 (1) Section 119 (where alternative to benefit of car or van offered) is amended as
10follows.

(2) For subsection (1) substitute—

“(1) This section applies where in a tax year—

(a) a car is made available as mentioned in section 114(1),

(b) the car’s CO₂ emissions figure (see sections 133 to 138) does
15not exceed 75 grams per kilometre, and

(c) an alternative to the benefit of the car is offered.””

(3) In the heading, before “car” insert “low emission”.

21 In section 120 (benefit of car treated as earnings), after subsection (3) insert—

“(4) This section is subject to section 120A.””

22 20After section 120 insert—

“120A Benefit of car treated as earnings: optional remuneration
arrangements

(1) Where this Chapter applies to a car in relation to a particular tax year
and the conditions in subsection (3) are met—

(a) 25the relevant amount (see section 121A) is to be treated as
earnings from the employment for that tax year, and

(b) section 120(1) does not apply.

(2) In such a case (including a case where the relevant amount is nil) the
employee is referred to in this Chapter as being chargeable to tax in
30respect of the car in the tax year.

(3) The conditions are that—

(a) the car is made available to the employee or member of the
employee’s household pursuant to optional remuneration
arrangements,

(b) 35the amount foregone (see section 69B) with respect to the
benefit of the car for the tax year is greater than the modified
cash equivalent of the benefit of the car for the tax year (see
section 121B), and

(c) the car’s CO₂ emissions figure (see sections 133 to 138)
40exceeds 75 grams per kilometre.””

23 After section 121 insert—

“121A Optional remuneration arrangements: method of calculating relevant
amount

(1) To find the relevant amount for the purposes of section 120A, take
5the following steps—

Step 1

Take the amount foregone with respect to the benefit of the car for
the tax year.

Step 2

10Make any deduction under section 132A in respect of capital
contributions made by the employee to the cost of the car or
accessories.

The resulting amount is the provisional sum.

Step 3

15Make any deduction from the provisional sum under section 144 in
respect of payments by the employee for the private use of the car.

The result is the “relevant amount” for the purposes of section 120A.

(2) Where it is necessary, for the purpose of determining the “amount
foregone” under step 1 of subsection (1), to apportion an amount of
20earnings to the benefit of the car for the tax year, the apportionment
is to be made on a just and reasonable basis.

In this subsection “earnings” is to be interpreted in accordance with
section 69B(5).

121B Meaning of “modified cash equivalent”

(1) 25The “modified cash equivalent” of the benefit of a car for a tax year
is calculated in accordance with the following steps (which must be
read with subsections (2) to (4))—

Step 1

Find the price of the car in accordance with sections 122 to 124A.

30Step 2

Add the price of any accessories which fall to be taken into account
in accordance with sections 125 to 131.

The resulting amount is the interim sum.

Step 3

35Find the appropriate percentage for the car for the year in accordance
with sections 133 to 142.

Step 4