House of Commons portcullis
House of Commons
Session 2002 - 03
Internet Publications
Other Bills before Parliament

Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 1 — Payments to non-approved pension schemes

    195

 

 388   Apportionment of payments in respect of more than one employee

     (1)    If a sum within section 386 is paid for or in respect of two or more employees,

part of it is treated as paid in respect of each of them.

     (2)    The amount treated as paid in respect of each employee is—equation: cross[char[A],over[char[B],char[C]]]

            where—

5

                    A is the sum paid,

                    B is the amount which would have had to be paid to secure the benefits to

be provided in respect of the employee in question, and

                    C is the total amount which would have had to be paid to secure the

benefits to be provided in respect of all the employees if separate

10

payments had been made in the case of each of them.

 389   Exception: employments where earnings charged on remittance

     (1)    Section 386 does not apply if in the tax year in which the sum is paid the

earnings from the employment are earnings charged on remittance (or would

be if there were any earnings).

15

     (2)    In subsection (1) “earnings charged on remittance” means earnings which are

taxable earnings under—

           (a)           section 22 (chargeable overseas earnings for year when employee

resident and ordinarily resident, but not domiciled, in UK), or

           (b)           section 26 (foreign earnings for year when employee resident, but not

20

ordinarily resident, in UK).

 390   Exception: non-domiciled employees with foreign employers

Section 386 does not apply if—

           (a)           the employee is not domiciled in the United Kingdom in the tax year in

which the sum is paid,

25

           (b)           the employment is with a foreign employer, and

           (c)           on a claim made by the employee the Board of Inland Revenue are

satisfied that the scheme corresponds to a scheme within section

387(2)(a), (b) or (c).

 391   Exception: seafarers with overseas earnings

30

Section 386 does not apply if—

           (a)           the sum is paid in a period that is an eligible period in relation to the

employee’s employment for the purposes of Chapter 6 of Part 5

(deductions from seafarers’ earnings) (see section 378(2)), and

           (b)           a deduction is allowed under section 378 from the employee’s earnings

35

that are attributable to that period.

 392   Relief where no benefits are paid or payable

     (1)    An application for relief may be made to the Inland Revenue if—

           (a)           a sum is charged to tax by virtue of section 386 in respect of the

provision of any benefits,

40

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 2 — Benefits from non-approved pension schemes

    196

 

           (b)           no payment in respect of, or in substitution for, the benefits has been

made, and

           (c)           an event occurs by reason of which no such payment will be made.

     (2)    The application must be made within 6 years from the time when the event

occurs.

5

     (3)    The application must be made by the employee or, if the employee has died,

the employee’s personal representatives.

     (4)    If the Inland Revenue are satisfied that the conditions in subsection (1) are met

in relation to the whole sum, they must give relief in respect of tax on it by

repayment or otherwise as appropriate, unless subsection (6) applies.

10

     (5)    If the Inland Revenue are satisfied that the conditions in subsection (1) are met

in relation to part of the sum, they may give such relief in respect of tax on it as

is just and reasonable, unless subsection (6) applies.

     (6)    This subsection applies if—

           (a)           the reason why no payment has been made in respect of, or in

15

substitution for, the benefits, or

           (b)           the event by reason of which there will be no such payment,

            is a reduction or cancellation of the employee’s rights in respect of the benefits,

or part of the benefits, as a consequence of a pension sharing order or

provision.

20

     (7)    In subsection (6) “pension sharing order or provision” means any such order

or provision as is mentioned in—

           (a)           section 28(1) of WRPA 1999 (rights under pension sharing

arrangements), or

           (b)           Article 25(1) of WRP(NI)O 1999 (provision for Northern Ireland

25

corresponding to section 28(1) of WRPA 1999).

Chapter 2

Benefits from non-approved pension schemes

Benefits treated as employment income

 393   Application of this Chapter

30

     (1)    This Chapter applies to any benefit provided under a non-approved retirement

benefits scheme.

     (2)    But this Chapter does not apply to a benefit which is charged to tax under Part

9 (pension income).

 394   Charge on benefit to which this Chapter applies

35

     (1)    If a benefit to which this Chapter applies is received by an individual, the

amount of the benefit counts as employment income of the individual for the

relevant tax year.

     (2)    If a benefit to which this Chapter applies is received by a person who is not an

individual, the administrator of the scheme under which the benefit is

40

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 2 — Benefits from non-approved pension schemes

    197

 

     (2)    provided is chargeable to tax under Case VI of Schedule D on the amount of

the benefit for the relevant tax year.

     (3)    In subsections (1) and (2) the “relevant tax year” is the tax year in which the

benefit is received.

     (4)    For the purposes of subsection (2), the rate of tax is 40% or such other rate as

5

may for the time being be specified by the Treasury by order.

     (5)    No liability to income tax arises by virtue of any other provision of this Act in

respect of a benefit to which this Chapter applies.

 395   Application of sections 396 and 397: general rules

     (1)    Section 394 is subject to—

10

           (a)           section 396 (which provides that certain lump sums are not taxed by

virtue of section 394), and

           (b)           section 397 (which provides for the calculation of the amount taxed by

virtue of section 394 in relation to certain lump sums).

     (2)    Section 396 applies in relation to a lump sum only if the condition in subsection

15

(4) below is met.

     (3)    Section 397 applies in relation to a lump sum only if—

           (a)           the condition in subsection (4) below is met, or

           (b)           an employee has paid any sum or sums with a view to the provision of

any relevant benefits under the scheme under which the lump sum is

20

provided.

     (4)    The condition mentioned in subsections (2) and (3)(a) is that—

           (a)           an employer has paid any sum or sums with a view to the provision of

any relevant benefits under the scheme under which the lump sum is

provided, and

25

           (b)           an employee has been assessed to tax in respect of the sum or sums so

paid—

                  (i)                 by virtue of section 595(1) of ICTA, or

                  (ii)                by virtue of the sum or sums counting as employment income

of the employee under section 386(1) of this Act.

30

     (5)    For the purposes of this section it must be assumed that, unless the contrary is

shown—

           (a)           no sums have been paid with a view to the provision of relevant

benefits, and

           (b)           an employee has not been assessed in respect of a sum or sums as

35

mentioned in subsection (4)(b).

 396   Certain lump sums not taxed by virtue of section 394

     (1)    Section 394 does not apply to a lump sum if—

           (a)           all of the income and gains accruing to the scheme under which the

lump sum is provided are brought into charge to tax, and

40

           (b)           the lump sum is provided to—

                  (i)                 the employee mentioned in section 395(4)(b),

                  (ii)                a relative of that employee,

                  (iii)               the personal representatives of that employee,

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 2 — Benefits from non-approved pension schemes

    198

 

                  (iv)                an ex-spouse of that employee, or

                  (v)                 any other individual designated by that employee.

     (2)    For the purposes of this section it must be assumed that, unless the contrary is

shown, the income and gains accruing to the scheme are not brought into

charge to tax.

5

 397   Certain lump sums: calculation of amount taxed by virtue of section 394

     (1)    In a case where—

           (a)           section 394 applies to a lump sum, and

           (b)           any of the income or gains accruing to the scheme under which the

lump sum is provided is not brought into charge to tax,

10

            the amount which by virtue of that section counts as employment income, or

is chargeable to tax under Case VI of Schedule D, is determined in accordance

with this section.

     (2)    That amount is the amount of the lump sum reduced by the deduction

applicable under subsection (3) or (4).

15

     (3)    Subject to subsection (4), the deduction applicable is the aggregate of—

           (a)           the sum or sums mentioned in section 395(3)(b) (if any), and

           (b)           the sum or sums mentioned in section 395(4)(b) (if any),

            which in either case were paid by way of contribution to the provision of the

lump sum.

20

     (4)    The deduction applicable is calculated in accordance with the formula in

subsection (6) if—

           (a)           the lump sum is provided under the scheme on the disposal of a part of

any asset or the surrender of any part of or share in any rights in any

asset, and

25

           (b)           a person falling within subsection (5) has a right to receive, or any

expectation of receiving, a further lump sum or further lump sums

under the scheme on a further disposal of any part of the asset or a

further surrender of any part of or share in any rights in the asset.

     (5)    The persons referred to in subsection (4)(b) are—

30

           (a)           the employee,

           (b)           a relative of that employee,

           (c)           the personal representatives of that employee, or

           (d)           any person connected with that employee.

     (6)    The formula referred to in subsection (4) is—equation: equal[char[D],cross[char[S],over[times[char[L],char[S]],times[char[M],char[V],char[

A]]]]]

35

            where—

                    D is the deduction applicable;

                    S is the aggregate amount of any sum or sums of a description mentioned

in paragraphs (a) and (b) of subsection (3);

                    LS is the amount of the lump sum received in relation to which the

40

deduction applicable falls to be determined;

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 2 — Benefits from non-approved pension schemes

    199

 

                    MVA is the market value of the asset in relation to which the disposal or

surrender occurred, on the assumption that the valuation is made

immediately before the disposal or surrender.

     (7)    An individual may not claim that a deduction is applicable in relation to a

lump sum more than once.

5

     (8)    For the purposes of this section it must be assumed that, unless the contrary is

shown—

           (a)           the income and gains accruing to the scheme are not brought into

charge to tax, and

           (b)           no deduction is applicable under subsection (3) or (4).

10

     (9)    For the purposes of this section income and gains accruing to the scheme are

not to be regarded as brought into charge to tax merely because tax is charged

in relation to the scheme in accordance with section 591C of ICTA.

     (10)   In this section “market value” is to be construed in accordance with sections

272 and 273 of TCGA 1992.

15

Valuation of benefits etc.

 398   Valuation of benefits

     (1)    In the case of a cash benefit, for the purposes of this Chapter the amount of a

benefit is taken to be the amount received.

     (2)    In the case of a non-cash benefit, for the purposes of this Chapter the amount

20

of a benefit is taken to be the greater of—

           (a)           the amount of earnings (as defined in Chapter 1 of Part 3) that the

benefit would give rise to if it were received for performance of the

duties of an employment (money’s worth), and

           (b)           the cash equivalent of the benefit under the benefits code if it were so

25

received and the code applied to it.

     (3)    For the purposes of subsection (2) the benefits code has effect with the

modifications in subsections (4) to (6).

     (4)    References in the benefits code to the employee are to be taken as references to

the person by whom the benefit is received.

30

     (5)    References in the benefits code to the employer are to be taken as including

references to the former employer.

     (6)    Where—

           (a)           section 106 (cash equivalent of accommodation over £75,000) applies,

and

35

           (b)           the amount referred to in section 105(2)(b) (the amount made good)

exceeds the amount referred to in section 105(2)(a) (the rental value),

            the amount to be subtracted under paragraph (b) of step 4 of the calculation in

section 106(2) is that excess (and not only the excess rent referred to there).

 399   Employment-related loans: interest treated as paid

40

     (1)    This section applies if—

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 2 — Benefits from non-approved pension schemes

    200

 

           (a)           an amount consisting of, or including, an amount representing the

benefit of a loan (“taxable amount”) counts as employment income of

an individual in a tax year under section 394(1), or

           (b)           the administrator of a scheme is charged to tax on a taxable amount

under Case VI of Schedule D under section 394(2).

5

     (2)    The individual or the administrator is to be treated for all purposes of the Tax

Acts (other than this Chapter) as having paid interest on the loan in the tax year

equal to the amount representing the cash equivalent of the loan.

     (3)    The interest is to be treated—

           (a)           as accruing during the period in the tax year during which the loan is

10

outstanding, and

           (b)           as paid at the end of the period.

     (4)    The interest is not to be treated—

           (a)           as income of the person making the loan, or

           (b)           as relevant loan interest to which section 369 of ICTA applies (mortgage

15

interest payable under deduction of tax).

Interpretation

 400   Interpretation

     (1)    In this Chapter—

                    “administrator”, in relation to a scheme, has the same meaning as in

20

section 611AA of ICTA;

                    “employee” has the same meaning as in Chapter 1 of Part 14 of ICTA (see

section 612(1) of ICTA);

                    “ex-spouse” means a party to a marriage that has been dissolved or

annulled and, in relation to any person, means the other party to a

25

marriage with that person that has been dissolved or annulled;

                    “non-approved retirement benefits scheme” has the same meaning as in

Chapter 1 (see section 387);

                    “relative”, in relation to an individual, means—

                  (a)                 the wife or husband of the individual,

30

                  (b)                 the widow or widower of the individual,

                  (c)                 a child of the individual, and

                  (d)                 a dependant of the individual;

                    “relevant benefits” has the same meaning as in section 612(1) of ICTA.

     (2)    Section 612(2) of ICTA applies to the references in this Chapter to the provision

35

of relevant benefits as it applies to such references in Chapter 1 of Part 14 of

ICTA.

 

 

Income Tax (Earnings and Pensions) Bill
Part 6 — Employment income: income which is not earnings or share-related
Chapter 3 — Payments and benefits on termination of employment etc.

    201

 

Chapter 3

Payments and benefits on termination of employment etc.

Preliminary

 401   Application of this Chapter

     (1)    This Chapter applies to payments and other benefits which are received

5

directly or indirectly in consideration or in consequence of, or otherwise in

connection with—

           (a)           the termination of a person’s employment,

           (b)           a change in the duties of a person’s employment, or

           (c)           a change in the earnings from a person’s employment,

10

            by the person, or the person’s spouse, blood relative, dependant or personal

representatives.

     (2)    Subsection (1) is subject to subsection (3) and sections 405 to 413 (exceptions for

certain payments and benefits).

     (3)    This Chapter does not apply to any payment or other benefit chargeable to

15

income tax apart from this Chapter.

     (4)    For the purposes of this Chapter—

           (a)           a payment or other benefit which is provided on behalf of, or to the

order of, the employee or former employee is treated as received by the

employee or former employee, and

20

           (b)           in relation to a payment or other benefit—

                  (i)                 any reference to the employee or former employee is to the

person mentioned in subsection (1), and

                  (ii)                any reference to the employer or former employer is to be read

accordingly.

25

 402   Meaning of “benefit”

     (1)    In this Chapter “benefit” includes anything in respect of which, were it

received for performance of the duties of the employment, an amount—

           (a)           would be taxable earnings from the employment, or

           (b)           would be such earnings apart from an earnings-only exemption.

30

            This is subject to subsections (2) to (4).

     (2)    In this Chapter “benefit” does not include a benefit received in connection with

the termination of a person’s employment that is a benefit which, were it

received for performance of the duties of the employment, would fall within—

           (a)           section 239(4) (exemption of benefits connected with taxable cars and

35

vans and exempt heavy goods vehicles), so far as that section applies to

a benefit connected with a car or van,

           (b)           section 269 (exemption where benefits or money obtained in connection

with taxable car or van or exempt heavy goods vehicle),

           (c)           section 319 (mobile telephones), or

40

           (d)           section 320 (limited exemption for computer equipment).

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2002
Revised 4 December 2002