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 3 — Payments and benefits on termination of employment etc.

    202

 

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

any change in the duties of, or earnings from, a person’s employment to the

extent that it is a benefit which, were it received for performance of the duties

of the employment, would fall within 271(1) (limited exemption of removal

benefits and expenses).

5

     (4)    The right to receive a payment or benefit is not itself a benefit for the purposes

of this Chapter.

Payments and benefits treated as employment income

 403   Charge on payment or other benefit

     (1)    The amount of a payment or benefit to which this Chapter applies counts as

10

employment income of the employee or former employee for the relevant tax

year if and to the extent that it exceeds the £30,000 threshold.

     (2)    In this section “the relevant tax year” means the tax year in which the payment

or other benefit is received.

     (3)    For the purposes of this Chapter—

15

           (a)           a cash benefit is treated as received—

                  (i)                 when it is paid or a payment is made on account of it, or

                  (ii)                when the recipient becomes entitled to require payment of or on

account of it, and

           (b)           a non-cash benefit is treated as received when it is used or enjoyed.

20

     (4)    For the purposes of this Chapter the amount of a payment or benefit in respect

of an employee or former employee exceeds the £30,000 threshold if and to the

extent that when it is aggregated with other such payments or benefits to

which this Chapter applies it exceeds £30,000 according to the rules in section

404 (how the £30,000 threshold applies).

25

     (5)    If it is received after the death of the employee or former employee—

           (a)           the amount of a payment or benefit to which this Chapter applies

counts as the employment income of the personal representatives for

the relevant year if or to the extent that it exceeds £30,000 according to

the rules in section 404, and

30

           (b)           the tax is accordingly to be assessed and charged on them and is a debt

due from and payable out of the estate.

     (6)    In this Chapter references to the taxable person are to the person in relation to

whom subsection (1) or (5) provides for an amount to count as employment

income.

35

 404   How the £30,000 threshold applies

     (1)    For the purpose of the £30,000 threshold in section 403(4) and (5), the payments

and other benefits provided in respect of an employee or former employee

which are to be aggregated are those provided—

           (a)           in respect of the same employment,

40

           (b)           in respect of different employments with the same employer, and

           (c)           in respect of employments with employers who are associated.

 

 

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.

    203

 

     (2)    For this purpose employers are “associated” if on a termination or change

date—

           (a)           one of them is under the control of the other, or

           (b)           one of them is under the control of a third person who on that

termination or change date or another such date controls or is under the

5

control of the other.

     (3)    In subsection (2)—

           (a)           references to an employer, or to a person controlling or controlled by an

employer, include the successors of the employer or person, and

           (b)           “termination or change date” means a date on which a termination or

10

change occurs in connection with which a payment or other benefit to

which this Chapter applies is received in respect of the employee or

former employee.

     (4)    If payments and other benefits are received in different tax years, the £30,000 is

set against the amount of payments and other benefits received in earlier years

15

before those received in later years.

     (5)    If more than one payment or other benefit is received in a tax year in which the

threshold is exceeded—

           (a)           the £30,000 (or the balance of it) is set against the amounts of cash

benefits as they are received, and

20

           (b)           any balance at the end of the year is set against the aggregate amount

of non-cash benefits received in the year.

Exceptions and reductions

 405   Exception for certain payments exempted when received as earnings

     (1)    This Chapter does not apply to any payment received in connection with the

25

termination of a person’s employment which, were it received for the

performance of the duties of the employment, would fall within section 308

(exemption of contributions to approved personal pension arrangements).

     (2)    This Chapter does not apply to any payment received in connection with any

change in the duties of, or earnings from, a person’s employment to the extent

30

that, were it received for the performance of the duties of the employment, it

would fall within 271(1) (limited exemption of removal benefits and expenses).

 406   Exception for death or disability payments and benefits

This Chapter does not apply to a payment or other benefit provided—

           (a)           in connection with the termination of employment by the death of an

35

employee, or

           (b)           on account of injury to or disability of an employee.

 407   Exception for payments and benefits under tax-exempt pension schemes

     (1)    This Chapter does not apply to a payment or other benefit provided under a

tax-exempt pension scheme if—

40

           (a)           the payment or other benefit is by way of compensation—

                  (i)                 for loss of employment, or

                  (ii)                for loss or diminution of earnings, and

 

 

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.

    204

 

                         the loss or diminution is due to ill-health, or

           (b)           the payment or other benefit is properly regarded as earned by past

service.

     (2)    For this purpose “tax-exempt pension scheme” means—

           (a)           a retirement benefits scheme which is—

5

                  (i)                 an approved scheme,

                  (ii)                a relevant statutory scheme, or

                  (iii)               a scheme set up by a government outside the United Kingdom

for the benefit of its employees or primarily for their benefit, or

           (b)           any such scheme or fund as was described in section 221(1) and (2) of

10

ICTA 1970 (schemes to which payments could be made without charge

to tax under section 220 of ICTA 1970).

     (3)    In this section—

                    “approved scheme” has the meaning given by section 612(1) of ICTA,

                    “relevant statutory scheme” has the meaning given by section 611A of

15

ICTA, and

                    “retirement benefits scheme” has the meaning given by section 611 of

ICTA.

 408   Exception for contributions to tax-exempt pension schemes

     (1)    This Chapter does not apply to a contribution to a tax-exempt pension scheme

20

or approved personal pension arrangements if the contribution is made—

           (a)           as part of an arrangement relating to the termination of a person’s

employment, and

           (b)           in order to provide benefits for the person in accordance with the terms

of the scheme or approved personal pension arrangements.

25

     (2)    For this purpose—

                    “tax-exempt pension scheme” has the same meaning as in section 407(2),

and

                    “approved” and “personal pension arrangements” have the meaning

given by section 630(1) of ICTA.

30

 409   Exception for payments and benefits in respect of employee liabilities and

indemnity insurance

     (1)    This Chapter does not apply to a payment or other benefit received by an

individual if or to the extent that—

           (a)           in the case of a cash benefit, it is provided for meeting the cost of a

35

deductible amount , or

           (b)           in the case of a non-cash benefit, it is or represents a benefit equivalent

to the cost of paying a deductible amount.

     (2)    For the purposes of this section “deductible amount” means an amount which

meets conditions A to C.

40

     (3)    Condition A is that the amount is paid by the individual.

     (4)    Condition B is that a deduction for the amount would have been allowed under

section 346 from earnings from the relevant employment, if the individual still

held the employment when the amount was paid.

 

 

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.

    205

 

     (5)    Condition C is that the amount is paid at a time which falls within the run-off

period.

     (6)    In this section and section 410

                    “relevant employment” means the employment mentioned in section

401(1);

5

                    “run-off period” means the period which—

                  (a)                 starts with the day on which the relevant employment

terminated, and

                  (b)                 ends with the last day of the sixth tax year following the tax year

in which the period started.

10

 410   Exception for payments and benefits in respect of employee liabilities and

indemnity insurance: individual deceased

     (1)    This Chapter does not apply to a payment or other benefit received by an

individual’s personal representatives if or to the extent that—

           (a)           in the case of a cash benefit, it is provided for meeting the cost of a

15

deductible amount, or

           (b)           in the case of a non-cash benefit, it is or represents a benefit equivalent

to the cost of paying a deductible amount.

     (2)    For the purposes of this section “deductible amount” means an amount which

meets conditions A to C.

20

     (3)    Condition A is that the amount is paid by the individual’s personal

representatives.

     (4)    Condition B is that a deduction for the amount would have been allowed under

section 346 from earnings from the relevant employment, if—

           (a)           the individual had not died,

25

           (b)           the amount had been paid by the individual, and

           (c)           the individual still held the employment when the amount was paid.

     (5)    Condition C is that the amount is paid at a time which falls within the run-off

period.

 411   Exception for payments and benefits for forces

30

This Chapter does not apply to a payment or other benefit provided—

           (a)           under a Royal Warrant, Queen’s Order or Order in Council relating to

members of Her Majesty’s forces, or

           (b)           by way of payment in commutation of annual or other periodical

payments authorised by any such Warrant or Order.

35

 412   Exception for payments and benefits provided by foreign governments etc.

     (1)    This Chapter does not apply to—

           (a)           a benefit provided under a pension scheme administered by the

government of an overseas territory within the Commonwealth, or

           (b)           a payment of compensation for loss of career, interruption of service or

40

disturbance made—

                  (i)                 in connection with any change in the constitution of any such

overseas territory, and

 

 

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.

    206

 

                  (ii)                to a person who was employed in the public service of the

territory before the change.

     (2)    References in subsection (1) to—

           (a)           an overseas territory,

           (b)           the government of such a territory, and

5

           (c)           employment in the public service of such a territory,

            have the meanings given in section 615 of ICTA.

 413   Exception in certain cases of foreign service

     (1)    This Chapter does not apply if the service of the employee or former employee

in the employment in respect of which the payment or other benefit is received

10

included foreign service comprising—

           (a)           three-quarters or more of the whole period of service ending with the

date of the termination or change in question, or

           (b)           if the period of service ending with that date exceeded 10 years, the

whole of the last 10 years, or

15

           (c)           if the period of service ending with that date exceeded 20 years, one-

half or more of that period, including any 10 of the last 20 years.

     (2)    In subsection (1) “foreign service” means service to which subsection (3), (4) or

(6) applies.

     (3)    This subsection applies to service in or after the tax year 2003-04 such that—

20

           (a)           the earnings from the employment were not general earnings to which

section 15 or 21 applies (earnings for year when employee resident and

ordinarily resident in UK), or would not have been had there been any,

or

           (b)           a deduction equal to the whole amount of the earnings from the

25

employment was or would have been allowable under Chapter 6 of

Part 5 (deductions from seafarers’ earnings).

     (4)    This subsection applies to service before the tax year 2003-04 and after the tax

year 1973-74 such that—

           (a)           the emoluments from the employment were not chargeable under Case

30

I of Schedule E, or would not have been so chargeable had there been

any, or

           (b)           a deduction equal to the whole amount of the emoluments from the

employment was or would have been allowable under a foreign

earnings deduction provision.

35

     (5)    In subsection (4) “foreign earnings deduction provision” means—

           (a)           paragraph 1 of Schedule 2 to FA 1974,

           (b)           paragraph 1 of Schedule 7 to FA 1977, or

           (c)           section 192A or 193(1) of ICTA.

     (6)    This subsection applies to service before the tax year 1974-75 such that tax was

40

not chargeable in respect of the emoluments of the employment—

           (a)           in the tax year 1956-57 or later, under Case I of Schedule E, or

           (b)           in earlier tax years, under Schedule E,

            or it would not have been so chargeable had there been any such emoluments.

 

 

 
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