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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 3 — Employment income: earnings and benefits etc. treated as earnings Chapter 5 — Taxable benefits: living accommodation     49
Benefit of living accommodation treated as earnings
102   Benefit of living accommodation treated as earnings
(1)    If living accommodation to which this Chapter applies is provided in any
period—
(a)           which consists of the whole or part of a tax year, and	5
(b)           throughout which the employee holds the employment,
the cash equivalent of the benefit of the accommodation is to be treated as
earnings from the employment for that year.
(2)    In this Chapter that period is referred to as “the taxable period”.
(3)    Section 103 indicates how the cash equivalent is calculated.	10
Calculation of cash equivalent
103   Method of calculating cash equivalent
(1)    The cash equivalent is calculated—
(a)           under section 105 if the cost of providing the living accommodation
does not exceed £75,000; and	15
(b)           under section 106 if the cost of providing the living accommodation
exceeds £75,000.
(2)    Section 104 (general rule) sets out how to calculate the cost of providing living
accommodation for the purpose of determining whether or not it exceeds
£75,000.	20
(3)    In this Chapter—
“annual value”,
“person involved in providing accommodation”, and
“the property”,
have the meaning given by sections 110 to 113, and “the taxable period” has the	25
meaning given by section 102(2).
104   General rule for calculating cost of providing accommodation
For any tax year the cost of providing living accommodation is given by the
formula—
where—	30
A is any expenditure incurred in acquiring the estate or interest in the
property held by a person involved in providing the accommodation,
I is any expenditure incurred on improvements to the property which has
been incurred before the tax year in question by a person involved in
providing the accommodation, and	35
P is so much of any payment or payments made by the employee to a
person involved in providing the accommodation as represents—
(a)                 reimbursement of A or I, or
(b)                 consideration for the grant to the employee of a tenancy or sub-
tenancy of the property.	40
Income Tax (Earnings and Pensions) Bill Part 3 — Employment income: earnings and benefits etc. treated as earnings Chapter 5 — Taxable benefits: living accommodation     50
Accommodation costing £75,000 or less
105   Cash equivalent: cost of accommodation not over £75,000
(1)    The cash equivalent is to be calculated under this section if the cost of
providing the living accommodation does not exceed £75,000.
(2)    The cash equivalent is the difference between—	5
(a)           the rental value of the accommodation for the taxable period, and
(b)           any sum made good by the employee to the person at whose cost the
accommodation is provided that is properly attributable to its
provision.
(3)    The “rental value of the accommodation” for the taxable period is the rent	10
which would have been payable for that period if the property had been let to
the employee at an annual rent equal to the annual value.
(4)    But if the person at whose cost the accommodation is provided pays rent for
the whole or part of the taxable period at an annual rate greater than the
annual value—	15
(a)           subsection (3) does not apply to that period or (as the case may be) that
part of it; and
(b)           instead the “rental value of the accommodation” for that period or part
is the rent payable for it by that person.
(5)    If the rental value of the accommodation for the taxable period does not exceed	20
any sum made good by the employee as mentioned in subsection (2)(b), the
cash equivalent is nil.
Accommodation costing more than £75,000
106   Cash equivalent: cost of accommodation over £75,000
(1)    The cash equivalent is calculated under this section if the cost of providing the	25
living accommodation exceeds £75,000.
(2)    To calculate the cash equivalent—
Step 1
Calculate the amount that would be the cash equivalent if section 105 applied
(cash equivalent: cost of accommodation not over £75,000).	30
Step 2
Calculate the following amount (“the additional yearly rent”)—
where—
ORI is the official rate of interest in force for the purposes of Chapter 7 of
this Part (taxable benefits: loans) on 6th April in the tax year, and	35
C is the cost of providing the accommodation calculated—
(a)                 in accordance with section 104 (normal rule for calculating cost
of accommodation), or
Income Tax (Earnings and Pensions) Bill Part 3 — Employment income: earnings and benefits etc. treated as earnings Chapter 5 — Taxable benefits: living accommodation     51
(b)                 in a case where section 107 applies (special rule for calculating
cost of providing accommodation), in accordance with that
section instead.
Step 3
Calculate the rent which would have been payable for the taxable period if the	5
property had been let to the employee at the additional yearly rent calculated
under step 2.
Step 4
Calculate the cash equivalent by—
(a)           adding together the amounts calculated under steps 1 and 3, and	10
(b)           (if allowed by subsection (3)) subtracting from that total the excess rent
paid by the employee.
(3)    In step 4—
(a)           paragraph (b) only applies if, in respect of the taxable period, the rent
paid by the employee in respect of the accommodation to the person	15
providing it exceeds the rental value of the accommodation for that
period as set out in section 105(3) or (4)(b), as applicable, and
(b)           “the excess rent” means the total amount of that excess.
107   Special rule for calculating cost of providing accommodation
(1)    This section contains a special rule for calculating the cost of providing living	20
accommodation which—
(a)           operates for the purposes of step 2 of section 106(2) (calculating the
additional yearly rent), and
(b)           accordingly only operates where the cost of provision for the purposes
of section 106(1) (as calculated under section 104) exceeds £75,000.	25
(2)    This section applies if, throughout the period of 6 years ending with the date
when the employee first occupied the accommodation (“the initial date”), an
estate or interest in the property was held by a person involved in providing
the accommodation.
It does not matter whether it was the same estate, interest or person	30
throughout.
(3)    For any tax year the cost of providing the living accommodation for the
purposes mentioned in subsection (1)(a) is given by the formula—
where—
MV is the price which the property might reasonably be expected to have	35
fetched on a sale in the open market with vacant possession as at the
initial date,
I is any expenditure incurred on improvements to the property which has
been incurred during the period—
(a)                 beginning with the initial date, and	40
(b)                 ending with the day before the beginning of the tax year,
by a person involved in providing the accommodation, and
P is so much of any payment or payments made by the employee to a
person involved in providing the accommodation as represents—
Income Tax (Earnings and Pensions) Bill Part 3 — Employment income: earnings and benefits etc. treated as earnings Chapter 5 — Taxable benefits: living accommodation     52
(a)                 reimbursement (up to an amount not exceeding MV) of any
expenditure incurred in acquiring the estate or interest in the
property held on the initial date,
(b)                 reimbursement of I, or
(c)                 consideration for the grant to the employee of a tenancy or sub-	5
tenancy of the property.
(4)    In estimating MV no reduction is to be made for an option in respect of the
property held by—
(a)           the employee,
(b)           a person connected with the employee, or	10
(c)           a person involved in providing the accommodation.
Apportionment of cash equivalent
108   Cash equivalent: accommodation provided for more than one employee
(1)    If, for the whole or part of a tax year, the same living accommodation is
provided for more than one employee at the same time, the total of the cash	15
equivalents for all of the employees is to be limited to the amount that would
be the cash equivalent if the accommodation was provided for one employee.
(2)    The cash equivalent for each of the employees is to be such part of that amount
as is just and reasonable.
Other tax implications	20
109   Priority of this Chapter over Chapter 1 of this Part
(1)    This section applies if—
(a)           under this Chapter the cash equivalent of the benefit of living
accommodation is to be treated as earnings from an employee’s
employment for a tax year, and	25
(b)           under Chapter 1 of this Part an amount would, apart from this section,
constitute earnings from the employment for the year in respect of the
provision of the accommodation.
(2)    The full amount of the cash equivalent is to be treated as earnings from the
employment for that year under this Chapter.	30
(3)    The amount mentioned in subsection (1)(b) is to constitute earnings from the
employment for the year under Chapter 1 of this Part only to the extent that it
exceeds the amount mentioned in subsection (2).
Supplementary
110   Meaning of “annual value”	35
(1)    For the purposes of this Chapter the “annual value” of living accommodation
is the rent which might reasonably be expected to be obtained on a letting from
year to year if—
(a)           the tenant undertook to pay all taxes, rates and charges usually paid by
a tenant, and	40
Income Tax (Earnings and Pensions) Bill Part 3 — Employment income: earnings and benefits etc. treated as earnings Chapter 5 — Taxable benefits: living accommodation     53
(b)           the landlord undertook to bear the costs of the repairs and insurance
and the other expenses (if any) necessary for maintaining the property
in a state to command that rent.
(2)    For the purposes of subsection (1) that rent—
(a)           is to be taken to be the amount that might reasonably be expected to be	5
so obtained in respect of the letting of the accommodation, and
(b)           is to be calculated on the basis that the only amounts that may be
deducted in respect of services provided by the landlord are amounts
in respect of the cost to the landlord of providing any relevant services.
(3)    If living accommodation is of a kind that might reasonably be expected to be	10
let on terms under which—
(a)           the landlord is to provide any services which are either—
(i)                 relevant services, or
(ii)                the repair, insurance or maintenance of any premises which do
not form part of the accommodation but belong to or are	15
occupied by the landlord, and
(b)           amounts are payable in respect of the services in addition to the rent,
the rent to be established under subsection (1) in respect of the accommodation
is to include so much of those additional amounts as exceeds the cost to the
landlord of providing the services.	20
(4)    In this section “relevant service” means a service other than the repair,
insurance or maintenance of the accommodation or of any other premises.
111   Disputes as to annual value
(1)    This section applies if there is a dispute as to the amount of the annual value of
living accommodation for the purposes of this Chapter.	25
(2)    The question is to be determined by the General Commissioners.
(3)    The Commissioners must hear and determine the question in the same way as
an appeal.
112   Meaning of “person involved in providing the accommodation”
For the purposes of this Chapter “person involved in providing the	30
accommodation” means any of the following—
(a)           the person providing the accommodation;
(b)           the employee’s employer (if not within paragraph (a));
(c)           any person, other than the employee, who is connected with a person
within paragraph (a) or (b).	35
113   Meaning of “the property”
For the purposes of this Chapter “the property”, in relation to living
accommodation, means the property consisting of that accommodation.
Income Tax (Earnings and Pensions) Bill Part 3 — Employment income: earnings and benefits etc. treated as earnings Chapter 6 — Taxable benefits: cars, vans and related benefits     54
Chapter 6
Taxable benefits: cars, vans and related benefits
General
114   Cars, vans and related benefits
(1)    This Chapter applies to a car or a van in relation to a particular tax year if in	5
that year the car or van—
(a)           is made available (without any transfer of the property in it) to an
employee or a member of the employee’s family or household,
(b)           is so made available by reason of the employment (see section 117), and
(c)           is available for the employee’s or member’s private use (see section	10
118).
(2)    Where this Chapter applies to a car or van—
(a)           sections 120 to 148 provide for the cash equivalent of the benefit of the
car to be treated as earnings,
(b)           sections 149 to 153 provide for the cash equivalent of the benefit of any	15
fuel provided for the car to be treated as earnings, and
(c)           sections 154 to 166 provide for the cash equivalent of the benefit of the
van to be treated as earnings.
(3)    This Chapter does not apply if an amount constitutes earnings from the
employment in respect of the benefit of the car or van by virtue of any other	20
provision (see section 119).
(4)    The following provisions of this Chapter provide for further exceptions—
section 167 (pooled cars);
section 168 (pooled vans);
section 169 (car available to more than one member of family or	25
household employed by same employer).
115   Meaning of “car” and “van”
(1)    In this Chapter—
“car” means a mechanically propelled road vehicle which is not—
(a)                 a goods vehicle,	30
(b)                 a motor cycle,
(c)                 an invalid carriage, or
(d)                 a vehicle of a type not commonly used as a private vehicle and
unsuitable to be so used;
“van” means a mechanically propelled road vehicle which—	35
(a)                 is a goods vehicle, and
(b)                 has a design weight not exceeding 3,500 kilograms,
and which is not a motor cycle.
(2)    For the purposes of subsection (1)—
“design weight” means the weight which a vehicle is designed or adapted	40
not to exceed when in normal use and travelling on a road laden;
Income Tax (Earnings and Pensions) Bill Part 3 — Employment income: earnings and benefits etc. treated as earnings Chapter 6 — Taxable benefits: cars, vans and related benefits     55
“goods vehicle” means a vehicle of a construction primarily suited for the
conveyance of goods or burden of any description;
“invalid carriage” has the meaning given by section 185(1) of the Road
Traffic Act 1988 (c. 52);
“motor cycle” has the meaning given by section 185(1) of the Road Traffic	5
Act 1988.
116   Meaning of when car or van is available to employee
(1)    For the purposes of this Chapter a car or van is available to an employee at a
particular time if it is then made available, by reason of the employment and
without any transfer of the property in it, to the employee or a member of the	10
employee’s family or household.
(2)    References in this Chapter to—
(a)           the time when a car is first made available to an employee are to the
earliest time when the car is made available as mentioned in subsection
(1), and	15
(b)           the last day in a year on which a car is available to an employee are to
the last day in the year on which the car is made available as mentioned
in subsection (1).
(3)    This section does not apply to section 138 (automatic car for a disabled
employee).	20
117   Meaning of car or van made available by reason of employment
For the purposes of this Chapter a car or van made available by an employer to
an employee or a member of the employee’s family or household is to be
regarded as made available by reason of the employment, unless—
(a)           the employer is an individual, and	25
(b)           it is so made available in the normal course of the employer’s domestic,
family or personal relationships.
118   Availability for private use
(1)    For the purposes of this Chapter a car or van made available in a tax year to an
employee or a member of the employee’s family or household is to be treated	30
as available for the employee’s or member’s private use unless in that year—
(a)           the terms on which it is made available prohibit such use, and
(b)           it is not so used.
(2)    In this Chapter “private use”, in relation to a car or van made available to an
employee or a member of the employee’s family or household, means any use	35
other than for the employee’s business travel (see section 171(1)).
119   Where alternative to benefit of car offered
(1)    This section applies where in a tax year—
(a)           a car is made available as mentioned in section 114(1), and
(b)           an alternative to the benefit of the car is offered.	40

© Parliamentary copyright 2002	Revised 4 December 2002