House of Commons - Explanatory Note
Income Tax (Earnings And Pensions) Bill - continued          House of Commons

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Clause 75: Meaning of "cash voucher"

296.     This clause defines "cash voucher" for the purposes of the Chapter. It derives from section 143(3) of ICTA.

297.     Subsection (1) sets out the definition. It does not require a cash voucher to be exchangeable wholly for cash. The amount of cash must be "not substantially less than" the cost to the employer. "Substantially" is not defined.

298.     The clause makes explicit that the "voucher" provided at the expense of the person bearing the cost includes a "stamp or similar document". This is implicit in ICTA by virtue of section 143(3). See Note 15 in Annex 2.

299.     Subsection (2) further clarifies what is or is not a cash voucher for the purposes of this Chapter. A voucher which is not a "cash voucher" may be a "non-cash voucher" to which clause 82 applies.

Clause 76: Sickness benefits-related voucher

300.     This clause amends the meaning of "cash voucher" where the expense incurred by the provider of the voucher includes costs of providing sickness benefits and the sum of money for which the voucher can be exchanged is substantially less than the total cost to the provider. It derives from section 143(4) of ICTA.

301.     The amendment effectively removes the sickness benefits element when testing whether the voucher is a cash voucher.

302.     Subsection (1) sets out the circumstances in which the clause applies.

303.     Subsection (2) provides two formulae to be used in determining whether the voucher is a cash voucher. The use of the formulae is best illustrated by examples:-

    Example 1 The exchange sum E is £60. The provision expense PE is £150 The cost of providing the sickness benefits is £90. £150(PE) - £60(E) = £90 The cost of providing the sickness benefits is £90, so D = £90. Putting these values into the formula: £150(PE) - £90(D) = £60 £60(E) = £150(PE) - £90(D), so the voucher is a cash voucher.

    Example 2. The exchange sum E is £60. The provision expense PE is £150 The cost of providing the sickness benefits is £85. £150(PE) - £60(E) = £90 The cost of providing the sickness benefits is £85, so D = £85 Putting these values into the formula:£150(PE) - £85(D) = £65 £60(E) is not substantially less than £65, so the voucher is a cash voucher.

    Example 3      The exchange sum E is £50 The provision expense PE is £150 The cost of providing the sickness benefits is £60. £150(PE) - £50(E) = £100 The cost of providing the sickness benefits is £60, so D = £60. Putting these values into the formula: £150(PE) - £60(D) = £90 £50(E) is substantially less than £90, so the voucher is not a cash voucher.

    304.     Subsection (3) defines "sickness benefits" for the purposes of the clause.

Clause 77: Apportionment of cost of provision of voucher

305.     This clause provides a rule for apportionment of the expense incurred by the provider where vouchers are provided for two or more employees. It derives from section 144(3) of ICTA.

306.     As in clause 75, this clause makes explicit that the "voucher" provided at the expense of the person bearing the cost includes a "stamp or similar document". See Note 15 in Annex 2.

Clause 78: Voucher made available to public generally

307.     This clause excepts a cash voucher from the application of the Chapter where the voucher is made available to the public generally and the employee (or family member) does not get it on preferential terms.

308.     This exception is a minor change to the law. See Change 18 in Annex 1.

Clause 79: Voucher issued under approved scheme

309.     This clause excepts a cash voucher from the application of the Chapter where the voucher is received by an employee under an Inland Revenue approved scheme. Such an approved scheme provides for deduction of income tax under PAYE. The practical effect of approval of a scheme is that tax is deducted when the voucher is exchanged instead of when it is received. The clause derives from section 143(5) of ICTA.

310.     The clause reflects pre-existing administrative practice when it refers to approval by the "Inland Revenue" rather than "the Board". This is a minor change in the law. See Change 158 in Annex 1.

Clause 80: Vouchers where payments of sums exempt from tax

311.     This clause derives from section 143(3), which provides that certain vouchers are not included in cash vouchers. This clause prevents the application of any provisions of the Chapter to such vouchers. The words which say the sum intended to be obtained is "mentioned in the document" have been omitted as unnecessary since, if it is "intended to enable the person to obtain", it must be mentioned in the document.

Clause 81: Benefit of cash voucher treated as earnings

312.     This clause provides the means of charging the benefit of the voucher to income tax. It derives from section 143(1) of ICTA.

313.     Subsection (1) treats the cash equivalent of that benefit as earnings from the employment. Amounts treated as earnings under this Chapter are employment income charged under Part 2. They are earnings for the tax year in which the voucher is received - see Note 7 in Annex 2. For the purposes of Chapters 4 and 5 of Part 2 they are treated as received in that year - see clauses 19(2) and 32(2).

314.     Subsection (2) defines "cash equivalent" as the sum of money for which the voucher may be exchanged.

Clause 82: Non-cash vouchers to which this Chapter applies

315.     This clause sets out the non-cash vouchers to which this Chapter applies. It derives from section 141 of ICTA.

316.     If such a voucher is provided for personal reasons by an employer who is an individual, it is not regarded as provided by reason of the employment. The disregard of vouchers provided by an individual for personal reasons is a minor change to the law. See Change 18 in Annex 1.

Clause 83: Provision for, or receipt by, member of employee's family

317.     This clause extends provision for or receipt by the employee of a non-cash voucher to provision for or receipt by a member of the employee's family. It derives from section 144(4) of ICTA

Clause 84: Meaning of "non-cash voucher"

318.     This clause defines "non-cash voucher" for the purposes of the Chapter. It derives from section 141(7) of ICTA.

319.     Subsection (1) sets out the definition in terms of three types of voucher, but excludes a cash voucher.

320.     Subsection (2) further clarifies what is a non-cash voucher for the purposes of this Chapter.

321.     Subsections (3) defines "transport voucher". The definition of a "transport voucher" reflects that it may only have to be shown, rather than exchanged, to obtain services.

322.     Subsection (4) defines "cheque voucher" as a cheque intended for use in payment for goods and services. It describes a particular type of cheque which is limited in its purpose. The distinction is made between this and non-cash vouchers to prevent any argument that the type of voucher which required completion of the amount, and perhaps a signature as well, did not fall within the definition of non-cash voucher. That definition of non-cash voucher is extended by the definition of cheque voucher to include such deviations from the norm.

Clause 85: Non-cash voucher made available to public generally

323.     This clause excepts a non-cash voucher from the application of the Chapter where the voucher is made available to the public generally and the employee (or family member) does not get it on preferential terms.

324.     This exception is a minor change to the law. See Change 18 in Annex 1.

Clause 86: Transport vouchers under pre-26th March 1982 arrangements

325.     This clause excepts a transport voucher from the application of the Chapter where it is provided, under arrangements in operation on 25 March 1982, to enable an employee (or family member) to obtain cheap or free travel provided by their employer or another passenger transport undertaking. It derives from section 141(6) of ICTA.

326.     Where a transport voucher, such as a season ticket, is provided other than under such arrangements, the benefit of the voucher is chargeable to tax.

327.     Paragraph 27 of Schedule 24 to Finance Act 1994 provided for the exception to continue for employees of British Rail transferred to new rail franchises following privatisation. Consequential amendments have been made to those provisions. See paragraph 224 of Part 2 of Schedule 6.

Clause 87: Benefit of non-cash voucher treated as earnings

328.     The clause provides the means of charging the benefit of the voucher to income tax. It derives from section 141 of ICTA.

329.     Subsection (1) treats the cash equivalent of that benefit as earnings from the employment. Amounts treated as earnings under this Chapter are employment income charged under Part 2. They are earnings for the tax year in which the voucher is received - see Note 7 in Annex 2. For the purposes of Chapters 4 and 5 of Part 2 they are treated as received in that year - see clauses 19(2) and 32(2).

330.     Subsection (2) defines "cash equivalent" as the net cost of provision after deducting the amount made good by the employee.

331.     Subsections (3) and (4) define "cost of provision".

332.     Subsection (5) provides an apportionment rule.

Clause 88: Year in which earnings treated as received

333.     This clause gives the timing rules for the receipt of the amount treated as earnings. It derives from section 141(1) and (2) of ICTA.

334.     Subsection (1) deals with non-cash vouchers other than cheque vouchers. In most cases the cost of provision will have been incurred before the voucher is received. The earnings will therefore be treated as received in the year in which the voucher is received by the employee. If that is not the case and the cost of provisions is incurred at a later time, the amount will not be known. This may cause a particular problem if the amount cannot be ascertained until a tax year after the voucher is received. This clause defines the receipt for the purposes of clauses 19 and 32 as being at the time the cost is known.

335.     Subsection (2) and (3) are provisions specific to cheque vouchers which provide a similar rule to that for other non-cash vouchers.

Clause 89: Reduction for meal vouchers

336.     This clause excepts, subject to the conditions of the exception, the first 15 pence of a meal voucher provided to an employee. It derives from ESC A2 ("luncheon vouchers"), but adapts the ESC to meet the terms of this Chapter.

337.     Subsection (3) excludes an overlap with the exemption in clause 266(3) for a non-cash voucher, equivalent to the exemption for direct provision in clause 317 (subsidised meals).

338.     Legislating ESC A2 is a minor change to the law. See Change 19 in Annex 1.

Clause 90: Credit-tokens to which this Chapter applies

339.     This clause sets out the credit-tokens to which the Chapter applies similarly to the provisions in clause 73 for cash vouchers and in clause 82 for non-cash vouchers. It derives from section 142(1) of ICTA.

340.     Where such a credit-token is given for personal reasons by an employer who is an individual, it is not regarded as provided by reason of the employment.

341.     The disregard of credit-tokens provided by an individual for personal reasons is a minor change to the law. See Change 18 in Annex 1.

Clause 91: Provision for, or use by, member of employee's family

342.     This clause extends provision for or use of a credit-token by the employee, to provision for, or use by a member of the employee's family. It derives from section 144(4) and (4A) of ICTA.

Clause 92: Meaning of "credit-token"

343.     This clause defines "credit-token" for the purposes of the Chapter.

344.     Subsection (1) provides the definition. It derives from section 142(4) of ICTA.

345.     Subsections (2) and (3) amplify the definition for particular circumstances.

346.     Subsection (4) excludes cash and non-cash vouchers from the definition.

Clause 93: Credit-token made available to public generally

347.     This clause excepts a credit-token from the application of the Chapter where the credit-token is made available to the public generally and the employee (or family member) does not get it on preferential terms.

348.     This exception is a minor change to the law. See Change 18 in Annex 1.

Clause 94 Benefit of credit-token treated as earnings

349.     The clause provides the means of charging the benefit of the token to income tax. It derives from section 142(1) of ICTA.

350.     Subsection (1) treats the cash equivalent of that benefit as earnings from the employment. Amounts treated as earnings under this Chapter are employment income charged under Part 2 - see Note 7 in Annex 2. For the purposes of Chapters 4 and 5 of Part 2 they are treated as received in that year - see clauses 19(2) and 32(2).

351.     The timing rule for receipt of the cash equivalent of credit-tokens is different from that for non-cash vouchers. The focus is on when the token is used. This is because expense is incurred each time a credit-token is used, even if it is not paid at that time. Regardless of when the provider of the credit-token pays for the goods or services, the amounts treated as earnings for the tax year in which the credit-token is used are treated as received in that year.

352.     Subsection (2) defines "cash equivalent" as the net cost of provision after deducting the amount made good by the employee.

353.     Subsection (3) defines "cost of provision".

354.     Subsection (4) provides an apportionment rule equivalent to that in clauses 77 and 87.

355.     Clause 91 with this clause extends the charge to treat the benefit of use of a credit-token by a member of the employee's family as earnings of the employee.

Clause 95: Disregard for money, goods or services obtained

356.     This clause eliminates any charge on the money or money's worth or cost of the goods or services received in exchange for vouchers, or through the use of a credit-token, where the cash equivalent of the benefit is treated as earnings under this Chapter (or would be, but for a dispensation under clause 96).

357.     It derives from sections 141(1)(b), 142(1)(b) and 143(1)(b) of ICTA.

358.     Subsection (1) sets out the circumstances in which the clause operates. The addition of subsection (1)(b) prevents the goods and services obtained by use of the voucher being within Chapter 10 of Part 3 if a dispensation is given. This is a minor change to the law. See Change 20 in Annex 1.

359.     Subsection (2) provides that the money, goods or services obtained are disregarded for the purposes of the Income Tax Acts.

360.     The disregard extends to goods or services obtained through use of a cash voucher. Normally, a cash voucher is exchanged for a sum of money and tax is charged on that sum. If goods or services are provided, tax will not be charged on the value of those goods or services.

361.     Extending the disregard to goods and services obtained by use of a cash voucher is a minor change to the law. See Change 20 in Annex 1.

362.     The disregard has been extended to things obtained by the use of vouchers and tokens in certain cases where the benefit of the voucher or token itself is exempt and that exemption depends on the goods and services obtained by the use of the vouchers or tokens themselves being exempt if obtained direct. (The exemptions in question are those given by clause 266(1)(a) or (e) (exemption of non-cash voucher where used to obtain parking provision or third party entertainment), clause 267 where subsection (2)(a) or (f) of that clause applies (exemption of credit-token where used to obtain parking provision or third party entertainment) and clause 268 (exemption of non-cash voucher or credit-token where used for incidental overnight expenses)). It is simpler to extend the disregard in this way than to allow the things obtained by the use of these vouchers and tokens to fall into other charging provisions, only to be exempted by the exemptions that apply in these cases.

363.     Subsection (3) ensures that deductions available under clauses 362 and 363 (deductions where non-cash voucher or credit-token provided) are not affected by the disregard.

364.     Subsection (4) clarifies the application of the disregard for transport vouchers.

Clause 96: Dispensations relating to vouchers or credit-tokens

365.     This clause provides for the Inland Revenue to give a notice (commonly called a dispensation) where they are satisfied that no additional tax is payable under the provisions of this Chapter. The clause also provides for such notices to be revoked and for the tax charge to apply accordingly.

366.     The clause derives from section 144(1) and (2) of ICTA.

367.     Subsection (1) sets out when the clause applies, which is when the employer applies for a dispensation. The reference to the Inland Revenue replaces references to inspector. See Change 158 in Annex 1.

368.     Subsection (2) requires the Inland Revenue to give a dispensation if they are satisfied that no additional tax would arise in the particular circumstances from the application of the Chapter.

369.     Subsection (3) defines "dispensation". That term is the commonly used name for the written notification that the Inland Revenue gives the employer to authorise the application of the provisions in this clause to the benefit of vouchers and credit-tokens. The clause also characterises the dispensation as a notice which, by virtue of the definition of that word in section 832(1) of ICTA, means that it must be in writing. These two changes to formalise the common name for the authorisation given and to require that it must be in writing are minor changes to the law. See Change 16 in Annex 1.

370.     Subsection (4) sets out the effect of a dispensation.

371.     Subsections (5) to (8) authorise the Inland Revenue to revoke a dispensation "if in their opinion there is reason to do so", and set out the consequences of such a revocation. The consequences depend on the date from which the revocation has effect (which may be as far back as the date the dispensation was given).

372.     A notice revoking a dispensation is "given" rather than "served". This is in line with current practice and consistent with the usage for notices in CAA 2001. This is a minor change to the law. See Change 16 in Annex 1.

Chapter 5: Taxable benefits: living accommodation

Overview

373.     This Chapter deals with the benefit which arises from the provision of living accommodation. It begins by defining in what circumstances the Chapter applies. It then sets out the circumstances in which it does not apply, so that anyone who falls within the exceptions does not need to go any further. The Chapter then deals with the method of calculating the cash equivalent of the benefit. It derives from sections 145 and 146 of ICTA.

Clause 97: Living accommodation to which this Chapter applies

374.     This clause sets out the general statement to indicate that when living accommodation is provided for an employee this Chapter applies.

375.     Subsection (2) prevents a charge arising on family and household members living at home who are employed by the home-owner who is an individual. It also covers the case where the living accommodation is not the family home, and the employer is providing the accommodation in a capacity other than as employer.

376.     It derives from sections 145(1), (6), (7), 146(1)(a) and (10) of ICTA.

Clause 98: Accommodation provided by local authority

377.     This clause provides for an exception to prevent a charge where a local authority employee is provided with accommodation and the conditions are met.

378.     It derives from sections 145(7)(b) and 146(10) of ICTA.

Clause 99: Accommodation provided for performance of duties

379.     This clause sets out two exemptions from the charge on provided living accommodation.

380.     The exemptions derive from sections 145(4)(a) and (b) of ICTA.

381.     These exemptions apply to directors only if the conditions set out in subsections (3) to (5) are met. This rider to the exemptions derives from section 145(5) and (8) of ICTA.

382.     When the exemptions in this clause or that in clause 98 apply, there are further exemptions which may be available by virtue of clauses 314 and 315 in Part 4.

Clause 100: Accommodation provided as result of security threat

383.     This clause ensures that living accommodation provided because of a special threat to an employee does not give rise to a charge to tax. It derives from section 145(4)(c) of ICTA.

Clause 101: Chevening House

384.     This clause provides an exemption from a charge to tax on provided living accommodation for a nominated person occupying Chevening House. It derives from section 147 of ICTA.

Clause 102: Benefit of living accommodation treated as earnings

385.     This clause makes the cash equivalent of the benefit of the living accommodation chargeable to tax, by treating it as earnings. It derives from sections 145(1) and 146(1) of ICTA.

386.     Subsection (1) sets out the year for which the cash equivalent is to be treated as earnings. See Note 7 in Annex 2.

387.     The period for which the cash equivalent is calculated, is given the label "the taxable period". See Note 16 in Annex 2.

Clause 103: Method of calculating cash equivalent

388.     This is a signpost clause, introducing clauses 104 to 106 It also sets out where to find the meaning of various terms used throughout this Chapter. It is new.

Clause 104: General rule for calculating cost of providing accommodation

389.     This clause sets out the method for determining whether the cost of providing the accommodation exceeds £75,000. It contains material deriving from section 146(4), (5) and (11) of ICTA.

Clause 105: Cash equivalent: cost of accommodation not over £75,000

390.     This clause sets out how to calculate the cash equivalent of the benefit of provided living accommodation costing no more than £75,000. It derives from section 145(1) and (2) of ICTA.

Clause 106: Cash equivalent: cost of accommodation over £75,000

391.     This clause sets out how to calculate the cash equivalent of the benefit of provided living accommodation costing more than £75,000 by means of a method statement. It derives from section 146(1) to (5) and (11) of ICTA.

392.     Subsection (2) Step 1 calculates the basic charge under clause 105. This includes taking into account any sums made good by the employee (in subsection (5) of clause 105).

393.     Step 2 calculates the additional yearly rent of the accommodation based on the extent to which the cost of providing the property exceeds £75,000.

394.     Step 3 reduces the additional yearly rent to that for "the taxable period".

395.     Step 4 brings together the results of steps 1 and 3 and also allows any excess of rent paid to be brought into account.

396.     Subsection (3) defines excess rent and sets out the circumstances in which it can be taken into account at Step 4.

 
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Prepared: 5 December 2002