Clause 308: Exemption of contributions to approved personal pension arrangements

1278.     This clause provides there is no liability to income tax on contributions by an employer under approved personal pension arrangements made by the employee. It derives from section 643(1) of ICTA.

1279.     Subsection (1) provides there is no liability to income tax on such contributions as earnings.

1280.     Subsection (2) sets out relevant definitions by cross-reference to section 630(1) of ICTA.

1281.     A personal pension scheme may be approved by the Board of Inland Revenue under section 631 of ICTA, in accordance with the rules in Chapter 4 of Part 14 of that Act.

Chapter 10: Exemptions: Termination of employment

Clause 309: Limited exemptions for statutory redundancy payments

1282.     This clause provides for limited exemptions from income tax in respect of redundancy payments and approved contractual payments.

1283.     Subsection (1) provides that there is no liability to income tax on redundancy payments and approved contractual payments as general earnings, except where subsection (2) applies. That subsection applies where the amount of an approved contractual payment exceeds the amount which would have been due if a redundancy payment had been payable. In such a case the excess is liable to income tax.

1284.     Subsection (3) provides that there is no liability to income tax on redundancy payments and approved contractual payments as specific earnings, except under Part 6 Chapter 3 (payments and benefits on termination of employment).

1285.     This clause derives from parts of sections 579 and 580 of ICTA. It is drafted by reference to an "approved contractual payment" as opposed to the "corresponding amount of any other employer's payment" - the expression used in section 579(1). The clause also introduces the expression "statutory payment" to describe the sum specified in section 579(6). These new expressions should make the legislation easier to follow. They also have the consequence that it is possible to dispense with the definition of "the Minister" in section 580(1)(c).

Clause 310: Counselling and other outplacement services

1286.     This clause provides there is no liability to income tax on the provision of counselling and other services in connection with the cessation of a person's employment.

1287.     It derives from sections 589A and 589B of ICTA as they apply to an employee. The provisions of 589A and 589B as they apply to an employer do not change, except that they have been amended to reflect the minor changes to the law made in this clause. See paragraph 69 of Schedule 6.

1288.     Subsection (1) provides the exemption and the conditions to be satisfied.

1289.     Subsection (2) sets out condition A, which relates to the purpose of the provision of the services.

1290.     Subsection (3) sets out condition B, which relates to the services provided.

1291.     Subsection (4) sets out condition C, which relates to the qualifying two year period of continuous employment.

1292.     Under the Employment Rights Act 1996, some events that involve a change in the identity of the employer are treated as not breaking the continuity of employment. The two year requirement is therefore expressed in terms of the employment that is ceasing, not of employment by the employer. See Change 71 in Annex 1.

1293.     Subsection (5) sets out condition D, which relates to the availability of the services to employees generally.

1294.     Subsection (6) sets out condition E, which relates to travel expenses.

1295.     Travel expenses meeting condition E include expenses which, on the assumptions in subsection (7), would be deductible under any provision of Part 5. Under ICTA, the expenses are restricted to expenses deductible only under selected clauses in that Part. See Change 73 in Annex 1.

1296.     This clause is listed in clause 332 (meaning of "the deductibility provisions"). Various provisions in Part 5 then ensure that certain rules in Part 5 do not adversely restrict expenses, deductible under that Part, for the purposes of condition E.

1297.     Subsection (7) sets out the assumptions made in applying condition E to travelling expenses. To accord with Inland Revenue practice, one of those assumptions is that the expenses are incurred and paid by the employee. But the assumption that they are paid out of emoluments has not been rewritten. See Change 81 in Annex 1.

1298.     To accord with Inland Revenue practice, the clause omits the condition in section 589B(2)(e) of ICTA, that the services are provided in the United Kingdom, and the apportionment rule in section 589B(3) which applies if services are provided partly in and partly outside the United Kingdom. A similar condition, in section 589(1)(d) of ICTA, has been omitted from clause 311 for the same reason. Removal of this condition aligns clauses 310 and 311 with the exemptions in Chapter 4 of Part 4. See Change 72 in Annex 1.

Clause 311: Retraining courses

1299.     This clause provides there is no liability to income tax on payment or reimbursement of retraining course expenses when a person's employment has ceased or is expected to cease.

1300.     It derives from sections 588 and 589 of ICTA as they relate to an employee. The provisions of 588 and 589 as they apply to an employer do not change, other than to adopt the minor changes to the law made in this clause. See paragraph 67 of Schedule 6.

1301.     Subsection (1) provides the exemption and the conditions to be satisfied.

1302.     Subsection (2) defines "retraining course expenses" for the purposes of the exemption.

1303.     Subsection (3) sets out the course conditions.

1304.     The clause does not require a course to be undertaken "with a view to retraining the employee". In practice a course is regarded as so undertaken if the conditions in the clause are satisfied. This additional requirement is superfluous. See Change 74 in Annex 1.

1305.     To accord with Inland Revenue practice, the clause also omits the condition in section 589(1)(d) of ICTA, that all teaching and practical application forming part of the course takes place in the United Kingdom. A similar condition, in section 589B(2)(e) of ICTA, has been omitted from clause 310 for the same reason. Removal of this condition aligns clauses 310 and 311 with the exemptions in Chapter 4 of Part 4. See Change 72 in Annex 1.

1306.     Subsection (4) sets out the employment conditions.

1307.     Under the Employment Rights Act 1996, some events that involve a change in the identity of the employer are treated as not breaking the continuity of employment. The requirement that the employee be employed continuously for two years prior to retraining or, if earlier, when the employment ceased, is therefore expressed, as in clause 310(4), in terms of the employment that is ceasing, not of employment by the employer.

1308.     Expressing the requirement this way aligns clauses 310 and 311 in their treatment of the same requirement. See Change 71 in Annex 1.

1309.     Subsection (5) sets out the conditions which relate to travelling expenses.

1310.     As in clause 310, travel expenses meeting this condition include expenses which, on the assumptions in subsection (6), would be deductible under any provision of Part 5. Under ICTA, the expenses are restricted to expenses deductible only under selected clauses in that Part. See Change 73 in Annex 1.

1311.     This clause is listed in clause 332 (meaning of "the deductibility provisions"). Various provisions in Part 5 then ensure that certain rules in Part 5 do not adversely restrict expenses, deductible under that Part, for the purposes of subsection (5).

1312.     Subsection (6) sets out the assumptions made in applying the condition in subsection (5) to travelling expenses. To accord with Inland Revenue practice, one of those assumptions is (as in clause 310) that the expenses are incurred and paid by the employee. But the assumption that they are paid out of emoluments has not been rewritten. See Change 81 in Annex 1.

Clause 312: Recovery of tax

1313.     This clause provides machinery for an assessment to charge the amount due if exemption under clause 311 has been given and there is a subsequent failure to meet certain of the conditions in clause 311(4).

1314.     It derives from section 588 of ICTA.

1315.     Subsection (1) sets out the circumstances in which the clause applies.

1316.     Subsection (2) sets out what will be assessed if the clause applies, and provides the mechanism for such an assessment.

1317.     Subsection (3) provides the time limit for the making of such an assessment.

1318.     Subsections (4) to (6) contain provisions which:

• require the employer or former employer to notify the Inland Revenue of a failure within the terms of subsection (1) to meet the conditions in clause 311(4); and

• permit the Inland Revenue to require information from a person they have reason to believe has failed to fulfil that requirement.

Chapter 11: Miscellaneous exemptions

Clause 313: Repairs and alterations to living accommodation

1319.     This clause derives from section 155(3) of ICTA. It only applies in the case of provided accommodation which falls within Chapter 5 of Part 3.

1320.     In the case of alteration and additions to the property within subsection (2)(a), the cost would sometimes result in an increase in the cash equivalent under Chapter 5 of Part 3. In order to prevent a double charge to tax it is necessary to exempt the cost of the alterations and additions which fall through to Chapter 10 of Part 3 because the cost of provision was "not otherwise chargeable to tax".

1321.     The second part of this exemption at subsection (2)(b) refers to landlord's repairs, the definition of which prevents it extending to tenant's repairs, or improvements disguised as repairs.

Clause 314: Council tax etc. paid for certain living accommodation

1322.     This clause derives from section 145(4) of ICTA. Without this clause, a tax liability could still arise if charges in connection with the property were paid (or the cost reimbursed) by the employer.

1323.     Subsection (1) applies the clause when certain exceptions from a charge on living accommodation apply.

1324.     Subsection (2) identifies those charges. It applies the exemption to a fuller and more updated description of domestic property charges: "council tax or rates, water or sewerage charges", in line with Inland Revenue practice. This is a minor change to the law. See Change 75 in Annex 1.

Clause 315: Limited exemption for expenses connected with certain living accommodation

1325.     This clause limits the amount charged to tax in respect of certain expenditure (or reimbursement of expenditure by the employee) in connection with the living accommodation. It derives from section 163 of ICTA. It applies to all employees whether in excluded employment or not whereas section 163 applies only to those employments within Chapter 2 of Part 5 of ICTA. This is a minor change in the law. See Change 76 in Annex 1.

1326.     Subsections (2) and (3) sets out the conditions which must be satisfied for the exemption to apply.

1327.     Subsection (4) provides a formula to calculate the amount which is exempt. The following example shows how the formula works, using NE, DA, DE and SMG as defined in the clause.

1328.     Assume an employee's earnings are £10,000 a year (and there are no deductions) and no sums made good. The formula works to give the right pro-rata result for each of the following circumstances:

• Employment held and accommodation provided for whole year

     NE = £10,000; DA = 365; DE = 365, SMG = 0

     so limit is (10% x £10,000 x 365/365) - 0 = £1,000

• Employment held for whole year, accommodation provided for 6 months

     NE = £10,000; DA = 183; DE = 365

     so limit is (10% x £10,000 x 183/365) - 0 = £500

• Employment held and accommodation provided for 6 months

     NE = £5,000; DA = 183; DE = 183

     so limit is (10% x £5,000 x 183/183) - 0 = £500

1329.     Subsection (5) is a method statement to calculate the amount of net earnings to be used in subsection (4).

Clause 316: Accommodation, supplies and services used in employment duties

1330.     This clause derives from section 155ZA of ICTA which excludes from section 154 of ICTA the charge on benefits arising from the provision of accommodation, supplies and services mainly used to perform an employee's duties of the employment, but also used to a minor degree for other purposes.

Clause 317: Subsidised meals

1331.     This clause derives from section 155(5) of ICTA which provides an exemption for canteen meals and from ESC A74. The ESC provides an exemption for the provision of any free or subsidised meals on the employer's premises, but not elsewhere, provided that all the employer's employees are able to obtain such meals or have vouchers or tokens enabling them to obtain such meals, regardless of where those meals are obtained. To the extent that this clause legislates ESC A74 it is a minor change to the law. See Change 77 in Annex 1.

1332.     Section 155(5) of ICTA and the concession requires meals to be available to the staff "generally". It was not clear how that test applies when employees work at different locations. In practice the rule was applied sensibly and the new clause provides clarification by focusing on the employees at a particular location.

1333.     Section 155(5) of ICTA and ESC A74 only provide an exemption from the benefits charge. This clause goes further and provides a complete exemption from income tax. This is a minor change to the law. See Change 77 in Annex 1.

Clause 318: Care for children

1334.     This clause provides there is no liability to tax on the benefit of "workplace nursery" facilities provided for the children of employees. It derives from section 155A of ICTA.

1335.     Subsection (1) provides exemption for the benefit which arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge), where the provision of care for a child meets the conditions in subsections (3), (4) and (6).

1336.     Subsection (2) set out the limited exemption where only part of the provision meets those conditions.

1337.     Subsection (3) contains conditions applying to the child for whom care is provided.

1338.     Section 155A of ICTA uses the term "parental responsibility", which is defined by cross-reference to the Children Act 1989. The definition in that Act has been used directly in subsection (3)(c).

1339.     Subsection (4) contains conditions applying to the premises at which care is provided for the child.

1340.     The cross-references required for the definition in subsection (5) of the term "registration requirement" (used in subsection (4)) have been updated.

1341.     Subsections (6) and (7) contains conditions applying to the employer's involvement in providing the premises at which care is provided.

1342.     Subsection (8) defines "care" for the purposes of the exemption.

Clause 319: Mobile telephones

1343.     This clause derives from section 155AA of ICTA, which excludes from section 154 of ICTA the benefit arising from the provision of a mobile telephone. It is no longer necessary to make any special mention of mobile phones provided in connection with a taxable car, van or exempt heavy goods vehicle, as benefits provided in connection with such vehicles are adequately covered by clause 239. Accordingly section 155AA(3) has not been rewritten. See Note 35 in Annex 2.

Clause 320: Limited exemption for computer equipment

1344.     This clause derives from section 156A of ICTA, which provides a limited exemption in respect of computer equipment provided to employees or members of their families or households.

1345.     The exemption only applies where the employer provides the computer equipment for the use of the employee (or members of his or her family etc) rather than transferring it to him or her. In a case where the computer is given to the employee to keep, the benefit arising is still chargeable to tax in the normal way.

1346.     The exemption is not available in cases where the arrangements to provide computer equipment particularly favour directors. This does not mean that where an employer has provided computer equipment only for directors or their families, because only they have taken up an offer available to all employees, that the exemption cannot apply. The employer's provision of computer equipment has to be deliberately restricted to directors and their families for the exemption to be withheld. This is covered in section 156A(2) of ICTA, rewritten in this clause as subsection (6).

Clause 321: Suggestion awards

1347.     This clause provides that no liability to income tax arises where awards which do not exceed the limits set by clause 322 are made under a suggestions scheme.

1348.     It derives from ESC A57. See Change 78 in Annex 1.

1349.     Subsection (1) sets out the type of scheme to which the clause applies.

1350.     Subsection (2) provides that no liability to tax arises on an encouragement award or a financial benefit award (defined in subsection (6)) which meets the three conditions in subsections (3) to (5), to the extent that it does not exceed the limits set by clause 322.

1351.     Subsection (6) defines "encouragement award" and "financial benefit award".

Clause 322: Suggestion awards: "the permitted maximum"

1352.     This clause provides the level, "the permitted maximum", at or below which a suggestion award is not liable to tax.

1353.     It derives from ESC A57. See Change 78 in Annex 1.

1354.     Subsection (1) gives the permitted maximum for an encouragement award.

1355.     Subsection (2) provides that the permitted maximum for a financial benefit award where no previous award has been made for that suggestion is the suggestion maximum or, where the award is made to more than one person, the appropriate proportion of that maximum award. The suggestion maximum is given at subsection (4) and "the appropriate proportion" is defined at subsection (6).

1356.     Subsection (3) provides that the permitted maximum for a financial benefit award where an award has already been made for that suggestion is the residue of the suggestion maximum or, if more than one such award has been made previously, the appropriate proportion of that residue. "The residue of the suggestion maximum" is defined at subsection (6).

1357.     Subsection (4) gives the suggestion maximum for financial benefit awards. This is the maximum of £5,000 or the financial benefit share (defined at subsection (5)). The power to alter the limit in this provision is contained in clause 716.

1358.     Subsection (5) defines the "financial benefit share" as the greater of half the financial benefit likely to arise within the first year of the adoption of the suggestion or one-tenth of the financial benefit for the first five years after its adoption.

1359.     Subsection (6) defines "the appropriate proportion" and "the residue of the permitted maximum" which are used at subsections (2) and (3). It also defines "the total previous exemption" used in the definition of "the residue of the permitted maximum".

Clause 323: Long service awards

1360.     This clause derives from ESC A22 which concerns awards made to mark long service. Where the conditions are met the concession provides an exemption from income tax. Legislating the concession is a minor change to the law. See Change 79 in Annex 1.

1361.     The concession was introduced in the mid-1970s when employers had begun to give employees long service gifts other than the traditional clock or watch. It was restricted to tangible articles or shares of a defined kind to prevent cash payments that would properly be charged as earnings being dressed up as long service awards. In practice, the concession is applied more liberally than a strict interpretation of it would permit. For example, the provision by the employer of a holiday or a life membership to the National Trust as a long service award would be treated as covered by the concession. The scope of this clause as set out in subsection (3) should cover all the types of award currently treated as being within the concession.

1362.     When an ESC contains monetary limits, the amount can be changed by press release or by republishing it with different amounts. This is not possible for legislation. There are a number of exemptions in the source legislation in which an amount is fixed by Treasury order and the power to alter the limit in this provision is contained in clause 716.

1363.     The concession does not restrict qualifying service to "the same employer" in the same way as the definition of a long service award in subsection (2). However, in practice the concession is applied so that the service must be with the same employer unless there has been a change of employer of the kind described in subsection (5).

1364.     The definition of "group" adopted means that the minimum possible group relationship will enable the exemption to apply.

Clause 324: Small gifts from third parties

1365.     This clause derives from ESC A70A. It provides an exemption from income tax in respect of certain small gifts from third parties. Legislating the concession is a minor change to the law. See Change 59 in Annex 1.

1366.     The conditions for the exemption are in similar terms to the entertainment exemption in clause 265. The reasons for it are the same, namely to remove the compliance problems if the conditions in subsection (2) to (6) are met. Those conditions include a limit on value of the gifts which may be varied by the Treasury power in clause 716.

1367.     The concession also extends to non-cash vouchers and credit-tokens. That aspect is dealt with in clause 270.

Clause 325: Overseas medical treatment

1368.     This clause derives from section 155(6) of ICTA. It originated as an ESC which was enacted in FA 1981. The exemption relates to the provision of medical treatment and the provision of insurance against the cost of medical treatment.

1369.     As far as the first aspect is concerned, the exemption only applies where the provision of the medical treatment falls within benefits code. There is no exemption if the payment for the treatment is handled in such a way that chargeability arises as earnings.

1370.     The same applies to the provision of insurance. It is only direct provision which is exempt, so it does not cover reimbursement of the employee's premium for overseas medical insurance.

1371.     The reference to in-patient treatment is applicable to the whole clause. This is to clarify that the insurance may also provide cover for in-patient treatment.

Clause 326: Expenses incidental to transfer of a kind not normally met by transferor

1372.     This clause exempts from income tax certain paid or reimbursed expenses which arise in connection with an asset transferred by reason of the employment. This exemption will most commonly apply where an employee, benefiting from a relocation package, transfers his or her house to an employer who pays the acquisition costs.

1373.     It derives from ESC A85. See Change 80 in Annex 1.

1374.     Subsection (1) provides that no liability to tax arises where expenses incidental to an "employment-related asset transfer" (defined at subsection (2)) are paid or reimbursed. The expenses must be wholly and exclusively incurred as a result of that transfer and not of a type normally met by the transferor. Thus the disposal costs of a house sold to an employer under a relocation package are not within the exemption as a vendor would normally be the one to meet these costs.

1375.     Subsection (2) defines "employment-related asset transfer" as the transfer of an asset to an employer or person nominated by the employer and which arose by reason of the employment.

1376.     Subsection (3) explains what is meant by "transfer".