Clause 107: Special rule for calculating cost of providing accommodation

397.     If a property has been owned for some time before the year in which the benefit of provided living accommodation arises, the value of the property may have risen significantly. This clause substitutes market value for cost in certain circumstances. It derives from section 146(4) to (6) and (11) of ICTA.

398.     This rule applies only for the purposes of the calculation in section 106, and does not have any application to accommodation within clause 105.

399.     Subsection (3) sets out how to calculate the cost of providing the accommodation. Consultation leading up to this Bill has resulted in the addition at (a) to the definition of P in respect of payments made. See Change 21 in Annex 1.

400.     Section 146(8) of ICTA provides that section 146(6) does not apply if the employee first occupied the property before 1983. Due to the length of time since that date the provision is now in paragraph 21(1) of Schedule 7.

Clause 108: Cash equivalent: accommodation provided for more than one employee

401.     This clause allows an apportionment of the cash equivalent when it is provided for more than one employee. It derives from ESC A91A. See Change 22 in Annex 1.

Clause 109: Priority of this Chapter over Chapter 1 of this Part

402.     This clause applies in the event that there is a possibility of a charge both under Chapter 1 and under this Chapter in respect of the same living accommodation.

403.     This clause ensures that the charge under this Chapter takes precedence. If the amount of earnings that would be chargeable by virtue of clause 62 is less than the amount of the cash equivalent under this Chapter, then the cash equivalent applies. If the earnings exceed the cash equivalent, only the excess is treated as earnings. The clause derives from section 146A of ICTA.

Clause 110: Meaning of "annual value"

404.     This clause defines "annual value" for the purposes of this Chapter. It derives from section 837 of ICTA.

405.     Subsection (1) defines "annual value". Section 837(1) refers to "rates and taxes" on the premises. This clause includes a fuller and more updated description of domestic property charges: "taxes, rates or charges". See Change 24 in Annex 1.

406.     Subsections (2) and (3) set out the way to arrive at the annual value to be used for living accommodation. They derive from section 23 of the General Rate Act 1967 which was repealed in 1988. As a consequence of that repeal the reference to section 837(2) which applied section 23 of the General Rate Act 1967 has not been included here. Instead the rules are rewritten here. See Change 23 in Annex 1.

407.     Subsection (2) applies in relation to subsection (1). It ensures that the annual value does not include the cost of anything which is not provided in the case of unfurnished property. This is important in cases where the only available comparisons are rents paid for fully furnished and serviced properties. It derives from section 23(2) of the General Rate Act 1967. Subsection (2)(b) of this clause derives from section 23(2)(a) and (2)(b). If, in considering what the rent of the accommodation would be, the nearest comparison is rent for a property for which services are provided at an inclusive rent, in order to reduce the rent to that for unfurnished, non-serviced accommodation the cost of the services provided are deducted. This means that if there is a profit element in the provision of the services it is treated as rent. This derives from section 23(2)(a). The restriction of the deduction to the cost only of services provided for the accommodation derives from section 23(2)(b) which prevents any deduction for the payments in respect of something which is not part of the living accommodation. The practice of using gross rateable values will continue unchanged.

408.     Subsection (3) extends the process of comparison and adjustment so that where an additional amount is, or might be, paid for services, but which exceeds the cost of the services provided and any payments in respect of something which is not part of the living accommodation itself, the profit element - the amount paid less the cost of the services - is to be included in the rent. This derives from section 23(3) and (4) of General Rate Act 1967. The deduction for the cost of the services is to prevent a double charge because the cost of provision will fall through to Chapter 10 of Part 3. An example of this would be payments made in respect of the common parts of a block of flats such as lifts. This clause does not affect the limited exemption in clause 315 which applies to the amount of earnings or the amount treated as earnings based on the cost of certain services.

409.     Subsection (4) makes it clear that the excluded services are those which are not normally met by a landlord in the provision on unfurnished property. This is not derived directly from section 23 of the General Rate Act 1967 but follows the general thrust of provisions of that section.

Clause 111: Disputes as to annual value

410.     This clause sets out the procedure for resolution of disputes about the annual value of accommodation for the purposes of this Chapter. It derives from section 837(3) of ICTA.

Clause 112: Meaning of "person involved in providing the accommodation"

411.     This definition makes it clear that it is necessary to look beyond the employer and the apparent owner of an interest in the accommodation. This is anti-avoidance legislation to counter schemes which depress the cost to the employer by using intermediate owners of interests. It derives from section 146(7) of ICTA.

Clause 113: Meaning of "the property"

412.     This clause simply confirms that "the property" means the living accommodation in question. It derives from section 146(11) of ICTA.

Chapter 6: Taxable benefits: cars, vans and related benefits

Overview

413.     Employees may be taxable on the benefit of the availability for private use of a car or van, or car fuel that their employers provide. If so, the cash equivalent of the benefit is taxed as the employee's earnings.

414.     This Chapter contains the rules to calculate the cash equivalent of that benefit.

415.     Clauses 114 to 119 set out the basic principles of the car, car fuel and van benefit rules.

416.     Clauses 120 and 121 provide for the cash equivalent of the car benefit to be taxed as earnings and the method for calculating that cash equivalent.

417.     Clauses 122 to 148 give detailed rules in support of the calculation of the cash equivalent of the car benefit.

418.     Clauses 149 to 153 deal likewise with car fuel benefits.

419.     Clauses 154 to 166 deal likewise with van benefits.

420.     Clauses 167 and 168 give special rules that apply to pool vehicles.

421.     Clause 169 deals with situations where the same employer employs more than one member of a family or household.

422.     Clause 170 provides for the Treasury to make orders relating to provisions in this Chapter.

423.     Clauses 171 and 172 give definitions.

Clause 114: Cars, vans and related benefits

424.     This clause sets out the scope of this Chapter and gives signposts to the groups of provisions dealing with the various aspects of the car, car fuel and van benefit rules. The clause derives from sections 157(1) and 159AA(1) of ICTA.

425.     Subsection (1) states when this Chapter applies.

426.     Subsection (1)(b) avoids the use of the phrase "the employee's employment". Clause 66(2)(a) identifies for this (and for other clauses) the employee to whose employment the legislation applies.

427.     Subsection (2) gives signposts to the groups of provisions applying to car, fuel and van benefits.

428.     Subsection (3) prevents a double tax charge arising on car, car fuel or van benefits.

429.     Subsection (4) gives signposts to provisions providing exceptions to the main rules.

Clause 115: Meaning of "car" and "van"

430.     This clause defines "car" and "van" and related terms for the purposes of this Chapter. The clause derives from parts of sections 168(5) and 168(5A) of ICTA.

431.     Subsection (1) defines "car" and "van".

432.     Subsection (2) defines terms relevant only to the definitions of "car" and "van", so that all such terms are located together.

Clause 116: Meaning of when car or van is available to employee

433.     It is the availability to an employee of a car or van for private use that may give rise to a tax charge. This clause explains what a car or van being available to an employee means. The clause derives from sections 168A(12), 168AA(4), 168B(8), 168C(3) and 168F(10), paragraph 10 of Schedule 6 and paragraph 12 of Schedule 6A to ICTA.

434.     Subsection (1) extends the meaning of a car or van being available to an employee to include its being made available to members of the employee's family or household.

435.     Subsection (2) defines when such cars first became available at all and when they are last available in the year.

436.     Subsection (3) provides that the clause does not apply to clause 138. That clause therefore applies only to an employee who is disabled and not to members of that employee's family or household as well.

Clause 117: Meaning of car or van made available by reason of employment

437.     To give rise to a tax charge, the car or van must be made available to the employee by reason of the employment. This clause provides that a car or van made available by an employer is regarded as made available by reason of the employment unless the circumstances in paragraphs (a) and (b) apply. The clause derives from part of section 168(6) of ICTA.

Clause 118: Availability for private use

438.     This clause explains what is meant by availability for private use of a car or van. The clause derives from parts of section 168(5), 168(5A), and 168(6) of ICTA.

439.     Subsection (1) provides that the car or van is regarded as available for private use unless the circumstances in paragraphs (a) and (b) apply.

440.     Subsection (2) defines "private use".

Clause 119: Where alternative to benefit of car offered

441.     This clause identifies the relationship between this Chapter and the provisions in Chapter 1 of Part 3. The clause derives from section 157A of ICTA.

Clause 120: Benefit of car treated as earnings

442.     This clause provides that the cash equivalent of the benefit arising from the provision of a car is treated as an employee's earnings. The clause derives from part of section 157(1) of ICTA.

443.     Subsection (1) brings the cash equivalent of the car benefit into charge as part of the employee's earnings. The rewrite of the source legislation has clarified the timing of the charge. See Note 7 in Annex 2.

444.     Subsection (2) allows concise expression in this Chapter of the link between the employee and the taxable benefit.

Clause 121: Method of calculating the cash equivalent of the benefit of a car

445.     This clause states how to calculate the cash equivalent of the car benefit. The clause derives from sections 157(2) and 168G(1) and paragraph 1 of Schedule 6 to ICTA.

446.     Subsection (1) sets out the steps involved in the calculation by using a method statement.

447.     Subsection (2) gives signposts to two special cases when the calculation is modified.

448.     Subsection (3) gives a signpost to the reduction that may be made when employees share a car.

Clause 122: The price of the car

449.     This clause states what is meant by "the price of the car" and, in particular, introduces the concept of "the notional price" for the case where a car has no list price. It links to other provisions for the calculation of the cash equivalent of the car benefit. The clause derives from part of section 168A(1) of ICTA.

Clause 123: The list price of a car

450.     This clause deals with the most common case where there is a published list price for a car. The clause derives from section 168A(2) and part of section 168A(9) of ICTA.

451.     Subsection (1) defines "list price" by referring to the characteristics of an ordinary retail sale.

452.     The phrase "(as the case may be)", from section 168A(2), is retained as the simplest way of determining whose list price is to be taken. The user looks first to the manufacturer, second to the importer and third to the distributor to find a list price.

453.     Subsection (2) makes it clear that "list price" includes delivery charges and taxes.

Clause 124: The notional price of a car with no list price

454.     This clause deals with the less common case where there is no published list price within clause 123. The legislation then falls back on the concept of the "notional price". The clause derives from section 168A(8) and part of section 168A(9) of ICTA.

455.     Subsection (1) defines the "notional price" of a car and the assumptions to be made in determining it. Those assumptions reflect the circumstances listed in clause 123(1) where there is an actual list price.

456.     Subsection (2) makes it clear that a notional price must, like a list price, include delivery charges and taxes.

Clause 125: Meaning of "accessory" and related terms

457.     This clause defines "accessory". The clause derives from parts of sections 168A(9), (10) and (11), 168AB(1) and (4), 168B(8), 168C(3), 168D(5) and 168F(9) of ICTA.

458.     Subsection (1) defines "qualifying accessory".

459.     Subsection (2) lists certain items that are not treated as accessories.

460.     Subsection (3) states an exception to one item in subsection (2).

461.     Subsection (4) distinguishes between a "standard accessory" and a "non-standard accessory". The term "equivalent to" in the definition of "standard accessory" does not mean "identical to". It accommodates slight changes to the specification of particular models of cars, which manufacturers may make from time to time but which do not result in changes to their published prices.

Clause 126: Amounts taken into account in respect of accessories

462.     This clause identifies the types of accessories for which the prices are added at Step 2 of the calculation in clause 121(1). The clause derives from parts of sections 168A(1), (4), (5), (6) and (7), 168B(1), (2) and (3), and 168C(1), (2) and (4) of ICTA.

463.     Section 168A(3) of ICTA has not been rewritten. It seems unnecessary given that standard accessories (as defined in section 168A(9)(c)) are necessarily taken into account when ascertaining the list price of the car under section 168A(2). The structure of the new method statement in clause 121 is such that, having ascertained the list price of the car under Step 1, Step 2 is only concerned with adding on the price of accessories not included in that price.

464.     Subsection (1) states the basic rule and introduces the terms "initial extra accessory" and "later accessory".

465.     Subsection (2) defines "initial extra accessory".

466.     Subsection (3) defines "later accessory".

467.     Subsection (4) identifies the price of the accessory as the list price or, if there is no list price, a notional price. This follows the same approach as for the car in clause 122.

468.     Subsection (5) gives a signpost to a modifying rule that applies when accessories are replaced.

Clause 127: The list price of an accessory

469.     This clause defines the list price of an accessory. The clause derives from parts of sections 168A(4), (5), (6) and (7), 168B(2) and 168C(2) of ICTA.

470.     Subsection (1) gives the rule when the accessory is an "initial extra accessory". The list price is the published price of either the manufacturer, importer or distributor of the car or, when there is no such published price, the published price of the manufacturer, importer or distributor of the accessory in a normal, retail sale.

471.     Subsection (2) gives the rule when the accessory is a "later accessory". The list price is the published price of the manufacturer, importer or distributor of the accessory.

Clause 128: Accessory: published price of the car manufacturer etc.

472.     This clause states how to arrive at the price of an accessory, when it is derived from the published price of the manufacturer, importer or distributor of the car. The clause derives from parts of section 168A(4) and (9) of ICTA.

473.     Subsection (1) gives the main definition. As in clause 123 (see paragraph 452) the phrase "(as the case may be)" from the source legislation is retained.

474.     Subsection (2) defines "inclusive price". Car tax is excluded from the "relevant taxes" to be taken into account in arriving at the price of the accessory in subsection (2)(b). That is because it is clear from the context of section 168A that, when applied to an accessory, the reference in section 168A(9) to "any car tax" is irrelevant when considering the "inclusive price" of the accessory as defined in section 168A(9)(a).

Clause 129: Accessory: published price of the accessory manufacturer etc.

475.     This clause states how to arrive at the price of an accessory when it is derived from the published price of the manufacturer, importer or distributor of the accessory. The clause derives from parts of section 168B(4), (6) and (7) and section 168C(4) of ICTA.

476.     Subsection (1) defines the "published price of the manufacturer, importer or distributor of the accessory". As in clause 123 (see paragraph 452), the phrase from the source legislation, "(as the case may be)" is retained.

477.     Subsection (2) defines "inclusive price". Car tax is excluded from the "relevant taxes" to be taken into account in arriving at the price of the accessory in subsection (2)(b). That reflects the distinction between section 168B(7)(b) and section 168A(9).

478.     Subsection (2)(c) contrasts with clause 128(2)(c) in identifying the person by whom the fitting charge is made. That reflects section 168B(6).

479.     Subsection (3) states an interpretation rule for this clause about timing. The reference to "time" here (and in subsection (1)(e) to which it relates) contrasts with the reference to "day" in clause 128(1)(e). That reflects the distinction between section 168A(9)(b), which refers to "day" and section 168B(4), which refers to "time". A brand new car is generally on sale prior to its first registration. The act of registration often results in an immediate loss in value. This is equally true of an optional accessory provided with the car by the car manufacturer. The legislation adopts the price of such an accessory in relation to the day immediately before first registration as it does for the car itself (see clause 123(1)(e)). In the case of an accessory that is made by someone other than the car manufacturer that may not be appropriate. That is because the accessory might be attached to the car only on the first day the accessory goes on sale. So this clause refers to a particular time rather than a particular day.

Clause 130: The notional price of an accessory

480.     This clause defines the "notional price" of an accessory. It applies when an accessory does not have a list price. The clause derives from section 168B(5), (6) and (7) and section 168C(4) of ICTA.

481.     Subsection (1) defines the notional price of the accessory by setting out the assumptions to be made in determining it. Those assumptions reflect the circumstances listed in clause 129(1) where there is an actual list price.

482.     Subsection (2) defines "inclusive price" to reflect what is referred to in clause 129(2) when there is an actual list price.

483.     Subsection (2)(c) follows clause 129(2)(c) in identifying the person by whom the fitting charge is made. That reflects section 168B(6).

484.     Subsection (3) follows the timing rule in clause 129(3).

Clause 131: Replacement accessories

485.     This clause sets out the rules for calculating the cash equivalent of a replacement accessory. The clause derives from the Income Tax (Car Benefits) (Replacement Accessories) Regulations 1994 (SI 1994 No 777). Those Regulations were made under powers provided by section 168E of ICTA. As there is no longer any reason to retain those powers, section 168E has not been rewritten.

486.     Subsection (1) states when the clause applies.

487.     Subsection (2) applies when the new accessory is not superior to the old accessory.

488.     Subsection (3) applies when the new accessory is superior to the old accessory and the conditions in subsection (4) are met.

489.     Subsection (4) states the conditions referred to in subsection (3).

490.     Subsection (5) states what is meant by "superior" in this clause.

491.     Subsection (6) states what is meant by the "price of an accessory" in this clause.

Clause 132: Capital contributions by employee

492.     This clause provides for the deduction that can be made at Step 3 of clause 121(1) in calculating the cash equivalent of the car benefit. The clause derives from section 168D(1), (2), (3) and (4) of ICTA.

493.     Subsection (1) states when the clause applies. That is when the employee contributes to the capital cost of the car or its qualifying accessories.

494.     Subsection (2) states for which tax years the deduction can be made.

495.     Subsection (3) states the maximum deduction that can be made under this clause for any tax year.

Clause 133: How to determine the "appropriate percentage"

496.     This clause is the first of a group of ten defining "the appropriate percentage" to be used in Step 6 of clause 121(1) to calculate the cash equivalent of the car benefit. The "appropriate percentage" depends on the type of car involved, when it was first registered, what fuel or fuels it uses and whether it has a CO2 emissions figure. The clause derives from paragraph 2 of Schedule 6 to ICTA.

497.     Subsection (1) identifies the date of the car's first registration as the initial governing factor.

498.     Subsection (2) applies different provisions to cars first registered after 31 December 1997, depending on whether or not they have a CO2 emissions figure and/or whether they are diesels. It gives signposts to the relevant provisions in each case.

499.     Subsection (3) gives a signpost to the provision that applies if the car was first registered before 1 January 1998.

Clause 134: Meaning of car with or without a CO2 emissions figure

500.     This clause determines whether a car is a car with or without a CO2 emissions figure for the purposes of these provisions. The clause derives from parts of paragraphs 3(1) and (2), 5 and 5C(1) of Schedule 6 to ICTA.

501.     Subsection (1) defines a "car with a CO2 emissions figure" by reference to its date of first registration and other clauses that specify a CO2 emissions figure for the particular combination of car type and date of first registration.

502.     Subsection (2) defines a "car without a CO2 emissions figure" by reference to its date of first registration, not being a car within subsection (1).