Clause 224: Payments to non-approved personal pension arrangements

899.     This clause provides that an employer's payments under non-approved personal pension arrangements made by the employee are treated as earnings. It derives from section 648 of ICTA.

900.     It contrasts with clause 308, which exempts from income tax as earnings an employer's contributions under approved personal pension arrangements made by the employee.

901.     Subsection (1) sets out that the payments are treated as earnings from the employment. In view of the content of Chapter 2 of Part 2, it is unnecessary to add (as in section 648 of ICTA) that the payments are so treated "for all the purposes of the Income Tax Acts". The year of charge is made explicit. See Note 7 in Annex 2.

902.     Subsection (2) provides that the employer's payments are not treated as earnings under this clause to the extent they are otherwise chargeable to income tax. For example, if contributions are so made that only a charge under clause 62 (earnings) otherwise applies, clause 224 would apply to the extent, if any, that clause 62 does not apply a charge to income tax.

903.     Conversely, if a charge would only arise otherwise under clause 203 (cash equivalent of benefit treated as earnings), but the payments are wholly or partly exempted from that charge by clause 307 (death or retirement benefit provision), a charge under this clause will apply on the amount so exempt.

904.     Subsection (3) provides relevant definitions by cross-reference to section 630(1) of ICTA.

905.     A personal pension scheme may be approved by the Board of Inland Revenue. The provisions for approval of a pension scheme are set out in section 631 of ICTA.

Clause 225: Payments for restrictive undertakings

906.     This clause deals with the situation where a monetary payment is made in return for the giving of a restrictive undertaking. It derives from section 313(1), (2), (3) and (6)(a) of ICTA.

907.     The sum described as " .. an emolument of the office or employment .. " in section 313(1) has become " .. earnings from the employment .. " in subsection (3). That reflects the general change in terminology in the Bill.

908.     The clause has a timing provision of its own in subsection (3). If there is no employment at the time the payment is made the timing rule in clause 30 will operate.

909.     Section 313(6)(a) restricts the application of section 313 to employments from which the income was or would have been chargeable under Case I or Case II of Schedule E. Subsections (6) and (7) reproduce that restriction for this and the following clause.

Clause 226: Valuable consideration given for restrictive undertakings

910.     This clause brings together the provisions that apply when the payment for the restrictive undertaking is in a non-monetary form. That is more logical and convenient than their present separation. It derives from section 313(4) and (6)(b) of ICTA.

911.     The use of two clauses emphasises the way the clause relating to a non-monetary consideration operates through the preceding one.

Part 4: Employment income: exemptions

Chapter 1: Exemptions: general

Clause 227: Scope of Part 4

912.     This clause introduces Part 4, setting out the effect of the exemptions within it. It is new.

913.     Subsections (2) and (3) explain that there are two different kinds of exemption. An earnings-only exemption is an exemption that removes either any charge to tax under Part 2 as general earnings or a particular charge to tax as general earnings, for example, by removing a charge under a particular chapter of the benefits code.

914.     An employment income exemption removes any charge to tax under Part 2.

915.     There is considerable variety in the forms of words used to express exemptions in ICTA. However, not all the differences in wording signify an actual difference in the effect. Close examination of the various exemption provisions in ICTA shows that an exemption can only affect a possible charge to tax under Schedule E in three ways:

• it can remove a single type of charge; eg section 155(1A) of ICTA says

"(1A) Section 154 does not apply to a benefit consisting in the provision for the employee of a car parking space at or near his place of work."

• it can remove any charge as "emoluments" (rewritten in this Bill as "general earnings"); eg section 200B(2) (work-related training provided by employers) says

"(2) Subject to section 200C, the emoluments of the employee from the office or employment shall not be taken to include..."

• it can remove any charge to tax under Schedule E, eg section 197AD(1) of ICTA says

(1) There is no charge to tax under Schedule E in respect of approved mileage allowance payments for a qualifying vehicle.

916.     In this Bill the effects described in the first two bullets only impact on general earnings, and exemptions which have those effects are described as "earnings-only" exemptions. The type of exemption that, in ICTA, removes any charge to tax under Schedule E is labelled an "employment income" exemption in this Bill.

917.     If a benefit is received in circumstances to which Chapter 3 of Part 6 (payments and benefits on termination of employment etc) could apply, any "earnings-only" exemptions are ignored in deciding whether or not the benefit is within that Chapter.

918.     But if the benefit or income is the subject of an "employment income" exemption, there is no possibility of any charge to tax on that benefit or income under Chapter 3 of Part 6, nor under any other provision in this Bill.

919.     There are also some exemptions that have a wider effect and remove the possibility of any charge to tax at all. These are described in clause 228(2).

Clause 228: Effect of exemptions on liability under provisions outside Part 2

920.     All of the exemptions in this Part operate to remove a charge to tax under Part 2 of this Bill. Subsection (1) sets out the proposition that, in general, this is the only kind of charge to tax that these exemptions affect.

921.     However, Part 4 includes a number of exemptions that have a wider effect. There are various phrases used in the exemption provisions in ICTA which make it clear that they operate to remove any charge to income tax. Examples are:

"..shall not be regarded as income for any purpose of the Income Tax Acts" - section 200(1) (expenses of Members of Parliament)

"..shall be exempt from income tax" - section 322(2) (consular officers and employees)

922.     Some of the exemptions set out in ESCs are also worded so that they remove any charge to income tax on the income in question. Examples are:-

"Income tax is not charged on.." - ESC A6 (Miners: free coal and allowances in lieu)

"..the employee will not be charged to income tax..." - ESC A66 (Payments for employees' journeys home: late night travel and breakdown in car-sharing arrangements).

923.     Subsection (2) includes a list of all the exemptions in Part 4 that have this wider application and provides that they have effect to remove any charge to income tax.

924.     The move to a common formulation, "no liability to income tax arises", for all exemptions, including those listed in clause 228(2), is explained in detail in Note 28 in Annex 2.

Chapter 2: Exemptions: mileage allowances and passenger payments

Overview

925.     This Chapter rewrites the provisions for the exemption from tax as earnings of mileage allowance payments and passenger payments. Section 57 of FA 2001 introduced those provisions, which are effective from 2002-03 onwards. The Chapter also rewrites the provisions relating to mileage allowance relief that section 57 introduced. Given that those latter provisions mean that employees can get a deduction from their earnings if their circumstances permit, it might be thought that they should more properly appear among the travel-related expenses in Chapter 2 of Part 5 of this Bill. The provisions for mileage allowance relief appear in this Chapter for the following reasons:

• The relief provided does not depend upon the employees having incurred any expenditure. It ensures that the employees receive the maximum relief that is approved for mileage allowance payments against their earnings, even if the mileage allowance payments made by the employer are less than that maximum amount. For that reason the relief would not sit comfortably in Chapter 2 of Part 5 of this Bill, which is headed "Deductions for employee's expenses"; and

• Keeping the payments and relief provisions together means that the terms or labels for these related provisions only have to be defined once. That has resulted in a considerable saving of length and a compactness of presentation.

926.     The provisions that, by virtue of Part 1 of Schedule 12 to FA 2001, were introduced as Schedule 12AA to ICTA have been incorporated in the rewritten clauses. That accords with the policy of avoiding the use of schedules, if possible.

927.     The consequential amendments in Part 2 of Schedule 12 to FA 2001 have been incorporated into the rewritten clauses as relevant. One consequence of those amendments is that there is no longer any need to rewrite section 578A(1)(c) of ICTA.

Clause 229: Mileage allowance payments

928.     This clause sets out the basic availability of the exemption for approved mileage allowance payments. The clause derives from section 197AD of ICTA.

929.     Subsection (1) has a reordered wording compared with the source legislation. When terms or labels first appear in this and subsequent subsections signposts to where they are defined accompany them.

930.     Subsection (2) explains what are mileage allowance payments, in the process excluding passenger payments from them.

931.     Subsection (3) explains what are approved mileage allowance payments.

932.     Subsection (4) gives details of two circumstances in which the exemption does not apply.

Clause 230: The approved amount for mileage allowance payments

933.     This clause gives details of the approved amount for mileage allowance payments. The several ideas contained in paragraph 4(2) of Schedule 12AA to ICTA now appear in separate subsections. The clause derives from paragraph 4 of Schedule 12AA.

934.     Subsection (1) gives a formula to calculate the approved amount for mileage allowance payments for a given type of vehicle.

935.     In subsection (2) the mileage rate information has been converted to tabular form.

936.     Subsection (3) qualifies what is meant by the expression "the first 10,000 miles" in subsection (2), dealing particularly with the possibility that the same person might undertake business travel in respect of two or more associated employments.

937.     Subsection (4) gives details of when one employment is associated with another.

938.     In subsection (5) the reference to the definition of "control" is now direct, rather than diverting the user to section 168(12) of ICTA, only to find that that in turn refers to section 840 of ICTA.

939.     Subsection (6) provides the Treasury with powers to make regulations to alter the rates or rate bands in subsection (2).

Clause 231: Mileage allowance relief

940.     This clause explains what mileage allowance relief is and how the employee may be entitled to it. The clause derives from section 197AF of ICTA.

941.     Subsection (1) describes the circumstances in which entitlement to mileage allowance relief can arise.

942.     Subsection (2) states how to calculate the amount of mileage allowance relief to which the employee is entitled.

943.     Subsection (3) gives details of two circumstances in which mileage allowance relief is not available.

Clause 232: Giving effect to mileage allowance relief

944.     This clause deals with the mechanics of giving effect to mileage allowance relief. The main difference between it and the source legislation is the absence of any reference to the Cases of Schedule E. The consequences of this are most evident in subsections (2) and (3). The clause derives from section 197AG of ICTA.

945.     Subsection (1) relates the deduction to a tax year.

946.     Subsection (2) corresponds with the references to Cases I and II of Schedule E in section 197AG(2).

947.     Subsection (3) corresponds with the references to Case III of Schedule E in section 197AG(3).

948.     Subsection (4) contains some assumptions supplementary to the operation of subsection (3).

949.     Subsection (5) gives an order of precedence as between deductions available under subsections (2) and (3).

950.     Subsection (6) prevents a double deduction.

951.     Subsection (7) defines two terms used in the section by reference to provisions in another Part of the Bill.

Clause 233: Passenger payments

952.     This clause sets out the basic availability of the exemption for passenger payments. The clause derives from section 197AE of ICTA.

953.     Subsection (1) gives details of the circumstances in which the exemption for passenger payments is available.

954.     Subsection (2) qualifies part of the provisions in subsection (1).

955.     Subsection (3) explains what are passenger payments.

956.     Subsection (4) explains what are approved passenger payments.

957.     Subsection (5) supplies additional information in relation to subsection (2).

Clause 234: The approved amount for passenger payments

958.     This clause gives details of the approved amount for passenger payments. The clause derives from paragraph 5 of Schedule 12AA to ICTA.

959.     Subsection (1) gives a formula to calculate the approved amount for passenger payments.

960.     Subsection (2) explains how the calculation is affected if there are times in the tax year when two or more passengers for whom the employee is entitled to passenger payments are carried concurrently.

961.     Subsection (3) provides the Treasury with powers to make regulations to alter the rate in subsection (1).

Clause 235: Vehicles to which this Chapter applies

962.     This clause defines the vehicles to which the Chapter applies. The clause derives from paragraph 3 of Schedule 12AA to ICTA.

963.     Subsection (1) simply names the types of vehicle within the Chapter.

964.     Subsections (4) and (5) contain definitions of the meanings of "motor cycle" and "cycle" that refer to the Road Traffic Act 1988. The Draft Bill published for consultation offered an expanded version of this clause in which those definitions were reproduced in full. If either of the Road Traffic Act 1988 definitions were to change then, assuming the policy is to keep the definitions aligned, an amendment to the rewritten legislation would be required to maintain that alignment. That would have to be done by way of primary legislation, for which it might be difficult to find parliamentary time. That is an undesirable side effect of the expanded definitions. The Bill therefore reverts to definitions that refer to the Road Traffic Act 1988.

965.     Subsection (6) contains some additional definitions of terms used in subsection (3).

Clause 236: Interpretation of this Chapter

966.     This clause contains additional information needed to interpret the provisions in this Chapter. The presentation of this material varies slightly from the source legislation to make it easier to use. The clause derives from parts of paragraph 1 and paragraphs 2 and 6 of Schedule 12AA to ICTA.

967.     Subsection (1) gives signposts to three definitions used in the Chapter.

968.     Subsection (2) defines what is a "company vehicle" by reference to other provisions in the Bill.

969.     Subsection (3) gives signposts to the provisions that define what is meant by when cars and vans are made available for private use and when they are made available by reason of the employment.

Chapter 3: Exemptions: other transport, travel and subsistence

Clause 237: Parking provision and expenses

970.     This clause derives from the provisions in sections 197A and 155(1A) of ICTA, which provide an exemption from tax in respect of the provision of car parking, and the equivalent provisions for motor cycle parking and facilities for parking bicycles in section 49(2) of FA 1999. It only applies to parking places at the place of work. In this clause the defined expression "workplace" has been used instead of "place of work". See Note 29 in Annex 2.

971.     There are definitions of "motor cycle" and "cycle" in section 49(3) of FA 1999. But there is no definition of "car" in sections 155(1A) or 197A of ICTA. As the subject of the exemption is a parking space, definitions of what might be put in it did not appear to add anything, so they have not been reproduced here. This removes unnecessary material.

Clause 238: Modest private use of heavy goods vehicles

972.     This clause derives from section 159AC of ICTA which prevents a benefit being chargeable where there is modest private use of a heavy goods vehicle. The exemption here goes wider and provides for no liability to income tax however that liability may arise. See Change 41 in Annex 1.

973.     The exemptions in section 159AC(2)(b), (3)(a) and (3)(c) of ICTA, dealing with expenses in connection with the vehicle, are dealt with in clause 239.

Clause 239: Payments and benefits connected with taxable cars and vans and exempt heavy goods vehicles

974.     When an employee is chargeable to tax under the provisions in Chapter 6 of Part 3 in respect of a car or van that charge is intended to cover all the expenses in connection with the vehicle, other than the provision of a driver and, in relation to a car, of fuel. Subsections (1), (2) and (4) of this clause provide various exemptions from tax. They derive from sections 157(3) and 159AA(3) of ICTA. Subsection (3) preserves the charge for car fuel.

975.     If a heavy goods vehicle, which is not used wholly or mainly for private use, is exempted from the Chapter 6 of Part 3 charge by clause 238 it is also exempt in respect of expenses connected with it under section 159AC(3) of ICTA.

976.     As exemptions for all types of vehicle are expressed in the same terms in ICTA, they have been brought together in this clause as a single exemption. Furthermore, the exemptions have been widened so that they now apply however the liability may arise. See Change 42 in Annex 1. The use of "taxable" car or van, and "exempt" heavy goods vehicle are labels to assist in identifying the basis on which the exemption is due.

977.     The exemption for the discharge of liability and certain expense payments in connection with an exempt heavy goods vehicle only applies in a case where there would otherwise have been a charge to tax under Chapter II of Part V of ICTA - applicable only to employees earning £8,500 or more and directors. In subsection (8), the exemption has been extended to excluded employees. See Change 43 in Annex 1.

Clause 240: Incidental overnight expenses and benefits

978.     This clause derives from the exemption for incidental overnight expenses in section 200A of ICTA. That provision covers the exemption in so far as it relates to the charges as earnings and as expenses. This clause also provides for an exemption from a charge to tax under the benefits code. This part of the exemption derives from section 155(1B) of ICTA.

979.     Sums paid by way of incidental overnight expenses are not eligible for the exemption in subsection (1) if the employee is already allowed a deduction under one of the provisions listed in section 200A(1)(b). The list includes all the provisions under which a deduction may be available. However, the approach in ICTA of listing all the references is long-winded and not necessarily easy to follow. It is simpler to say in subsections (1)(c) and (2)(b) "would not be deductible under Part 5". This substitution of a general reference is analysed in Change 44 in Annex 1.

980.     In subsection (1)(b) a new label of "the overnight stay conditions" has been used to describe the conditions which have to be satisfied in identifying a "qualifying period". Those conditions are explained in subsection (4).

981.     Subsection (2) exempts the charge on benefits under Chapter 10 of Part 3 where relief for the cost of the benefit could not be obtained under clause 365, if the employee had paid for it. Subsection (2) derives from section 155(1B) of ICTA.

982.     In setting out the condition about deductibility of travelling costs, section 200A(3)(b)(i) of ICTA contains a list of deduction provisions which are regarded as satisfying the test. In line with the simplification above, subsection (5) replaces this list and instead refers to expenses "deductible under Part 5 (otherwise than under any of the excepted foreign travel provisions)". The "excepted foreign travel provisions" are listed in subsection (7).

Clause 241: Incidental overnight expenses and benefits: overall exemption limit

983.     The exemption for incidental overnight expenses in clause 240 is a limited exemption. This clause sets out the limit on the exemption and how it is applied and mainly derives from section 200A(2), (4) and (5) of ICTA. The cap on the exemption applies to the sum of the expenses and benefits exempted under clause 240 and the amount exempted for non-cash vouchers and credit-tokens under clause 268. The label "the exemption provisions total" in subsection (2) is used to refer to the aggregate total eligible for exemption under both of these clauses.

984.     Subsection (3) sets out "the permitted amount" for each qualifying period. The "permitted amount" is a new label for the amount described as the "authorised maximum" in section 200A(4) of ICTA.

Clause 242: Works transport services

985.     This clause rewrites most of section 197AA of ICTA as extended by section 60 of FA 2001. That provision excludes from the charge to tax under the benefits code the benefit arising from the provision of a works bus or minibus service for employees. This clause goes wider and provides for no liability to income tax. See Change 45 in Annex 1.

986.     The definitions of "qualifying journey" and "workplace" in section 197AA(3) and (7) have been taken to a new interpretation clause, clause 249, which applies to the whole Chapter. The definition of "qualifying journey" reflects the amendment to section 197AB of ICTA (support for public transport bus services) made by section 33 of FA 2002. It will enable bus and minibus journeys which start or end at pick-up points to qualify.

987.     The only part of section 197AA of ICTA that has not been rewritten in this clause is subsection (6). This deals with the exemption from the charge to tax under section 141 of ICTA (non-cash vouchers) where the employee is given a non-cash voucher to evidence entitlement to use the works transport service. That exemption is covered in clause 266.

Clause 243: Support for public bus services

988.     This clause derives from section 197AB of ICTA. That section excludes from the charge under the benefits code the benefit arising from any financial or other support provided by one or more employers for a public bus service that their employees use for journeys to and from the workplace, or between workplaces. The clause takes into account the amendments made by section 33 of FA 2002. Certain definitions are now in clause 249. In providing for no liability to income tax the exemption in ICTA has been widened in the same way as in clause 242. See Change 46 in Annex 1.