Income Tax (Earnings and Pensions) Bill

House of Commons

Session 2002 - 03
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Other Bills before Parliament

Income Tax (Earnings and Pensions) Bill

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK
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     (3)    Subsection (2) applies—
           (a)           whether the earnings are for that year or for some other tax year, and
           (b)           whether or not the employment is held at the time when the earnings
are received.
     (4)    Section 28 explains what is meant by “general earnings from overseas Crown
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employment subject to United Kingdom tax”.
Special class of earnings for purposes of sections 25 to 27
28    Meaning of “general earnings from overseas Crown employment subject to
UK tax”
     (1)    This section explains for the purposes of sections 25 to 27 what is meant by
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“general earnings from overseas Crown employment subject to United
Kingdom tax”.
     (2)    “Crown employment” means employment under the Crown—
           (a)           which is of a public nature, and
           (b)           the earnings from which are payable out of the public revenue of the
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United Kingdom or of Northern Ireland.
     (3)    “General earnings from overseas Crown employment” means general earnings
from such employment in respect of duties performed outside the United
Kingdom.
     (4)    Such earnings are to be taken as being “subject to United Kingdom tax” unless
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they fall within any exception contained in an order under subsection (5).
     (5)    The Board of Inland Revenue may make an order excepting from the operation
of sections 25(2) and 27(2) —
           (a)           general earnings of any description of employee specified in the order;
           (b)           general earnings from any description of employment so specified.
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     (6)    The Board may make the order if they consider that such earnings should not
be subject to those provisions having regard to the international obligations of
Her Majesty’s Government and such other matters as appear to them to be
relevant.
     (7)    An order may make provision by reference to all or any of the following—
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           (a)           the residence or nationality of the employee;
           (b)           whether the employee was engaged in or outside the United Kingdom;
           (c)           the nature of the post, the rate of remuneration and any other terms and
conditions applying to it.
     (8)    Subsection (7) does not affect the generality of the power to make provision by
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reference to such factors as the Board consider appropriate.
Year for which general earnings are earned
29    Meaning of earnings “for” a tax year
     (1)    This section applies for determining whether general earnings are general
earnings “for” a particular tax year for the purposes of this Chapter.
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Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK
    15

     (2)    General earnings that are earned in, or otherwise in respect of, a particular
period are to be regarded as general earnings for that period.
     (3)    If that period consists of the whole or part of a single tax year, the earnings are
to be regarded as general earnings “for” that tax year.
     (4)    If that period consists of the whole or parts of two or more tax years, the part
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of the earnings that is to be regarded as general earnings “for” each of those tax
years is to be determined on a just and reasonable apportionment.
     (5)    This section does not apply to any amount which is required by a provision of
Part 3 to be treated as earnings for a particular tax year.
30    Treatment of earnings for year in which employment not held
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     (1)    This section applies for the purposes of this Chapter in a case where general
earnings from an employment would otherwise fall to be regarded as general
earnings for a tax year in which the employee does not hold the employment.
     (2)    If that year falls before the first tax year in which the employment is held, the
earnings are to be treated as general earnings for that first tax year.
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     (3)    If that year falls after the last tax year in which the employment was held, the
earnings are to be treated as general earnings for that last tax year.
     (4)    This section does not apply in connection with determining the year for which
amounts are to be treated as earnings under Chapters 2 to 11 of Part 3 (the
benefits code).
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When general earnings are received or remitted
31    Receipt of money earnings
     (1)    General earnings consisting of money are to be treated for the purposes of this
Chapter as received at the earliest of the following times—
Rule 1
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            The time when payment is made of or on account of the earnings.
Rule 2
            The time when a person becomes entitled to payment of or on account of the
earnings.
Rule 3
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            If the employee is a director of a company and the earnings are from
employment with the company (whether or not as director), whichever is the
earliest of—
           (a)           the time when sums on account of the earnings are credited in the
company’s accounts or records (whether or not there is any restriction
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on the right to draw the sums);
           (b)           if the amount of the earnings for a period is determined by the end of
the period, the time when the period ends;
           (c)           if the amount of the earnings for a period is not determined until after
the period has ended, the time when the amount is determined.
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Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK
    16

     (2)    Rule 3 applies if the employee is a director of the company at any time in the
tax year in which the time mentioned falls.
     (3)    In this section “director” means—
           (a)           in relation to a company whose affairs are managed by a board of
directors or similar body, a member of that body,
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           (b)           in relation to a company whose affairs are managed by a single director
or similar person, that director or person, and
           (c)           in relation to a company whose affairs are managed by the members
themselves, a member of the company,
            and includes any person in accordance with whose directions or instructions
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the directors of the company (as defined above) are accustomed to act.
     (4)    For the purposes of subsection (3) a person is not to be regarded as a person in
accordance with whose directions or instructions the directors of the company
are accustomed to act merely because the directors act on advice given by that
person in a professional capacity.
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     (5)    Where this section applies—
           (a)           to a payment on account of general earnings, or
           (b)           to sums on account of general earnings,
            it so applies for the purpose of determining the time when an amount of
general earnings corresponding to the amount of that payment or those sums
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is to be treated as received for the purposes of this Chapter.
32    Receipt of non-money earnings
     (1)    General earnings not consisting of money are to be treated for the purposes of
this Chapter as received at the following times.
     (2)    If an amount is treated as earnings for a particular tax year under any of the
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following provisions, the earnings are to be treated as received in that year—
                    section 81 (taxable benefits: cash vouchers),
                    section 94 (taxable benefits: credit-tokens),
                    Chapter 5 of Part 3 (taxable benefits: living accommodation),
                    Chapter 6 of Part 3 (taxable benefits: cars, vans and related benefits),
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                    Chapter 7 of Part 3 (taxable benefits: loans),
                    Chapter 8 of Part 3 (taxable benefits: notional loans in respect of
acquisitions of shares),
                    Chapter 9 of Part 3 (taxable benefits: disposals of shares for more than
market value),
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                    Chapter 10 of Part 3 (taxable benefits: residual liability to charge),
                    section 222 (payments treated as earnings: payments on account of tax
where deduction not possible),
                    section 223 (payments treated as earnings: payments on account of
director’s tax).
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     (3)    If an amount is treated as earnings under section 87 (taxable benefits: non-cash
vouchers), the earnings are to be treated as received in the tax year mentioned
in section 88.
     (4)    If subsection (2) or (3) does not apply, the earnings are to be treated as received
at the time when the benefit is provided.
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Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK
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33    Earnings remitted to the United Kingdom
     (1)    This section explains what is meant for the purposes of this Chapter by general
earnings being remitted to the United Kingdom.
     (2)    If general earnings are—
           (a)           paid, used, or enjoyed in the United Kingdom, or
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           (b)           transmitted or brought to the United Kingdom in any manner or form,
            they are to be treated as remitted to the United Kingdom at the time when they
are so paid, used or enjoyed or dealt with as mentioned in paragraph (b).
     (3)    If, in the case of an employee who is ordinarily resident in the United
Kingdom, general earnings are used outside the United Kingdom to satisfy a
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UK-linked debt, they are to be treated as remitted to the United Kingdom at the
time when they are so used.
            This is subject to subsection (5)(b).
     (4)    In subsection (3) “UK-linked” debt, in relation to an employee, means—
           (a)           a debt for money lent to the employee in the United Kingdom, or for
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interest on money so lent, or
           (b)           a debt for money lent to the employee outside the United Kingdom and
received in the United Kingdom, or
           (c)           a debt incurred for satisfying—
                  (i)                 a debt falling within paragraph (a) or (b), or
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                  (ii)                another debt falling within this paragraph.
     (5)    In the case of a debt (within subsection (4)(b) or (c)) for money lent to the
employee outside the United Kingdom —
           (a)           it does not matter whether the money lent is received in the United
Kingdom before or after the general earnings are used to satisfy the
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debt, but
           (b)           if the money lent is not received in the United Kingdom until after the
general earnings are used to satisfy the debt, the general earnings are to
be treated as remitted to the United Kingdom at the time when the
money lent is received there (instead of at the time provided in
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subsection (3)).
     (6)    In subsections (4) and (5) any reference to money lent being received in the
United Kingdom includes a reference to its being brought there.
     (7)    Section 34 (further provisions about UK-linked debts) applies for the purposes
of subsections (3) to (5).
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34    Earnings remitted to the United Kingdom: further provisions about UK-
linked debts
     (1)    This section applies for the purposes of the provisions of section 33 which
relate to general earnings that are used to satisfy a UK-linked debt.
     (2)    General earnings are to be treated as used to satisfy a debt for money lent to a
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person (“the borrower”) if conditions A and B are met.
     (3)    Condition A is that the earnings are dealt with in such a way that the lender
holds money or property representing the earnings on behalf of or on account
of the borrower in such circumstances that it is available to the lender to satisfy
or reduce the debt (by set-off or otherwise).
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Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK
    18

     (4)    Condition B is that under an arrangement between the borrower and the
lender—
           (a)           the amount for the time being owed by the borrower to the lender, or
           (b)           the time at which the debt is to be wholly or partly repaid,
            depends in any respect, directly or indirectly, on the amount or value the
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lender holds on behalf of or on account of the borrower as mentioned in
subsection (3).
     (5)    If and to the extent that money lent is used to satisfy a debt, the debt for the
money lent is to be treated as incurred for satisfying that other debt.
     (6)    In this section “lender” includes, in relation to any money lent, any person for
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the time being entitled to repayment.
     (7)    In this section and section 33 “satisfy”, in relation to a debt, means satisfy
wholly or in part.
Relief for delayed remittances
35    Relief for delayed remittances
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     (1)    A person may make a claim for relief under this section for a tax year in respect
of delayed remittances from an employment.
     (2)    “Delayed remittances” are general earnings of the person which—
           (a)           were received in a country or territory outside the United Kingdom
before the tax year for which relief is claimed,
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           (b)           were not remitted to the United Kingdom until that tax year,
           (c)           could not have been transferred by the person to the United Kingdom
before that tax year because of—
                  (i)                 the laws of the country or territory where they were received,
                  (ii)                executive action of its government, or
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                  (iii)               the impossibility of obtaining there currency (other than the
currency of that country or territory) that could be transferred
to the United Kingdom, and
           (d)           constitute taxable earnings from the employment in that tax year under
section 22(2) or 26(2) (general earnings which are taxable earnings if
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remitted to UK).
     (3)    If a person claims relief for a tax year in respect of delayed remittances from an
employment, the amount of the remittances—
           (a)           is to be deducted from the person’s general earnings which constitute
taxable earnings from the employment in that year under section 22(2)
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or 26(2); and
           (b)           is instead to constitute taxable earnings from the employment under
that provision in one or more earlier tax years in accordance with—
                  (i)                 subsection (4), or
                  (ii)                alternatively, section 36 where an election is made under that
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section.
     (4)    Where this subsection applies—
           (a)           the amount referred to in subsection (3)(b) is to be treated as taxable
earnings from the employment in the tax year in which it was received,
or
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Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK
    19

           (b)           if it consists of general earnings received in two or more tax years, so
much of the amount as was received in each of those years is to be
treated as taxable earnings from the employment in that year.
36    Election in respect of delayed remittances
     (1)    This section applies if—
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           (a)           a person (“the claimant”) claims relief under section 35 for a tax year in
respect of delayed remittances from an employment, and
           (b)           at the end of that year the claimant had blocked earnings from that
employment for one or more previous tax years.
     (2)    General earnings are “blocked earnings” for a tax year if they—
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           (a)           were received in a country or territory outside the United Kingdom in
that year,
           (b)           could not be transferred by the claimant to the United Kingdom in that
year because of any of the things mentioned in section 35(2)(c), and
           (c)           would have constituted taxable earnings from the employment in that
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year under section 22(2) or 26(2) (general earnings which are taxable
earnings if remitted to UK) if they had been so transferred.
     (3)    The claimant may elect for the purposes of section 35(3)(b) to have the amount
of the delayed remittances treated as taxable earnings from the employment in
one or more tax years specified in the election.
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     (4)    A claimant may only specify a particular tax year if—
           (a)           there were blocked earnings of the claimant for that year from the
employment, and
           (b)           it is a year prior to the tax year for which relief is claimed.
     (5)    If more than one year is specified, the election must indicate the amount which
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is to be treated as taxable earnings in each of those years.
     (6)    However the amount of the delayed remittances which the claimant elects to
be treated as taxable earnings in a particular tax year must not exceed—

            where—
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                    BE is the amount of blocked earnings of the claimant for that year from the
employment, and
                    PC is the amount of remittances treated as taxable earnings from the
employment in that year as a result of a previous claim by the claimant
under section 35.
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     (7)    An election under this section—
           (a)           must be made as part of the claim under section 35, and
           (b)           is irrevocable.
     (8)    A person’s personal representatives may make any election under this section
which the person might have made.
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37    Claims for relief on delayed remittances
     (1)    A claim under section 35 must be made on or before the fifth anniversary of the
normal self-assessment filing date for the tax year for which relief is claimed.

Income Tax (Earnings and Pensions) Bill
Part 2 — Employment income: charge to tax
Chapter 5 — Taxable earnings: rules applying to employee resident, ordinarily resident or domiciled outside UK
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     (2)    All adjustments (by way of repayment of tax, assessment or otherwise) are to
be made which are necessary to give effect to section 35.
     (3)    Those adjustments may be made at any time, despite anything to the contrary
in the Income Tax Acts.
     (4)    A person’s personal representatives may make any claim under section 35
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which the person might have made.
     (5)    If a person dies—
           (a)           any tax paid by the person and repayable because of a claim under
section 35 is to be repaid to the person’s personal representatives, and
           (b)           the person’s personal representatives are liable for any additional tax
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which arises because of a claim under that section.
     (6)    Where subsection (5)(b) applies, the additional tax—
           (a)           is to be assessed on the personal representatives, and
           (b)           is a debt due from and payable out of the estate.
Place of performance of duties of employment
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38    Earnings for period of absence from employment
     (1)    This section applies if a person ordinarily performs the whole or part of the
duties of an employment in the United Kingdom.
     (2)    General earnings for a period of absence from the employment are to be treated
for the purposes of this Chapter as general earnings for duties performed in the
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United Kingdom except in so far as they would, but for that absence, have been
general earnings for duties performed outside the United Kingdom.
39    Duties in UK merely incidental to duties outside UK
     (1)    This section applies if in a tax year an employment is in substance one whose
duties fall to be performed outside the United Kingdom.
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     (2)    Duties of the employment performed in the United Kingdom whose
performance is merely incidental to the performance of duties outside the
United Kingdom are to be treated for the purposes of this Chapter as
performed outside the United Kingdom.
     (3)    This section does not affect any question as to—
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           (a)           where any duties are performed, or
           (b)           whether a person is absent from the United Kingdom,
            for the purposes of section 378 (deduction from seafarers’ earnings: eligibility),
and section 383 (place of performance of incidental duties) applies instead.
40    Duties on board vessel or aircraft
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     (1)    Duties which a person performs on a vessel engaged on a voyage not
extending to a port outside the United Kingdom are to be treated for the
purposes of this Chapter as performed in the United Kingdom.
     (2)    Duties which a person resident in the United Kingdom performs on a vessel or
aircraft engaged—
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© Parliamentary copyright 2003	Revised 12 February 2003