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404 How the £30,000 threshold applies | |
(1) For the purpose of the £30,000 threshold in section 403(4) and (5), the payments | |
and other benefits provided in respect of an employee or former employee | |
which are to be aggregated are those provided— | |
(a) in respect of the same employment, | 5 |
(b) in respect of different employments with the same employer, and | |
(c) in respect of employments with employers who are associated. | |
(2) For this purpose employers are “associated” if on a termination or change | |
date— | |
(a) one of them is under the control of the other, or | 10 |
(b) one of them is under the control of a third person who on that | |
termination or change date or another such date controls or is under the | |
control of the other. | |
(3) In subsection (2)— | |
(a) references to an employer, or to a person controlling or controlled by an | 15 |
employer, include the successors of the employer or person, and | |
(b) “termination or change date” means a date on which a termination or | |
change occurs in connection with which a payment or other benefit to | |
which this Chapter applies is received in respect of the employee or | |
former employee. | 20 |
(4) If payments and other benefits are received in different tax years, the £30,000 is | |
set against the amount of payments and other benefits received in earlier years | |
before those received in later years. | |
(5) If more than one payment or other benefit is received in a tax year in which the | |
threshold is exceeded— | 25 |
(a) the £30,000 (or the balance of it) is set against the amounts of cash | |
benefits as they are received, and | |
(b) any balance at the end of the year is set against the aggregate amount | |
of non-cash benefits received in the year. | |
Exceptions and reductions | 30 |
405 Exception for certain payments exempted when received as earnings | |
(1) This Chapter does not apply to any payment received in connection with the | |
termination of a person’s employment which, were it received for the | |
performance of the duties of the employment, would fall within section 308 | |
(exemption of contributions to approved personal pension arrangements). | 35 |
(2) This Chapter does not apply to any payment received in connection with any | |
change in the duties of, or earnings from, a person’s employment to the extent | |
that, were it received for the performance of the duties of the employment, it | |
would fall within 271(1) (limited exemption of removal benefits and expenses). | |
406 Exception for death or disability payments and benefits | 40 |
This Chapter does not apply to a payment or other benefit provided— | |
(a) in connection with the termination of employment by the death of an | |
employee, or | |
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(b) on account of injury to, or disability of, an employee. | |
407 Exception for payments and benefits under tax-exempt pension schemes | |
(1) This Chapter does not apply to a payment or other benefit provided under a | |
tax-exempt pension scheme if— | |
(a) the payment or other benefit is by way of compensation— | 5 |
(i) for loss of employment, or | |
(ii) for loss or diminution of earnings, and | |
the loss or diminution is due to ill-health, or | |
(b) the payment or other benefit is properly regarded as earned by past | |
service. | 10 |
(2) For this purpose “tax-exempt pension scheme” means— | |
(a) a retirement benefits scheme which is— | |
(i) an approved scheme, | |
(ii) a relevant statutory scheme, or | |
(iii) a scheme set up by a government outside the United Kingdom | 15 |
for the benefit of its employees or primarily for their benefit, or | |
(b) any such scheme or fund as was described in section 221(1) and (2) of | |
ICTA 1970 (schemes to which payments could be made without charge | |
to tax under section 220 of ICTA 1970). | |
(3) In this section— | 20 |
“approved scheme” has the meaning given by section 612(1) of ICTA, | |
“relevant statutory scheme” has the meaning given by section 611A of | |
ICTA, and | |
“retirement benefits scheme” has the meaning given by section 611 of | |
ICTA. | 25 |
408 Exception for contributions to tax-exempt pension schemes | |
(1) This Chapter does not apply to a contribution to a tax-exempt pension scheme | |
or approved personal pension arrangements if the contribution is made— | |
(a) as part of an arrangement relating to the termination of a person’s | |
employment, and | 30 |
(b) in order to provide benefits for the person in accordance with the terms | |
of the scheme or approved personal pension arrangements. | |
(2) For this purpose— | |
“tax-exempt pension scheme” has the same meaning as in section 407(2), | |
and | 35 |
“approved” and “personal pension arrangements” have the meaning | |
given by section 630(1) of ICTA. | |
409 Exception for payments and benefits in respect of employee liabilities and | |
indemnity insurance | |
(1) This Chapter does not apply to a payment or other benefit received by an | 40 |
individual if or to the extent that— | |
(a) in the case of a cash benefit, it is provided for meeting the cost of a | |
deductible amount , or | |
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(b) in the case of a non-cash benefit, it is or represents a benefit equivalent | |
to the cost of paying a deductible amount. | |
(2) For the purposes of this section “deductible amount” means an amount which | |
meets conditions A to C. | |
(3) Condition A is that the amount is paid by the individual. | 5 |
(4) Condition B is that a deduction for the amount would have been allowed under | |
section 346 from earnings from the relevant employment, if the individual still | |
held the employment when the amount was paid. | |
(5) Condition C is that the amount is paid at a time which falls within the run-off | |
period. | 10 |
(6) In this section and section 410— | |
“relevant employment” means the employment mentioned in section | |
401(1); | |
“run-off period” means the period which— | |
(a) starts with the day on which the relevant employment | 15 |
terminated, and | |
(b) ends with the last day of the sixth tax year following the tax year | |
in which the period started. | |
410 Exception for payments and benefits in respect of employee liabilities and | |
indemnity insurance: individual deceased | 20 |
(1) This Chapter does not apply to a payment or other benefit received by an | |
individual’s personal representatives if or to the extent that— | |
(a) in the case of a cash benefit, it is provided for meeting the cost of a | |
deductible amount, or | |
(b) in the case of a non-cash benefit, it is or represents a benefit equivalent | 25 |
to the cost of paying a deductible amount. | |
(2) For the purposes of this section “deductible amount” means an amount which | |
meets conditions A to C. | |
(3) Condition A is that the amount is paid by the individual’s personal | |
representatives. | 30 |
(4) Condition B is that a deduction for the amount would have been allowed under | |
section 346 from earnings from the relevant employment, if— | |
(a) the individual had not died, | |
(b) the amount had been paid by the individual, and | |
(c) the individual still held the employment when the amount was paid. | 35 |
(5) Condition C is that the amount is paid at a time which falls within the run-off | |
period. | |
411 Exception for payments and benefits for forces | |
This Chapter does not apply to a payment or other benefit provided— | |
(a) under a Royal Warrant, Queen’s Order or Order in Council relating to | 40 |
members of Her Majesty’s forces, or | |
(b) by way of payment in commutation of annual or other periodical | |
payments authorised by any such Warrant or Order. | |
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412 Exception for payments and benefits provided by foreign governments etc. | |
(1) This Chapter does not apply to— | |
(a) a benefit provided under a pension scheme administered by the | |
government of an overseas territory within the Commonwealth, or | |
(b) a payment of compensation for loss of career, interruption of service or | 5 |
disturbance made— | |
(i) in connection with any change in the constitution of any such | |
overseas territory, and | |
(ii) to a person who was employed in the public service of the | |
territory before the change. | 10 |
(2) References in subsection (1) to— | |
(a) an overseas territory, | |
(b) the government of such a territory, and | |
(c) employment in the public service of such a territory, | |
have the meanings given in section 615 of ICTA. | 15 |
413 Exception in certain cases of foreign service | |
(1) This Chapter does not apply if the service of the employee or former employee | |
in the employment in respect of which the payment or other benefit is received | |
included foreign service comprising— | |
(a) three-quarters or more of the whole period of service ending with the | 20 |
date of the termination or change in question, or | |
(b) if the period of service ending with that date exceeded 10 years, the | |
whole of the last 10 years, or | |
(c) if the period of service ending with that date exceeded 20 years, one- | |
half or more of that period, including any 10 of the last 20 years. | 25 |
(2) In subsection (1) “foreign service” means service to which subsection (3), (4) or | |
(6) applies. | |
(3) This subsection applies to service in or after the tax year 2003-04 such that— | |
(a) the earnings from the employment were not general earnings to which | |
section 15 or 21 applies (earnings for year when employee resident and | 30 |
ordinarily resident in UK), or would not have been had there been any, | |
or | |
(b) a deduction equal to the whole amount of the earnings from the | |
employment was or would have been allowable under Chapter 6 of | |
Part 5 (deductions from seafarers’ earnings). | 35 |
(4) This subsection applies to service before the tax year 2003-04 and after the tax | |
year 1973-74 such that— | |
(a) the emoluments from the employment were not chargeable under Case | |
I of Schedule E, or would not have been so chargeable had there been | |
any, or | 40 |
(b) a deduction equal to the whole amount of the emoluments from the | |
employment was or would have been allowable under a foreign | |
earnings deduction provision. | |
(5) In subsection (4) “foreign earnings deduction provision” means— | |
(a) paragraph 1 of Schedule 2 to FA 1974, | 45 |
(b) paragraph 1 of Schedule 7 to FA 1977, or | |
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(c) section 192A or 193(1) of ICTA. | |
(6) This subsection applies to service before the tax year 1974-75 such that tax was | |
not chargeable in respect of the emoluments of the employment— | |
(a) in the tax year 1956-57 or later, under Case I of Schedule E, or | |
(b) in earlier tax years, under Schedule E, | 5 |
or it would not have been so chargeable had there been any such emoluments. | |
414 Reduction in other cases of foreign service | |
(1) This section applies if— | |
(a) the service of the employee or former employee in the employment in | |
respect of which the payment or other benefit is received includes | 10 |
foreign service, and | |
(b) section 413 (exception in certain cases of foreign service) does not | |
apply. | |
(2) The taxable person may claim relief in the form of a proportionate reduction of | |
the amount that would otherwise count as employment income under this | 15 |
Chapter. | |
(3) The proportion is that which the length of the foreign service bears to the whole | |
length of service in the employment before the date of the termination or | |
change in question. | |
(4) A person’s entitlement to relief under this section is limited as mentioned in | 20 |
subsection (5) if the person is entitled— | |
(a) to deduct, retain or satisfy income tax out of a payment which the | |
person is liable to make, or | |
(b) to charge any income tax against another person. | |
(5) The relief must not reduce the amount of income tax for which the person is | 25 |
liable below the amount the person is entitled so to deduct, retain, satisfy or | |
charge. | |
(6) In this section “foreign service” has the same meaning as in section 413(2). | |
General and supplementary provisions | |
415 Valuation of benefits | 30 |
(1) In the case of a cash benefit, for the purposes of this Chapter the amount of a | |
payment or other benefit is taken to be the amount received. | |
(2) In the case of a non-cash benefit, for the purposes of this Chapter the amount | |
of a payment or other benefit is taken to be the greater of— | |
(a) the amount of earnings (as defined in Chapter 1 of Part 3) that the | 35 |
benefit would give rise to if it were received by an employee within | |
section 15 for performance of the duties of an employment (money’s | |
worth), and | |
(b) the cash equivalent of the benefit under the benefits code if it were so | |
received and the code applied to it. | 40 |
(3) For the purposes of subsection (2), the benefits code has effect with the | |
modifications in subsections (4), (6) and (7). | |
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(4) References in the benefits code to the employee are to be taken as references to | |
the taxable person and any other person by whom the benefit is received. | |
(5) For the purposes of subsection (4), section 401(4)(a) is to be disregarded. | |
(6) References in the benefits code to the employer are to be taken as including | |
references to the former employer. | 5 |
(7) Where— | |
(a) section 106 (cash equivalent: cost of accommodation over £75,000) | |
applies, and | |
(b) the sum referred to in section 105(2)(b) (the sum made good) exceeds | |
the amount referred to in section 105(2)(a) (the rental value), | 10 |
the amount to be subtracted under paragraph (b) of step 4 of the calculation in | |
section 106(2) is that excess (and not only the excess rent referred to there). | |
416 Notional interest treated as paid if amount charged for beneficial loan | |
(1) This section applies if an amount (“the taxable amount”) consisting of, or | |
including, an amount representing the benefit of a loan counts as a person’s | 15 |
employment income in a tax year under section 403. | |
(2) That person is to be treated for the purposes of the Tax Acts (other than this | |
Chapter) as having paid interest on the loan in the tax year equal to the lesser | |
of— | |
(a) the amount representing the cash equivalent of the loan, and | 20 |
(b) the taxable amount. | |
(3) The interest is to be treated— | |
(a) as accruing during the period in the tax year during which the loan is | |
outstanding, and | |
(b) as paid at the end of the period. | 25 |
(4) The interest is not to be treated— | |
(a) as income of the person making the loan, or | |
(b) as relevant loan interest to which section 369 of ICTA applies (mortgage | |
interest payable under deduction of tax). | |
Part 7 | 30 |
Employment income: share-related income and exemptions | |
Chapter 1 | |
Introduction | |
417 Scope of Part 7 | |
(1) This Part contains special rules relating to directors or employees who | 35 |
acquire— | |
(a) shares in companies, or | |
(b) options relating to such shares, | |
in connection with their office or employment. | |
(2) The rules are contained in— | 40 |
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Chapter 2 (conditional interests in shares), | |
Chapter 3 (convertible shares), | |
Chapter 4 (post-acquisition benefits from shares), | |
Chapter 5 (share options), | |
Chapter 6 (approved share incentive plans), | 5 |
Chapter 7 (approved SAYE option schemes), | |
Chapter 8 (approved CSOP schemes), | |
Chapter 9 (enterprise management incentives), and | |
Chapter 10 (priority share allocations). | |
(3) The following make provision for amounts to count as employment income of | 10 |
directors or employees— | |
Chapters 2 to 6, and | |
Chapter 8. | |
(4) The following make provision for exemptions and reliefs from income tax— | |
Chapter 2, and | 15 |
Chapters 5 to 10. | |
(5) Chapter 11 contains supplementary provisions relating to employee benefit | |
trusts. | |
418 Other provisions about share-related income and exemptions | |
(1) The following provisions of this Act also deal with share-related income and | 20 |
exemptions— | |
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), and | 25 |
Part 7 of Schedule 7 (transitional provisions relating to share-related | |
income). | |
(2) In addition, share-related income may fall within— | |
(a) Chapter 1 of Part 3 (earnings), or | |
(b) Chapter 10 of Part 3 (taxable benefits: residual liability to charge). | 30 |
(3) In view of section 49 of FA 2000 (phasing out of APS schemes) the following | |
are not rewritten in this Act and continue in force unaffected by the repeals | |
made by this Act— | |
section 186 of ICTA (APS schemes) and section 187 of that Act | |
(interpretation) so far as relating to APS schemes, | 35 |
Schedule 9 to ICTA (approval of share schemes) so far as relating to APS | |
schemes and Schedule 10 to that Act (further provisions about APS | |
schemes). | |
“APS schemes” means profit sharing schemes approved under Schedule 9 to | |
ICTA. | 40 |
(4) Sections 138 to 140 of ICTA (share acquisitions by directors and employees) | |
continue to apply in relation to shares or interests in shares acquired before | |
26th October 1987 (see paragraph 57 of Schedule 7). | |
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