Finance Act 1998 (c. 36) (c. 36)

(The document as of February, 2008)

-- Back --

Page 18

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 | P.15 | P.16 | P.17 | P.18 | P.19 | P.20 | P.21 | P.22 | P.23 | P.24 | P.25 | P.26 | P.27 | P.28 | P.29 | P.30 | P.31 | P.32 | P.33 | P.34 | P.35 | P.36

(2) For the purposes of section 148 a payment or other benefit which is provided on behalf of, or to the order of, the employee or former employee is treated as received by the employee or former employee.

Payments and other benefits excluded from charge under section 148

3 Tax is not charged under section 148 on a payment or other benefit provided--

(a) in connection with the termination of the employment by the death of the employee, or

(b) on account of injury to or disability of the employee.

4 (1) Tax is not charged under section 148 on a payment or other benefit provided in pursuance of any such scheme or fund as was described in section 221(1) and (2) of the 1970 Act or as is described in section 596(1) (approved retirement benefits schemes, etc) in the following cases.

(2) The first case is where the payment or other benefit is by way of compensation for loss of employment, or for loss or diminution of emoluments, and the loss or diminution is due to ill-health.

(3) The second case is where the payment or other benefit is properly regarded as earned by past service.

5 Tax is not charged under section 148 on a payment or other benefit provided--

(a) under a Royal Warrant, Queen's Order or Order in Council relating to 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.

6 (1) Tax is not charged under section 148 on--

(a) any benefit provided under a superannuation scheme administered by the government of an overseas territory within the Commonwealth, or

(b) any payment of compensation for loss of career, interruption of service or disturbance made in connection with any change in the coaph specifies how the £30,000 threshold in section 148(1) applies.

(2) Tax is charged only on the excess over £30,000, but the threshold applies to the aggregate amount of payments and other benefits provided in respect of the same person--

(a) in respect of the same employment, or

(b) in respect of different employments with the same employer or associated employers (see paragraph 8).

(3) 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 of later years.

(4) If more than one payment or other benefit is received in a tax year in which the threshold is exceeded--

(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.

8 (1) For the purposes of paragraph 7(2)(b) employers are associated if on the date which is the relevant date in relation to any of the payments or other benefits--

(a) one of them is under the control of the other, or

(b) one of them is under the control of a third person who controls or is under the control of the other on that or any other such date.

(2) In sub-paragraph (1)--

(a) "control" has the meaning given by section 840, and

(b) references to an employer, or to a person controlling or controlled by an employer, include the successors of the employer or person.

Exclusion or reduction of charge in case of foreign service

9 (1) If the employee's service in the employment in respect of which the payment or other benefit is received included foreign service, then--

(a) in certain cases, tax is not charged under section 148 (see paragraph 10);

(b) in other cases the amount charged to tax is reduced (see paragraph 11).

(2) "Foreign service" for this purpose means--

(a) service in or after the tax year 1974-75 such that--

(i) 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

(ii) a deduction equal to the whole amount of the emoluments from the employment was or would have been allowable under paragraph 1 of Schedule 2 to the [1974 c. 30.] Finance Act 1974, paragraph 1 of Schedule 7 to the [1977 c. 36.] Finance Act 1977 or section 192A or 193(1) of this Act (foreign earnings deduction);

(b) service before the tax year 1974-75 such that tax was not chargeable in respect of the emoluments of the employment--

(i) in the tax year 1956-57 or later, under Case I of Schedule E;

(ii) in earlier tax years, under Schedule E.

10 Tax is not charged under section 148 if foreign service comprises--

(a) three-quarters or more of the whole period of service down to the relevant date, or

(b) if the period of service down to the relevant date exceeded ten years, the whole of the last ten years, or

(c) if the period of service down to the relevant date exceeded 20 years, one-half or more of that period, including any ten of the last 20 years.

11 (1) Where there is foreign service and paragraph 10 does not apply, the person chargeable to tax under section 148 may claim relief in the form of a proportionate reduction of the amount charged to tax.

The amount charged to tax means the amount after any reduction under paragraph 7 (application of £30,000 threshold).

(2) The proportion is that which the length of the foreign service bears to the whole length of service in the employment before the relevant date.

(3) A person is not entitled to relief under this paragraph in so far as the relief, together with any personal relief allowed to him, would reduce the amount of income on which he is chargeable below the amount of income tax which he is entitled--

(a) to charge against any other person, or

(b) to deduct, retain or satisfy out of any payment which he is liable to make.

(4) For the purposes of sub-paragraph (3)--

(a) "personal relief" means relief under Chapter I of Part VII; and

(b) the amount of tax to which a person is or would be chargeable means the amount of tax to which he is or would be chargeable either by assessment or by deduction.

Valuation of benefits

12 (1) For the purposes of section 148, the amount of a payment or other benefit is taken to be--

(a) in the case of a cash benefit, the amount received, and

(b) in the case of a non-cash benefit, the cash equivalent of the benefit.

(2) The cash equivalent of a non-cash benefit is whichever is the greater of--

(a) the amount which would be chargeable to tax under section 19(1) if the benefit were an emolument of the employment chargeable to tax under Case I of Schedule E, or

(b) the cash equivalent determined in accordance with the provisions of section 596B (cash equivalent of benefits in kind for purposes of charge to tax on benefits under non-approved retirement benefits scheme).

Notional interest treated as paid if amount charged in respect of beneficial loan

13 (1) This paragraph applies where a person is chargeable to tax under section 148 in any tax year on an amount which consists of or includes an amount representing the cash equivalent of the benefit of a loan determined in accordance with Part II of Schedule 7.

(2) Where this paragraph applies, the person chargeable is treated as having paid interest on the loan of the same amount as the cash equivalent so determined.

This is subject to application of the £30,000 threshold: see sub-paragraph (5) below.

(3) The interest is treated as paid for all the purposes of the Tax Acts (other than section 148 and this Schedule), but not so as to make it--

(a) income of the person making the loan, or

(b) relevant loan interest to which section 369 applies (mortgage interest payable under deduction of tax).

(4) The interest is treated as accruing during and paid at the end of the tax year or, if different, the period in the tax year during which the loan is outstanding.

(5) No amount of interest is treated as paid under this paragraph in a tax year in which, after applying the £30,000 threshold in section 148(1), no amount falls to be charged to tax.

If in any tax year the effect of the £30,000 threshold is that some but not all of the amount otherwise chargeable is charged to tax, the amount of interest treated as paid is limited to the amount charged to tax.

Giving effect to the charge to tax

14 (1) Tax under section 148 is charged on the employee or former employee, whether or not he is the recipient of the payment or other benefit.

(2) After the death of the employee or former employee, any amount chargeable to tax under section 148 shall be assessed and charged upon his personal representatives and is a debt due from and payable out of the estate.

Reporting requirements

15 Provision may be made by regulations under section 203(2) requiring an employer or former employer to provide such information as may be prescribed by the regulations, within such time as may be so prescribed, as to payments or other benefits provided or to be provided in connection with the termination of a person's employment or a change in the duties of or emoluments from a person's employment.

Interpretation

16 In this Schedule--

"the relevant date" means the date of the termination or change in question; and
"tax year" means a year of assessment. " .

Part II Consequential amendments

Income and Corporation Taxes Act 1988 (c. 1)

1 (1) Section 189 of the Taxes Act 1988 (exemption from Schedule E charge of lump sum payments under approved retirement benefits schemes, etc) is amended as follows.

(2) Make the existing provision subsection (1).

(3) In paragraph (a) of that subsection for the words from "and is neither" to "section 600" substitute "and is not excepted from this paragraph by subsection (2) or (3) below".

(4) After that subsection insert--

" (2) Subsection (1)(a) above does not apply to a payment of compensation for loss of office or employment, or for loss or diminution of emoluments, unless--

(a) the loss or diminution is due to ill-health, or

(b) the payment is properly regarded as earned by past service.

(3) Subsection (1)(a) above does not apply to a payment chargeable to tax under section 600 (payments not authorised by rules of scheme). " .

2 In section 190 of the Taxes Act 1988 (payments to MPs and others exempt from tax as emoluments), for the words from "but without prejudice" to the end substitute "but without prejudice to any charge to tax under section 148".

3 In section 202B(8) of the Taxes Act 1988 (receipts basis of assessment), for "143(1)(a) or 148(4)" substitute "or 143(1)(a)".

4 In section 833(3)(a) of the Taxes Act 1988 (calculation of top slice of a person's income), after "payment" insert "or other benefit".

Finance Act 1995 (c. 4)

5 In section 92 of the Finance Act 1995 (post-employment deductions), for subsection (10) substitute--

" (10) Tax shall not be charged under section 148 of the Taxes Act 1988 (payments and other benefits in connection with termination of employment etc) in respect of a payment or other benefit received by an individual, or an individual's executors or administrators, in so far as--

(a) in the case of a cash benefit, it is provided for meeting the cost of an amount to which this subsection applies, or

(b) in the case of a non-cash benefit, it is or represents a benefit equivalent to the cost of defraying such an amount.

This subsection applies to an amount which, without being an amount to which this section applies, would fall to be treated as such an amount if subsection (4) of this section were omitted and, where the individual has died, he had not died but had himself defrayed any amounts defrayed by his executors or administrators. " .

Section 61(2).

SCHEDULE 10 Ordinary commuting and private travel

The Schedule inserted as Schedule 12A to the Taxes Act 1988 is as follows:--

" Schedule 12A Ordinary commuting and private travel

Introduction

1 (1) The provisions of this Schedule apply for the purposes of section 198(1A)(b)(ii) (qualifying travelling expenses: exclusion of ordinary commuting and private travel).

(2) In this Schedule "employment" includes an office and "employee" includes an office-holder.

Ordinary commuting and private travel

2 (1) "Ordinary commuting" means travel between--

(a) the employee's home, or

(b) a place that is not a workplace in relation to the employment,

and a place which is a permanent workplace in relation to the employment.

(2) "Private travel" means travel between--

(a) the employee's home and a place that is not a workplace in relation to the employment, or

(b) between two places neither of which is a workplace in relation to the employment.

(3) In sub-paragraphs (1)(b) and (2) "workplace" means a place at which the employee's attendance is necessary in the performance of the duties of the employment.

3 Travel between any two places that is for practical purposes substantially ordinary commuting or private travel is treated as ordinary commuting or private travel.

Permanent and temporary workplaces

4 For the purposes of paragraph 2, subject to the following provisions of this Schedule--

"permanent workplace" means a place which the employee regularly attends in the performance of the duties of the employment and which is not a temporary workplace; and
"temporary workplace" means a place which the employee attends in the performance of the duties of the employment for the purpose of performing a task of limited duration or for some other temporary purpose.

The 24 month rule and fixed term appointments

5 (1) A place is not regarded as a temporary workplace if the employee's attendance is in the course of a period of continuous work at that place--

(a) lasting more than 24 months, or

(b) comprising all or almost all of the period for which the employee is likely to hold the employment,

or if the employee's attendance is at a time when it is reasonable to assume that it will be in the course of such a period.

(2) A "period of continuous work" at a place means a period over which, looking at the whole period and considering all the duties of the employment, the duties of the employment fall to be performed to a significant extent at that place.

(3) An actual or contemplated modification of the place at which the duties of the employment fall to be performed is disregarded for the purposes of this paragraph if it does not have, or would not have, any substantial effect on the employee's journey, or expenses of travelling, to and from the place where the duties fall to be performed.

Depots and bases

6 A place which the employee regularly attends in the performance of the duties of the employment--

(a) which forms the base from which the duties of the employment are performed, or

(b) is the place at which the tasks to be carried out in the performance of those duties are allocated,

is treated as a permanent, and not a temporary, workplace.

Area-based employees

7 (1) An employee is treated as having a permanent workplace consisting of an area if the following conditions are met.

(2) The conditions are that--

(a) the duties of the employment are defined by reference to an area (whether or not they also require attendance at places outside the area),

(b) in the performance of the duties of the employment the employee attends different places within the area,

(d) applying paragraphs 4 and 5 to the area as if it were a place, the area meets the conditions for being a permanent workplace. " .

Section 62.

SCHEDULE 11 Transitional provisions for profit-related pay

Application of Schedule

1 --(1) This Schedule applies for the purposes of Chapter III of Part V of the Taxes Act 1988 (profit-related pay) where--

(a) profit-related pay is or has been paid to an employee by reference to any period ("the relevant period") and in accordance with a registered scheme ("the affected scheme"), and

(b) sub-paragraph (2) or (3) below applies in the employee's case to the relevant period.

(2) This sub-paragraph applies in the employee's case to the relevant period if--

(a) that period is a period beginning for the employee at a time on or after 17th March 1998 and ending before 31st December 2000;

(b) the employee has been eligible in accordance with a related scheme to receive profit-related pay by reference to the whole or a part of any profit period for the related scheme ("the earlier period");

(c) the earlier period is (or, by virtue of sub-paragraph (4) below, is treated as being) a period beginning before the first day of the relevant period; and

(d) the relevant anniversary is (or, by virtue of that sub-paragraph, is treated as being) in a later calendar year than the first day of the relevant period.

(3) This sub-paragraph applies in the employee's case to the relevant period if--

(a) that period is a period beginning for the employee at a time on or after 17th March 1998 and ending before 31st December 2000;

(b) the employee has been eligible in accordance with either the affected scheme or a related scheme to receive profit-related pay by reference to the whole or any part of a profit period ("the earlier period");

(d) the section 171(4) limit for the earlier period is a limit computed in accordance with this Schedule; and

(e) the relevant anniversary is in a later calendar year than the first day of the relevant period.

(4) Where--

(a) the conditions in paragraphs (a) and (b) of sub-paragraph (2) above are satisfied in relation to the relevant period in the case of any employee, and

(b) the person who is the scheme employer in relation to the affected scheme, by notice to the employee, elects that this sub-paragraph shall apply in relation to the related scheme,

the earlier period referred to in that sub-paragraph shall be assumed for the purposes of this Schedule to be a period beginning with the 1st January next before the first day of the relevant period.

Rule for determining section 171(4) limit

2 (1) The section 171(4) limit applicable to any profit-related pay paid to the employee in accordance with the affected scheme and by reference to the relevant period shall be--

(a) if the relevant period does not begin for the employee before the apportionment date, the limit for the part of the profit period falling on or after that date; and

(b) in any other case the sum of--

(i) the limit for the part of the relevant period falling on or after the apportionment date; and

(ii) the limit for the part of the relevant period falling before that date.

(2) For the purposes of sub-paragraph (1) above the limit for a part of the relevant period shall be computed by--

(a) taking the amount given by virtue of section 61 of the [1997 c. 16.] Finance Act 1997 (phasing out of relief for profit-related pay) as the section 171(4) limit for a profit period beginning with the first day of that part of that period and ending with the last day of that part of that period;

(b) making a proportionate reduction for so much of that part of that period (if any) as is not included in any period by reference to which the employee is eligible for profit-related pay in accordance with the affected scheme; and

(i) the amount produced by the reduction, or

(ii) (if no reduction has been made) the amount taken in accordance with paragraph (a) above,

as the limit for that part of the relevant period.

(3) Subject to sub-paragraph (4) below, the apportionment date in the case of any employee is for the purposes of this paragraph--

(a) except where the person who is the scheme employer for the affected scheme otherwise elects by notice to that employee, the 1st January that falls next after the first day of the relevant period; and

(b) where that person does so elect, the date which is the relevant anniversary for the purposes of whichever of sub-paragraphs (2) and (3) of paragraph 1 above applies to the relevant period in the employee's case.

(4) Where--

(a) both sub-paragraphs (2) and (3) of paragraph 1 above apply to the relevant period in the employee's case, or

(b) there is, for any other reason, more than one date which (but for this sub-paragraph) would be taken in accordance with sub-paragraph (3)(b) above to be the apportionment date,

the apportionment date shall be the earliest of those dates to fall in the calendar year immediately following that in which the first day of the relevant period falls.

Meaning of related scheme

3 (1) In the case of any employee a scheme is, in relation to the affected scheme, a related scheme for the purposes of this Schedule if--

(a) it was a registered scheme at any relevant time and the conditions set out in sub-paragraph (2) below are satisfied with respect to it; or

(b) notice that for the purposes of this Schedule it is to be treated as a related scheme in relation to the affected scheme is given to the employee by the scheme employer for the affected scheme.

(2) Those conditions are satisfied with respect to a scheme ("the relevant scheme") if a person who is the scheme employer for the affected scheme was, at a relevant time--

(a) the scheme employer for the relevant scheme; or

(b) connected with a person who was, at that or another relevant time, the scheme employer for the relevant scheme.

(3) In this paragraph "relevant time" means any time on the day of the beginning for the employee of the relevant period or in the period of twelve months preceding that day.

(4) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph.

(5) Without prejudice to sub-paragraph (4) above, for the purposes of this paragraph--

(a) each of the members of a partnership shall be regarded as connected with the partnership and with any person (including another partnership) with whom the partnership is connected; and

(b) a partnership shall be regarded as connected with each of its members and with any person (including another partnership) with whom any of its members is connected.

Meaning of "relevant anniversary"

4 For the purposes of this Schedule the relevant anniversary is--

(a) for the purposes of paragraph 1(2) above, the first anniversary of the first day of the earlier period; and

(b) for the purposes of paragraph 1(3) above, the first anniversary of the date that is taken to be the relevant anniversary for the purpose of computing the section 171(4) limit for the earlier period in accordance with this Schedule.

General interpretation

5 (1) Expressions used in this Schedule and in Chapter III of Part V of the Taxes Act 1988 have the same meanings in this Schedule as in that Chapter.

(2) References in this Schedule to the section 171(4) limit are references to the second of the limits mentioned in section 171(2) of the Taxes Act 1988; and this Schedule shall have effect on the basis that that limit is nil for any period (or part of a period) beginning on or after 1st January 2000.

(3) References in this Schedule to the beginning for the employee of any profit period by reference to which he is eligible to receive profit-related pay are references--

(a) where sub-paragraph (4) below applies, to the earliest time in that period which is included in a part of that period by reference to which he is so eligible; and

(b) in any other case, to the beginning of the first day of the period in question.

(4) This sub-paragraph applies where--

(a) the employee is eligible to receive profit-related pay by reference to only a part of the relevant period; and

(b) that part of that period begins after the beginning of that period.

Section 70.

SCHEDULE 12 EIS and VCTs: meaning of qualifying trade

New exclusions for the enterprise investment scheme

1 (1) In subsection (2) of section 297 of the Taxes Act 1988 (activities excluded from qualifying trade), the following paragraphs shall be inserted after paragraph (f)--

" (fa) property development;

(fb) farming or market gardening;

(fc) holding, managing or occupying woodlands, any other forestry activities or timber production;

(fd) operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment;

(fe) operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home; " .

(2) In paragraph (g) of that subsection (providing support for the carrying on of excluded activities), for "(f)" there shall be substituted "(fe)".

(3) After subsection (3) of that section there shall be inserted the following subsection--

" (3A) For the purposes of this Chapter the activities of a person shall not be taken to fall within paragraph (fd) or (fe) of subsection (2) above except where that person has an estate or interest in, or is in occupation of, the hotels or comparable establishments or, as the case may be, the nursing homes or residential care homes. "

Definition of excluded activities for the enterprise investment scheme

2 (1) In subsection (5) of section 298 of the Taxes Act 1988 (interpretation of section 297), after the definition of "film" there shall be inserted the following definition--

" "nursing home" means any establishment which exists wholly or mainly for the provision of nursing care for persons suffering from sickness, injury or infirmity or for women who are pregnant or have given birth to children; " .

(2) In that subsection, before the word "and" at the end of the definition of "pleasure craft" there shall be inserted the following definitions--

(a) by a company which has, or at any time has had, an interest in the land, and

(b) with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed;

"residential care home" means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care by reason of old age, mental or physical disabilities, past or present dependence on alcohol or drugs or any past illnesses or past or present mental disorders; " .

(3) After that subsection there shall be inserted the following subsections--

" (5A) References in this section, in relation to an hotel, to a comparable establishment are references to a guest house, hostel or other establishment the main purpose of maintaining which is the provision of facilities for overnight accommodation (whether with or without catering services).

(5B) Subject to subsection (5C) below, the reference in subsection (5) above to an interest in land is a reference to--

(a) any estate, interest or right in or over land, including any right affecting the use or disposition of land; or

(b) any right to obtain such an estate, interest or right from another which is conditional on the other's ability to grant the estate, interest or right.

(5C) References in this section to an interest in land do not include references to--

(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land; or

-- Back --

Stat