Income Tax (Earnings and Pensions) Act 2003 (c. 1)

(The document as of February, 2008)

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(2) None of the employments is to be regarded as lower-paid employment in relation to a tax year if--

(a) the total of the earnings rates for the employments for the year (calculated in each case under section 218) is £8,500 or more, or

(b) any of them is an employment falling outside the exclusion contained in section 216(1) (provisions not applicable to lower-paid employment).

(3) For the purposes of this section two employments are "related" if--

(a) both are with the same employer, or

(b) one is with a body or partnership ("A") and the other is either--

(i) with an individual, partnership or body that controls A ("B"), or

(ii) with another partnership or body also controlled by B.

Chapter 12 Payments treated as earnings

221 Payments where employee absent because of sickness or disability

(1) This section applies if--

(a) an employee is absent from work because of sickness or disability, and

(b) a qualifying sickness payment is made in respect of the employee's absence from work.

(2) But this section does not apply if the qualifying sickness payment constitutes earnings from the employment by virtue of any other provision.

(3) The qualifying sickness payment is to be treated as earnings from the employment in respect of the period of absence.

(4) If the qualifying sickness payment is made from funds to which the employer and the employer's employees have made contributions, only the amount of the payment which it is just and reasonable to attribute to the employer's contributions is treated as earnings under this section.

(5) In this section "qualifying sickness payment" means a payment which meets conditions A and B.

(6) Condition A is that the payment is made--

(a) to the employee or to a member of the employee's family,

(b) to the order of such a person, or

(c) to the benefit of such a person.

(7) Condition B is that the payment is made--

(a) by reason of the employment, and

(b) as a result of arrangements entered into by the employer.

222 Payments by employer on account of tax where deduction not possible

(1) This section applies if--

(a) an employer is treated by virtue of sections 687, 689 and 693 to 700 as having made a payment of income of an employee ("the notional payment"),

(b) the employer is required by virtue of section 710(4) to account to the Inland Revenue for an amount of income tax ("the due amount") in respect of the notional payment, and

(c) the employee does not, before the end of the period of 30 days beginning with the date on which the employer is treated as making the notional payment, make good the due amount to the employer.

(2) The due amount is to be treated as earnings from the employment for the tax year in which the date mentioned in subsection (1)(c) falls.

(3) In this section "employer", in relation to any provision of sections 687, 689, 693 to 700 or 710, means the person taken to be the employer for the purposes of that provision.

It also includes a person who is treated as making a payment of PAYE income by virtue of section 689(2) (payments by person for whom employee works but who is not the employer).

223 Payments on account of director's tax other than by the director

(1) This section applies if in a tax year--

(a) a person ("P") makes a payment to another person who is employed as the director of a company,

(b) the payment is of, or on account of, earnings from the director's employment,

(c) PAYE regulations require P to deduct an amount of income tax ("the deductible tax"),

(d) P deducts none, or only some, of the deductible tax, and

(e) either or both of the following occur--

(i) P accounts to the Board of Inland Revenue for some or all of the deductible tax (whether or not P has actually deducted the amount accounted for);

(ii) one or more persons other than P (apart from the director) account to the Board of Inland Revenue for some or all of the deductible tax.

(2) For the purposes of this section it does not matter whether the director's employment is held at the time when P makes the payment mentioned in subsection (1)(a) so long as it is held at some point in the tax year in which the payment is made.

(3) References in this section to employment as a director accordingly include prospective or past employment as a director.

(4) The deductible tax accounted for to the Board of Inland Revenue is to be treated as earnings of the director from the director's employment for the tax year in which it is accounted for.

(5) But if--

(a) the deductible tax is accounted for after the director's employment has ceased, and

(b) the employment ceased in a tax year before the one in which the deductible tax is accounted for,

the deductible tax is treated as earnings for the tax year in which the director's employment ceased.

(6) The following rules apply to the calculation of the amount to be treated as earnings under this section--

(a) any amount accounted for after the death of the director is to be disregarded;

(b) if P deducts some of the deductible tax, the amount treated as earnings is reduced by the amount deducted;

(c) if the director makes good to P or to another person some or all of the deductible tax which P or the other person accounts for, the amount treated as earnings is reduced by the amount made good.

(7) This section does not apply if the director has no material interest in the company and either--

(a) the director is employed as a full-time working director of the company, or

(b) the company is--

(i) non-profit-making, or

(ii) established for charitable purposes only.

(8) In this section--

• "director" has the same meaning as in the benefits code (see section 67);

• "director's employment", in relation to a person who is employed as a director, means that employment;

• "full-time working director" has the same meaning as in the benefits code (see section 67);

• "material interest" has the same meaning as in the benefits code (see section 68);

• "non-profit-making", in relation to a company, means that--

  (a)

  the company does not carry on a trade, and

  (b)

  its functions do not consist wholly or mainly in the holding of investments or other property.

224 Payments to non-approved personal pension arrangements

(1) Contributions paid by an employer under non-approved personal pension arrangements made by the employee are to be treated as earnings from the employment for the tax year in which they are paid.

(2) Subsection (1) does not apply if or to the extent that the contributions are chargeable to income tax as the employee's income apart from this section.

(3) For the purposes of this section--

(a) "personal pension arrangements" has the meaning given by section 630(1) of ICTA, and

(b) arrangements are "non-approved" if they are not "approved" within the meaning of that section.

225 Payments for restrictive undertakings

(1) This section applies where--

(a) an individual gives a restrictive undertaking in connection with the individual's current, future or past employment, and

(b) a payment is made in respect of--

(i) the giving of the undertaking, or

(ii) the total or partial fulfilment of the undertaking.

(2) It does not matter to whom the payment is made.

(3) The payment is to be treated as earnings from the employment for the tax year in which it is made.

(4) Subsection (3) does not apply if the payment constitutes earnings from the employment by virtue of any other provision.

(5) A payment made after the death of the individual who gave the undertaking is treated for the purposes of this section as having been made immediately before the death.

(6) This section applies only where--

(a) the earnings from the employment are general earnings to which any of the provisions mentioned in subsection (7) apply, or

(b) if there were general earnings from the employment they would be general earnings to which any of those provisions apply.

(7) The provisions are--

(a) section 15 (earnings of employee resident, ordinarily resident and domiciled in the UK),

(b) section 21 (earnings of employee resident and ordinarily resident, but not domiciled, in UK, except chargeable overseas earnings),

(c) section 25 (UK-based earnings of employee resident but not ordinarily resident in UK), and

(d) section 27 (UK-based earnings of employee not resident in UK).

(8) In this section "restrictive undertaking" means an undertaking which restricts the individual's conduct or activities.

For this purpose it does not matter whether or not the undertaking is legally enforceable or is qualified.

226 Valuable consideration given for restrictive undertakings

(1) In a case where--

(a) an individual gives a restrictive undertaking in connection with the individual's current, future or past employment, and

(b) valuable consideration that is not in the form of money is provided in respect of--

(i) the giving of the undertaking, or

(ii) the total or partial fulfilment of the undertaking,

section 225 applies as it would if a payment of an amount equal to the value of the consideration had been made instead.

(2) For this purpose--

(a) merely assuming an obligation to make over or provide valuable property, rights or advantages is not valuable consideration, but

(b) wholly or partially discharging such an obligation is.

Part 4 Employment income: exemptions

Chapter 1 Exemptions: general

227 Scope of Part 4

(1) This Part contains--

(a) earnings-only exemptions, and

(b) employment income exemptions.

(2) In this Act "earnings-only exemption" means an exemption from income tax which--

(a) prevents liability to tax arising in respect of earnings, either by virtue of one or more particular provisions (such as a Chapter of the benefits code) or at all, and

(b) does not prevent liability to tax arising in respect of other employment income.

(3) In this Act "employment income exemption" means an exemption from income tax which prevents liability to tax arising in respect of employment income of any kind at all.

(4) The following provisions in Part 7 also confer exemption from liability to income tax in respect of earnings--

(a) section 426 (conditional interests in shares: no charge in respect of acquisition of employee's interest in certain circumstances),

(b) section 474 (share options: no charge in respect of receipt of shorter- term option),

(c) sections 489 to 493 and sections 496 to 499 (approved share incentive plans),

(d) section 518 (approved SAYE option schemes: no charge in respect of receipt of option),

(e) section 519 (approved SAYE option schemes: no charge in respect of exercise of option),

(f) section 523 (approved CSOP schemes: no charge in respect of receipt of option),

(g) section 524 (approved CSOP schemes: no charge in respect of exercise of option),

(h) section 528 (enterprise management incentives: no charge on receipt of qualifying option),

(i) section 542 (priority share allocations: exemption where offer made to public and employees), and

(j) section 544 (priority share allocations: exemption where different offers made to public and employees).

228 Effect of exemptions on liability under provisions outside Part 2

(1) The exemptions conferred by the provisions specified in subsection (2) prevent liability to income tax arising under any enactment, but the other exemptions in this Part only affect liability to income tax under Part 2 of this Act.

(2) The provisions referred to in subsection (1) are--

(a) section 245 (travelling and subsistence during public transport strikes),

(b) section 248 (transport home: late night working and failure of car-sharing arrangements),

(c) section 264 (annual parties and functions),

(d) Chapter 8 of this Part (exemptions for special kinds of employees) except for sections 290 and 291,

(e) section 323 (long service awards),

(f) section 324 (small gifts from third parties), and

(g) section 326 (expenses incidental to transfer of a kind not normally met by transferor).

Chapter 2 Exemptions: mileage allowances and passenger payments

Mileage allowances

229 Mileage allowance payments

(1) No liability to income tax arises in respect of approved mileage allowance payments for a vehicle to which this Chapter applies (see section 235).

(2) Mileage allowance payments are amounts, other than passenger payments (see section 233), paid to an employee for expenses related to the employee's use of such a vehicle for business travel (see section 236(1)).

(3) Mileage allowance payments are approved if, or to the extent that, for a tax year, the total amount of all such payments made to the employee for the kind of vehicle in question does not exceed the approved amount for such payments applicable to that kind of vehicle (see section 230).

(4) Subsection (1) does not apply if--

(a) the employee is a passenger in the vehicle, or

(b) the vehicle is a company vehicle (see section 236(2)).

230 The approved amount for mileage allowance payments

(1) The approved amount for mileage allowance payments that is applicable to a kind of vehicle is--

M  × R

where--

• M is the number of miles of business travel by the employee (other than as a passenger) using that kind of vehicle in the tax year in question;

• R is the rate applicable to that kind of vehicle.

(2) The rates applicable are as follows--

Table

Kind of vehicle	Rate per mile
Car or van	40p for the first 10,000 miles
	25p after that
Motor cycle	24p
Cycle	20p

(3) The reference in subsection (2) to "the first 10,000 miles" is to the total number of miles of business travel in relation to the employment, or any associated employment, by car or van in the tax year in question.

(4) One employment is associated with another if--

(a) the employer is the same;

(b) the employers are partnerships or bodies and an individual or another partnership or body has control over both of them; or

(c) the employers are associated companies within the meaning of section 416 of ICTA.

(5) In subsection (4)(b)--

(a) "control", in relation to a body corporate or partnership, has the meaning given by section 840 of ICTA (in accordance with section 719 of this Act), and

(b) the definition of "control" in that section of that Act applies (with the necessary modifications) in relation to an unincorporated association as it applies in relation to a body corporate.

(6) The Treasury may by regulations amend subsection (2) so as to alter the rates or rate bands.

231 Mileage allowance relief

(1) An employee is entitled to mileage allowance relief for a tax year--

(a) if the employee uses a vehicle to which this Chapter applies for business travel, and

(b) the total amount of all mileage allowance payments, if any, made to the employee for the kind of vehicle in question for the tax year is less than the approved amount for such payments applicable to that kind of vehicle.

(2) The amount of mileage allowance relief to which an employee is entitled for a tax year is the difference between--

(a) the total amount of all mileage allowance payments, if any, made to the employee for the kind of vehicle in question, and

(b) the approved amount for such payments applicable to that kind of vehicle.

(3) Subsection (1) does not apply if--

(a) the employee is a passenger in the vehicle, or

(b) the vehicle is a company vehicle.

232 Giving effect to mileage allowance relief

(1) A deduction is allowed for mileage allowance relief to which an employee is entitled for a tax year.

(2) If any of the employee's earnings--

(a) are taxable earnings in the tax year in which the employee receives them, and

(b) are not also taxable earnings in that year that fall within subsection (3),

the relief is allowed as a deduction from those earnings in calculating net taxable earnings in the year.

(3) If any of the employee's earnings are taxable earnings in the tax year in which the employee remits them to the United Kingdom, there may be deducted from those earnings the amount of any mileage allowance relief--

(a) for that tax year, and

(b) for any earlier tax year in which the employee was resident in the United Kingdom,

which, on the assumptions mentioned in subsection (4), would have been deductible under subsection (2).

(4) The assumptions are--

(a) that subsection (2)(b) does not apply, and

(b) where applicable, that the earnings constitute taxable earnings in the tax year in which the employee receives them.

(5) Subsection (3) applies only to the extent that the mileage allowance relief cannot be deducted under subsection (2).

(6) A deduction shall not be made twice, whether under subsection (2) or (3), in respect of the same mileage allowance relief.

(7) In this section "taxable earnings" or "net taxable earnings" means taxable earnings or net taxable earnings from the employment for the purposes of Part 2.

Passenger payments

233 Passenger payments

(1) No liability to income tax arises in respect of approved passenger payments made to an employee for the use of a car or van (whether or not it is a company vehicle) if--

(a) the employee receives mileage allowance payments for the use of the car or van, and

(b) the cash equivalent of the benefit of the car or van is treated as earnings from the employment by virtue of section 120 or 154 (cars and vans as benefits).

This is subject to subsection (2).

(2) The condition in subsection (1)(b) needs to be met only if the car or van is made available to the employee by reason of the employment.

(3) Passenger payments are amounts paid to an employee because, while using a car or van for business travel, the employee carries in it one or more passengers who are also employees for whom the travel is business travel.

(4) Passenger payments are approved if, or to the extent that, for a tax year, the total amount of all such payments made to the employee does not exceed the approved amount for such payments (see section 234).

(5) Section 117 (when cars and vans are made available by reason of employment) applies for the purposes of subsection (2).

234 The approved amount for passenger payments

(1) The approved amount for passenger payments is--

M  × R

where--

• M is the number of miles of business travel by the employee by car or van--

  • (a) for which the employee carries in the tax year in question one or more passengers who are also employees for whom the travel is business travel, and

  • (b) in respect of which passenger payments are made;

• R is a rate of 5p per mile.

(2) If the employee carries for all or part of the tax year two or more passengers who are also employees for whom the travel is business travel, the approved amount for passenger payments is the total of the amounts calculated separately under subsection (1) in respect of each of those passengers.

(3) The Treasury may by regulations amend subsection (1) so as to alter the rate.

Supplementary

235 Vehicles to which this Chapter applies

(1) This Chapter applies to cars, vans, motor cycles and cycles.

(2) "Car" means a mechanically propelled road vehicle which is not--

(a) a goods vehicle,

(b) a motor cycle, or

(c) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

(3) "Van" means a mechanically propelled road vehicle which--

(a) is a goods vehicle, and

(b) has a design weight not exceeding 3,500 kilograms,

and which is not a motor cycle.

(4) "Motor cycle" has the meaning given by section 185(1) of the Road Traffic Act 1988 (c. 52).

(5) "Cycle" has the meaning given by section 192(1) of that Act.

(6) In this section--

• "design weight" means the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden;

• "goods vehicle" means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description.

236 Interpretation of this Chapter

(1) In this Chapter--

• "business travel" means travelling the expenses of which, if incurred and paid by the employee in question, would (if this Chapter did not apply) be deductible under sections 337 to 342;

• "mileage allowance payments" has the meaning given by section 229(2);

• "passenger payments" has the meaning given by section 233(3).

(2) For the purposes of this Chapter a vehicle is a "company vehicle" in a tax year if in that year--

(a) the vehicle is made available to the employee by reason of the employment and is not available for the employee's private use, or

(b) the cash equivalent of the benefit of the vehicle is to be treated as the employee's earnings for the tax year by virtue of--

(i) section 120 (benefit of car treated as earnings),

(ii) section 154 (benefit of van treated as earnings), or

(iii) section 203 (residual liability to charge: benefit treated as earnings), or

(c) in the case of a car or van, the cash equivalent of the benefit of the car or van would be required to be so treated if sections 167 and 168 (exceptions for pooled cars and vans) did not apply, or

(d) in the case of a cycle, the cash equivalent of the benefit of the cycle would be required to be treated as the employee's earnings for the tax year under Chapter 10 of Part 3 (taxable benefits: residual liability to charge) if section 244(1) (exception for cycles made available) did not apply.

(3) Sections 117 and 118 (when cars and vans are made available by reason of employment and are made available for private use) apply for the purposes of subsection (2).

Chapter 3 Exemptions: other transport, travel and subsistence

237 Parking provision and expenses

(1) No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision of workplace parking for an employee.

(2) No liability to income tax arises by virtue of the payment or reimbursement of expenses incurred in connection with the provision for or the use by an employee of workplace parking.

(3) In this section "workplace parking" means--

(a) a car parking space,

(b) a motor cycle parking space, or

(c) facilities for parking a cycle other than a motor cycle,

at or near the employee's workplace.

238 Modest private use of heavy goods vehicles

(1) No liability to income tax arises where a heavy goods vehicle is made available to an employee for the employee's private use if conditions A and B are met.

(2) Condition A is that there is no transfer of the property in the vehicle to the employee.

(3) Condition B is that the employee's use of the vehicle in the tax year is not wholly or mainly private use.

(4) In this section--

• "heavy goods vehicle" means a mechanically propelled road vehicle which--

  (a)

  is of a construction primarily suited for the conveyance of goods or burden of any kind, and

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