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

(The document as of February, 2008)

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(a) section 71 or Part 10A of the Children Act 1989 (c. 41), or

(b) Article 118 of the Children (Northern Ireland) Order 1995 (S.I.1995/755 (N.I. 2)),

with respect to premises.

(6) Condition C is that--

(a) the premises on which the care is provided are made available by the employer alone, or

(b) the care requirements are met.

(7) The care requirements are that--

(a) the care is provided under arrangements made by persons who include the employer,

(b) the premises on which it is provided are made available by one or more of those persons, and

(c) under the arrangements the employer is wholly or partly responsible for financing and managing the provision of the care.

(8) In this section "care" means--

(a) any form of care, and

(b) any form of supervised activity which is not provided primarily for education purposes.

Telephones and computer equipment

319 Mobile telephones

(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 for an employee or a member of the employee's family or household of a mobile telephone without any transfer of property in it.

(2) In this section "mobile telephone" means telephone apparatus which--

(a) is not physically connected to a land-line, and

(b) is not a cordless telephone or a telepoint telephone.

(3) For the purposes of subsection (2)--

"cordless telephone" means telephone apparatus designed or adapted to provide a wireless extension to a telephone and used only as such an extension to a telephone which is physically connected to a land-line,
"telephone apparatus" means wireless telegraphy apparatus designed or adapted for the purpose of transmitting and receiving spoken messages and connected to a public telecommunication system (as defined in section 9(1) of the Telecommunications Act 1984 (c. 12)), and
"telepoint telephone" means telephone apparatus used for the purpose of a short-range radio communications service at frequencies between 864 and 868 megahertz (inclusive).

320 Limited exemption for computer equipment

(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 computer equipment if conditions A to C are met.

(2) Condition A is that the equipment is made available to the employee or to a member of the employee's family or household without any transfer of property in it.

(3) Condition B is that the arrangements under which computer equipment is made available to employees of the employer, or to members of their families or households, do not favour directors (see subsection (6)).

(4) Condition C is that the aggregate cash equivalent of the benefit of the provision of such equipment in the tax year does not exceed £500.

(5) If conditions A and B are met, but condition C is not, the employee is only liable to income tax in the tax year by virtue of Chapter 10 of Part 3 on so much of that aggregate cash equivalent as exceeds £500.

(6) The arrangements referred to in condition B are only taken to favour directors if--

(a) the only such arrangements are arrangements under which the employee is required to be a director of a company, or

(b) taking all such arrangements together, the terms on which the equipment is made available are more favourable in some or all cases where the employee is a director than in one or more cases where the employee is not.

(7) In this section--

(a) "computer equipment" includes printers, scanners, modems, discs and other peripheral devices designed to be used by being connected to or inserted in a computer,

(b) "director" has the meaning given by section 67(1),

(i) include references to the provision, together with any computer equipment made available, of a right to use computer software, but

(ii) do not include references to the provision of access to, or the use of, any public telecommunication system, and

(d) "public telecommunication system" has the same meaning as in the Telecommunications Act 1984 (see section 9(1)).

Awards and gifts

321 Suggestion awards

(1) This section applies where an employer establishes a scheme for the making of suggestions that is open on the same terms--

(a) to employees of the employer generally, or

(b) to a particular description of them.

(2) No liability to income tax arises in respect of an encouragement award or financial benefit award made under the scheme for a suggestion which meets conditions A to C if, or to the extent that, it does not exceed the permitted maximum for the award under section 322.

(3) Condition A is that the suggestion relates to the activities carried on by the employer.

(4) Condition B is that the suggestion is made by an employee who could not reasonably be expected to make it in the course of the duties of the employment, having regard to the employee's experience.

(5) Condition C is that the suggestion is not made at a meeting held for the purpose of proposing suggestions.

(6) In this section and section 322--

"encouragement award" means an award, other than a financial benefit award, made for a suggestion with intrinsic merit or showing special effort, and
"financial benefit award" means an award for a suggestion relating to an improvement in efficiency or effectiveness which the employer has decided to adopt and reasonably expects will result in a financial benefit.

322 Suggestion awards: "the permitted maximum"

(1) The permitted maximum for an encouragement award for the purposes of section 321 (suggestion awards) is £25.

(2) The permitted maximum for a financial benefit award where no such award for the suggestion has been made before is--

(a) if only one such award is made for the suggestion, the suggestion maximum, and

(b) if two or more such awards are made on the same occasion to different persons for the suggestion, the appropriate proportion of the suggestion maximum.

(3) If on a later occasion or occasions one or more further such awards are made for the same suggestion, the permitted maximum for each is--

(a) if only one such award is made for the suggestion on that occasion, the residue of the suggestion maximum, and

(b) if two or more such awards are made on the same occasion to different persons for the suggestion, the appropriate proportion of that residue.

(4) The suggestion maximum for a financial benefit award is the financial benefit share or £5000 if that is less.

(5) In subsection (4) "the financial benefit share" means the greater of--

(a) half the financial benefit reasonably expected to result from the adoption of the suggestion for the first year after its adoption, and

(b) one-tenth of the financial benefit reasonably expected to result from its adoption for the first 5 years after its adoption.

(6) In this section--

"the appropriate proportion" means such proportion as the award bears to the total of the financial benefit awards made on the same occasion for the suggestion,
"the residue of the suggestion maximum" means the suggestion maximum less the total previous exemption, and
"the total previous exemption" means the total of the amounts exempted from income tax under section 321 in respect of financial benefit awards for the suggestion made on previous occasions.

323 Long service awards

(1) No liability to income tax arises in respect of a long service award which meets the condition in subsection (3) if or to the extent that the chargeable amount does not exceed the permitted maximum.

(2) In subsection (1)--

"chargeable amount" means the amount of employment income which would be charged to tax in respect of the award apart from subsection (1),
"long service award" means an award made to an employee to mark not less than 20 years' service with the same employer, and
"permitted maximum" means £20 for each year of service in respect of which the award is made.

(3) The condition is that the award must take the form of--

(a) tangible moveable property,

(b) shares in a company which is, or belongs to the same group as, the employer, or

(i) a payment,

(ii) a cash voucher,

(iii) a credit-token,

(iv) securities,

(v) shares not within paragraph (b), or

(vi) an interest in or rights over securities or shares.

(4) Subsection (1) does not apply to an award ("the later award") if another award to mark a particular period of service with the same employer has been made to the employee in the period of 10 years ending with the date on which the later award is made.

(5) For the purposes of this section, service is treated as being with the same employer if it is with two or more employers--

(a) each of whom is a successor or predecessor of the others, or

(b) one of whom is a company which belongs or has belonged to the same group as the others or a predecessor or successor of the others.

(6) In this section "group" means a body corporate and its 51% subsidiaries.

324 Small gifts from third parties

(1) No liability to income tax arises in respect of a gift provided for an employee or a member of the employee's family or household if conditions A to E are met.

(2) Condition A is that the gift is not provided by the employer or a person connected with the employer.

(3) Condition B is that neither the employer nor a person connected with the employer has directly or indirectly procured the gift.

(4) Condition C is that the gift is not made in recognition of particular services performed by the employee in the course of the employment or in anticipation of such services.

(5) Condition D is that the gift is not cash or securities or the use of a service.

(6) Condition E is that the total cost to the donor of all the eligible gifts in respect of the employee in question during the tax year does not exceed £150.

(7) For the purposes of condition E, the total cost to the donor includes any value added tax payable on the supply of the gifts to the donor, whether or not the donor is entitled to a credit or repayment in respect of that tax.

(8) In this section "eligible gifts" means all gifts which--

(a) meet conditions A to D, or

(b) are non-cash vouchers or credit-tokens and meet--

(i) conditions A to C, and

(ii) conditions A and B in section 270 (exemption for small gifts of vouchers and tokens from third parties).

(9) Subsection (1) does not apply to non-cash vouchers and credit-tokens (but see section 270 which makes provision for a corresponding exemption for them).

Overseas medical treatment

325 Overseas medical treatment

(1) No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of--

(a) providing an employee with medical treatment outside the United Kingdom where the need for it arises while the employee is outside the United Kingdom for the purpose of performing the duties of the employment, or

(b) providing an employee with insurance against the cost of providing such treatment.

(2) For the purposes of this section--

(a) "medical treatment" includes all procedures for diagnosing or treating any physical or mental illness, infirmity or defect, and

(b) providing a person with medical treatment includes providing for the person to be an in-patient so that such treatment can be given.

Expenses incidental to sale etc. of asset

326 Expenses incidental to transfer of a kind not normally met by transferor

(1) No liability to income tax arises by virtue of the payment or reimbursement of expenses which--

(a) are incidental to, and incurred wholly and exclusively as a result of, an employment-related asset transfer, and

(b) are of a kind not normally met by the transferor.

(2) There is an "employment-related asset transfer" if--

(a) an asset or the beneficial interest in an asset is transferred to an employee's employer or a person nominated by the employer, and

(b) the right or opportunity to make the transfer arose by reason of the employment.

(3) In this section references to a transfer are to a sale or any other kind of disposal.

Part 5 Employment income: deductions allowed from earnings

Chapter 1 Deductions allowed from earnings: general rules

Introduction

327 Deductions from earnings: general

(1) This Part provides for deductions that are allowed from the taxable earnings from an employment in a tax year in calculating the net taxable earnings from the employment in the tax year for the purposes of Part 2 (see section 11(1)).

(2) In this Part, unless otherwise indicated by the context--

(a) references to the earnings from which deductions are allowed are references to the taxable earnings mentioned in subsection (1), and

(b) references to the tax year are references to the tax year mentioned there.

(3) The deductions for which this Part provides are those allowed under--

Chapter 2 (deductions for employee's expenses),
Chapter 3 (deductions from benefits code earnings),
Chapter 4 (fixed allowances for employee's expenses),
Chapter 5 (deductions for earnings representing benefits or reimbursed expenses), and
Chapter 6 (deductions from seafarers' earnings).

(4) Further provision about deductions from earnings is made in--

section 232 (giving effect to mileage allowance relief),
section 619 of ICTA (contributions under retirement annuity contracts), and
section 262 of CAA 2001 (capital allowances to be given effect by treating them as deductions from earnings).

(5) Further provision about deductions from income including earnings is made in--

Part 12 (payroll giving),
section 592(7) of ICTA (contributions to exempt approved schemes), and
section 594(1) of ICTA (contributions to exempt statutory schemes).

General rules

328 The income from which deductions may be made

(1) The general rule is that deductions under this Part are allowed--

(a) from any earnings from the employment in question, and

(b) not from earnings from any other employment.

This is subject to subsections (2) to (4).

(2) Deductions under section 351 (expenses of ministers of religion) are allowed from earnings from any employment as a minister of a religious denomination.

(3) Deductions under section 368 (fixed sum deductions from earnings payable out of public revenue) are allowed only from earnings payable out of the public revenue.

(4) Deductions limited to specified earnings (see subsection (5)) are allowed--

(a) only from earnings from the employment that are taxable earnings under certain of the charging provisions of Chapters 4 and 5 of Part 2, and

(b) not from other earnings from it.

(5) "Deductions limited to specified earnings" are deductions under--

sections 336 to 342 (deductions from earnings charged on receipt: see sections 335(2) and 354),
section 353 (deductions from earnings charged on remittance),
sections 370 to 374 (travel deductions from earnings charged on receipt), and
Chapter 6 of this Part (deductions from seafarers' earnings: see section 378(1)(a)).

329 Deductions from earnings not to exceed earnings

(1) The amount of a deduction allowed under this Part may not exceed the earnings from which it is deductible.

(2) If two or more deductions allowed under this Part are deductible from the same earnings, the amounts deductible may not in aggregate exceed those earnings.

(3) If deductions allowed otherwise than under this Part fall to be allowed from the same earnings as amounts deductible under this Part, the amounts deductible under this Part may not exceed the earnings remaining after the other deductions.

(4) Subsections (1) and (2) do not apply to a deduction under section 351 (expenses of ministers of religion), and subsection (3) applies as if such a deduction were allowed otherwise than under this Part.

(5) This section is to be disregarded for the purposes of the deductibility provisions (see section 332).

(6) See also section 380 of ICTA (which provides that where a loss in an employment is sustained, relief may be given against other income).

330 Prevention of double deductions

(1) A deduction from earnings under this Part is not allowed more than once in respect of the same costs or expenses.

(2) If apart from this subsection--

(a) a deduction would be allowed under Chapter 4 of this Part (fixed allowances for employee's expenses) for a sum fixed by reference to any kind of expenses, and

(b) the employee would be entitled under another provision to a deduction for an amount paid in respect of the same kind of expenses,

only one of those deductions is allowed.

331 Order for making deductions

(1) This Part needs to be read with section 835(3) and (4) of ICTA (general rule that deductions are to be allowed in the order resulting in the greatest reduction of liability to income tax).

(2) In the case of deductions under this Part, the general rule in that section is subject to--

(a) section 23(3) (which requires certain deductions to be made in order to establish "chargeable overseas earnings"), and

(b) section 381 (which requires deductions under other provisions to be taken into account before deductions under Chapter 6 of this Part (seafarers)).

332 Meaning of "the deductibility provisions"

For the purposes of this Part, "the deductibility provisions" means the following provisions (which refer to amounts or expenses that would be deductible if they were incurred and paid by an employee)--

the definition of "business travel" in section 171(1) (definitions for Chapter 6 of Part 3),
section 179(6) (exception for certain advances for necessary expenses),
the definition of "business travel" in section 236(1) (definitions for Chapter 2 of Part 4),
section 240(1)(c) and (5) (exemption of incidental overnight expenses and benefits),
section 252(3) (exception from exemption of work-related training provision for non-deductible travel expenses),
section 257(3) (exception from exemption for individual learning account training provision for non-deductible travel expenses),
section 305(5) (offshore oil and gas workers: mainland transfers),
section 310(6)(b) (counselling and other outplacement services),
section 311(5)(b) (retraining courses),
section 361(b) (scope of Chapter 3 of this Part: cost of benefits deductible as if paid by employee),
section 362(1)(c) and (2)(b) (deductions where non-cash voucher provided),
section 363(1)(b) and (2)(b) (deductions where credit-token provided),
section 364(1)(b) and (2) (deductions where living accommodation provided),
section 365(1)(b) and (2) (deductions where employment-related benefit provided).

Chapter 2 Deductions for employee's expenses

Introduction

333 Scope of this Chapter: expenses paid by the employee

(1) A deduction from a person's earnings for an amount is allowed under the following provisions of this Chapter only if the amount--

(a) is paid by the person, or

(b) is paid on the person's behalf by someone else and is included in the earnings.

(2) In the following provisions of this Chapter, in relation to a deduction from a person's earnings, references to the person paying an amount include references to the amount being paid on the person's behalf by someone else if or to the extent that the amount is included in the earnings.

(3) Subsection (1)(b) does not apply to the deductions under--

(a) section 351(2) and (3) (expenses of ministers of religion), and

(b) section 355 (deductions for corresponding payments by non-domiciled employees with foreign employers),

and subsection (2) does not apply in the case of those deductions.

(4) Chapter 3 of this Part provides for deductions where--

(a) a person's earnings include an amount treated as earnings under Chapter 4, 5 or 10 of Part 3 (taxable benefits: vouchers etc., living accommodation and residual liability to charge), and

(b) an amount in respect of the benefit in question would be deductible under this Chapter if the person had incurred and paid it.

334 Effect of reimbursement etc.

(1) For the purposes of this Chapter, a person may be regarded as paying an amount despite--

(a) its reimbursement, or

(b) any other payment from another person in respect of the amount.

(2) But where a reimbursement or such other payment is made in respect of an amount, a deduction for the amount is allowed under the following provisions of this Chapter only if or to the extent that--

(a) the reimbursement, or

(b) so much of the other payment as relates to the amount,

is included in the person's earnings.

(3) This section does not apply to a deduction allowed under section 351 (expenses of ministers of religion).

(4) This section is to be disregarded for the purposes of the deductibility provisions.

335 Application of deductions provisions: "earnings charged on receipt" and "earnings charged on remittance"

(1) The availability of certain deductions under this Chapter depends on whether the earnings are earnings charged on receipt or earnings charged on remittance.

(2) Sections 336 to 342--

(a) only apply if the earnings from which the deduction is to be made are earnings charged on receipt, and

(b) apply subject to section 354(1) if the earnings from the employment also include other earnings.

(3) Section 353 (which provides for a deduction for expenses of the kind to which sections 336 to 342 apply)--

(a) only applies if the earnings from which the deduction is to be made are earnings charged on remittance, and

(b) applies subject to section 354(2) if the earnings from the employment also include other earnings.

(4) In this Part--

"earnings charged on receipt" means earnings which are taxable earnings under section 15, 21, 25 or 27, and
"earnings charged on remittance" means earnings which are taxable earnings under section 22 or 26.

General rule for deduction of employee's expenses

336 Deductions for expenses: the general rule

(1) The general rule is that a deduction from earnings is allowed for an amount if--

(a) the employee is obliged to incur and pay it as holder of the employment, and

(b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

(2) The following provisions of this Chapter contain additional rules allowing deductions for particular kinds of expenses and rules preventing particular kinds of deductions.

(3) No deduction is allowed under this section for an amount that is deductible under sections 337 to 342 (travel expenses).

Travel expenses

337 Travel in performance of duties

(1) A deduction from earnings is allowed for travel expenses if--

(a) the employee is obliged to incur and pay them as holder of the employment, and

(b) the expenses are necessarily incurred on travelling in the performance of the duties of the employment.

(2) This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

338 Travel for necessary attendance

(1) A deduction from earnings is allowed for travel expenses if--

(a) the employee is obliged to incur and pay them as holder of the employment, and

(b) the expenses are attributable to the employee's necessary attendance at any place in the performance of the duties of the employment.

(2) Subsection (1) does not apply to the expenses of ordinary commuting or travel between any two places that is for practical purposes substantially ordinary commuting.

(3) In this section "ordinary commuting" means travel between--

(a) the employee's home and a permanent workplace, or

(b) a place that is not a workplace and a permanent workplace.

(4) Subsection (1) does not apply to the expenses of private travel or travel between any two places that is for practical purposes substantially private travel.

(5) In subsection (4) "private travel" means travel between--

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

(b) two places neither of which is a workplace.

(6) This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

339 Meaning of "workplace" and "permanent workplace"

(1) In this Part "workplace", in relation to an employment, means a place at which the employee's attendance is necessary in the performance of the duties of the employment.

(2) In this Part "permanent workplace", in relation to an employment, means a place which--

(a) the employee regularly attends in the performance of the duties of the employment, and

(b) is not a temporary workplace.

This is subject to subsections (4) and (8).

(3) In subsection (2) "temporary workplace", in relation to an employment, means a place which the employee attends in the performance of the duties of the employment--

(a) for the purpose of performing a task of limited duration, or

(b) for some other temporary purpose.

This is subject to subsections (4) and (5).

(4) A place which the employee regularly attends in the performance of the duties of the employment is treated as a permanent workplace and not a temporary workplace if--

(a) it forms the base from which those duties are performed, or

(b) the tasks to be carried out in the performance of those duties are allocated there.

(5) A place is not regarded as a temporary workplace if the employee's attendance is--

(a) in the course of a period of continuous work at that place--

(i) lasting more than 24 months, or

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

(b) at a time when it is reasonable to assume that it will be in the course of such a period.

(6) For the purposes of subsection (5), a period is a period of continuous work at a place if over the period the duties of the employment are performed to a significant extent at the place.

(7) An actual or contemplated modification of the place at which duties are performed is to be disregarded for the purposes of subsections (5) and (6) if it does not, or would not, have any substantial effect on the employee's journey, or expenses of travelling, to and from the place where they are performed.

(8) An employee is treated as having a permanent workplace consisting of an area if--

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

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

(d) the area would be a permanent workplace if subsections (2), (3), (5), (6) and (7) referred to the area where they refer to a place.

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