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Income Tax (Earnings and Pensions) Act 2003

Type Public General Act

Publication 2003-03-06

Last updated 2026-03-15

State In force

Department Statute Law Database

Source legislation.gov.uk

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(6) For the purposes of subsection (5)—

“co-operative society” does not include a society which carries on or intends to carry on business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with or lent to the society or any other person, and

“employment agency” has the meaning given by section 13(2) of the Employment Agencies Act 1973 (c. 35).

Special rules for earnings with a foreign element

Deductions from earnings charged on remittance

353

(1) A deduction is allowed from earnings charged on remittance for expenses within subsection (2) if the condition in subsection (3) is met.

(2) The expenses are—

(a) any expenses—

(i) paid by the employee out of the earnings, or

(ii) paid on the employee’s behalf by another person and included in the earnings, and

(b) any other expenses paid in the United Kingdom in the tax year or an earlier tax year in which the employee has been resident in the United Kingdom.

(3) The condition is that the expenses would have been deductible under sections 336 to 342 if the earnings had been earnings charged on receipt in the tax year in which the expenses were incurred.

(4) Where—

(a) any of the deductibility provisions refers to amounts or expenses that would be deductible from earnings if they were paid by a person, and

(b) the earnings in question are earnings charged on remittance,

it is assumed for the purposes of those provisions that the person pays the amounts or expenses out of those earnings.

Disallowance of expenses relating to earnings taxed on different basis or untaxed

354

(1) If the earnings from an employment for a tax year include both earnings charged on receipt and other earnings (except earnings charged under section 22), no deduction is allowed under sections 336 to 342 from the earnings charged on receipt for an amount paid in respect of duties of the employment to which the other earnings relate.

(2) If the earnings from an employment for a tax year include both earnings charged on remittance under section 26 and other earnings, no deduction is allowed under section 353 from the earnings charged on remittance for an amount paid in respect of duties of the employment to which the other earnings relate.

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

Deductions for corresponding payments by non-domiciled employees with foreign employers

355

(1) An employee may make a claim to the Commissioners for Her Majesty’s Revenue and Customs under this section if conditions A to D are met.

(2) Condition A is that the employee is a qualifying new resident for the purposes of Chapter 5C of Part 2 of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act).

(3) Condition B is that the employment is with a foreign employer.

(4) Condition C is that the employee has made a payment out of earnings from the employment.

(5) Condition D is that the payment does not reduce the employee’s liability to United Kingdom income tax, but was made in circumstances corresponding to those in which it would do so.

(6) If the Commissioners are satisfied that conditions A to D are met, they may allow the payment as a deduction under this Chapter.

Disallowance of business entertainment and gifts expenses

356

(1) No deduction from earnings is allowed under this Part for expenses incurred in providing entertainment or a gift in connection with the employer’s trade, business, profession or vocation.

(2) Subsection (1) is subject to the exceptions in—

(a) section 357 (exception where employer’s expenses disallowed), and

(b) section 358 (other exceptions).

(3) For the purposes of this section and those sections—

(a) “entertainment” includes hospitality of any kind, and

(b) expenses incurred in providing entertainment or a gift include expenses incurred in providing anything incidental to the provision of entertainment or a gift.

Business entertainment and gifts: exception where employer’s expenses disallowed

357

(1) The prohibition in section 356 on deducting expenses does not apply if—

(a) the earnings include an amount in respect of the expenses,

(b) the employer—

(i) paid the amount to, or on behalf of, the employee, or

(ii) put it at the employee’s disposal,

exclusively for meeting expenses incurred or to be incurred by the employee in providing the entertainment or gift, and

(2) Condition A is that the deduction of the amount falls to be disallowed under section 45 or 867 of ITTOIA 2005 or under section 1298 of CTA 2009 in calculating the employer’s profits from the trade, profession or vocation in question for the purposes of the Tax Acts (or it would do so apart from the exemption in ... section 524 of ITA 2007 or section 478 of CTA 2010 or any relief applying in respect of those profits).

(3) Condition B is that the inclusion of the amount falls to be disallowed (or would be disallowed apart from some other relief applying to the employer) under section 1298 of CTA 2009 in calculating—

(a) the employer’s expenses of management for the purposes of giving relief under the Tax Acts, or

(b) the ordinary BLAGAB management expenses of the employer for the purposes of section 76 of FA 2012.

(4) Condition C is that—

(a) the employer is a tonnage tax company during the whole or part of the tax year, and

(b) apart from the tonnage tax election, the deduction of the amount included in the employee’s earnings would fall to be disallowed in calculating the employer’s relevant shipping profits.

(5) In subsection (4) “tonnage tax company”, “tonnage tax election” and “relevant shipping profits” have the same meaning as in Schedule 22 to FA 2000.

Business entertainment and gifts: other exceptions

358

(1) The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing entertainment or gifts for the employer’s employees unless—

(a) they are also provided for others, and

(b) their provision for the employees is incidental to their provision for the others.

(2) For this purpose directors and persons engaged in the management of a company are regarded as employed by it.

(3) The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing a gift which incorporates a conspicuous advertisement for the employer or, if the employer is a company, another company which belongs to the same group as the employer, unless—

(a) the gift is food, drink, tobacco or a token or voucher exchangeable for goods, or

(b) the cost of the gift to the donor, together with any other gifts (except food, drink, tobacco or tokens or vouchers exchangeable for goods) given to the same person in the same tax year, is more than £50.

(4) In subsection (3) “group” means a body corporate and its 51% subsidiaries.

Other rules preventing deductions of particular kinds

Disallowance of travel expenses: mileage allowances and reliefs

359

(1) No deduction may be made under the travel deductions provisions in respect of travel expenses incurred in connection with the use by the employee of a vehicle that is not a company vehicle if condition A or B is met.

(2) Condition A is that mileage allowance payments are made to the employee in respect of the use of the vehicle.

(3) Condition B is that mileage allowance relief is available in respect of the use of the vehicle by the employee (see section 231).

(4) In this section—

“company vehicle” has the meaning given by section 236(2),

“mileage allowance payments” has the meaning given by section 229(2), and

“the travel deductions provisions” means sections 337 to 342, 370, 371, 373 and 374 (travel expenses) and section 351 (expenses of ministers of religion).

Disallowance of certain accommodation expenses of MPs and other representatives

360

(1) No deduction from earnings is allowed under this Chapter or section 373 (non-resident or qualifying new resident employee’s travel costs and expenses where duties performed in UK) for accommodation expenses incurred by a member of—

(a) the House of Commons,

(b) the Scottish Parliament,

(d) the Northern Ireland Assembly.

(2) In this section “accommodation expenses” means expenses incurred in, or in connection with, the provision or use of residential or overnight accommodation to enable the member to perform duties as a member of the Parliament or Assembly in or about—

(a) the place where it sits, or

(b) the constituency or region which the member represents.

(3) In relation to a member of the House of Commons, subsection (3) of section 292 applies for the purposes of this section as it applies for the purposes of that section.

Chapter 3 — Deductions from benefits code earnings

Introduction

Scope of this Chapter: cost of benefits deductible as if paid by employee

361

A deduction from a person’s earnings is allowed under the following provisions of this Chapter where—

(a) the earnings include an amount treated as earnings under—

(i) Chapter 4 of Part 3 (taxable benefits: vouchers and credit-tokens),

(ii) Chapter 5 of Part 3 (taxable benefits: living accommodation), or

(iii) Chapter 10 of Part 3 (taxable benefits: residual liability to charge), and

(b) an amount in respect of the benefit in question would be deductible under Chapter 2 or 5 of this Part if the person had incurred and paid it.

Deductions where amounts treated as earnings under the benefits code

Deductions where non-cash voucher provided

362

(1) A deduction from earnings is allowed if—

(a) the earnings include an amount treated as earnings under section 87(1) or 87A(1) (amount in respect of benefit of non-cash voucher treated as earnings),

(b) the voucher is exchanged for goods or services (whether in the tax year or a later year), and

(c) had the employee incurred and paid the cost of the goods or services in the tax year, the whole or part of the amount paid would have been deductible from the earnings under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the lesser of—

(a) the amount treated as earnings, and

(b) the amount that would have been so deductible.

Deductions where credit-token provided

363

(1) A deduction from earnings is allowed if—

(a) the earnings include an amount treated as earnings under section 94(1) or 94A(1) (amount in respect of benefit of credit-token treated as earnings), and

(b) had the employee incurred and paid the cost of the goods or services obtained by using the token, the whole or part of the amount paid would have been deductible from the earnings under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the lesser of—

(a) the amount treated as earnings, and

(b) the amount that would have been so deductible.

Deductions where living accommodation provided

364

(1) A deduction from earnings is allowed if—

(a) the earnings include an amount treated as earnings under Chapter 5 of Part 3 (taxable benefits: living accommodation), and

(b) had the employee incurred and paid an amount equal to that amount for the accommodation in the tax year, the whole or part of the amount paid would have been deductible under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the amount that would have been so deductible.

365

(1) A deduction from earnings is allowed if—

(a) the earnings include an amount treated as earnings under Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of a benefit, ...

(aa) the cost of the benefit was determined under section 204 or 206, and

(b) had the employee incurred and paid the cost of the benefit, the whole or part of the amount paid would have been deductible under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the amount that would have been so deductible.

(3) For the purposes of this section, the cost of the benefit is determined in accordance with section 204 or 206 .

Chapter 4 — Fixed allowances for employee’s expenses

Introduction

Scope of this Chapter: amounts fixed by Treasury

366

A deduction from an employee’s earnings for an amount is allowed under this Chapter where the amount has been fixed by the Treasury by reference to the employee’s employment.

Fixed sum deductions

Fixed sum deductions for repairing and maintaining work equipment

367

(1) A deduction is allowed for the sum, if any, fixed by the Treasury as in their opinion representing the average annual expenses incurred by employees of the class to which the employee belongs in respect of the repair and maintenance of work equipment.

(2) The Treasury may only fix such a sum for a class of employees if they are satisfied that—

(a) the employees are generally responsible for the whole or part of the expense of repairing and maintaining the work equipment, and

(b) the expenses for which they are generally responsible would be deductible from the employees' earnings under section 336 if paid by them.

(3) No deduction is allowed under this section if the employer pays or reimburses the expenses in respect of which the sum is fixed or would do so if requested.

(4) If the employer pays or reimburses part of those expenses or would do so if requested, the amount of the deduction is reduced by the amount which is or would be paid or reimbursed.

(5) In this section “work equipment” means tools or special clothing.

(6) This section needs to be read with section 330(2) (prevention of double deductions).

Fixed sum deductions from earnings payable out of public revenue

368

(1) A deduction is allowed from earnings payable out of the public revenue for the employee’s fixed sum expenses in respect of the duties to which the earnings relate.

(2) “Fixed sum expenses” means the sum, if any, fixed by the Treasury as in their opinion representing the average annual expenses which employees of the employee’s description are obliged to pay wholly, exclusively and necessarily in the performance of duties to which such earnings relate.

(3) This section needs to be read with section 330(2) (prevention of double deductions).

Chapter 5 — Deductions for earnings representing benefits or reimbursed expenses

Introduction

Scope of this Chapter: earnings representing benefits or reimbursed expenses

369

(1) A deduction from a person’s earnings for an amount is allowed under the following provisions of this Chapter where the amount is included in the earnings in respect of—

(a) provision made for the person, or

(b) expenses reimbursed by another person.

(2) In this Chapter references to “the included amount” are references to the amount so included.

(3) If the included amount is an amount treated as earnings under—

(a) Chapter 4 of Part 3 (taxable benefits: vouchers and credit-tokens),

(b) Chapter 5 of Part 3 (taxable benefits: living accommodation), or

a deduction may be allowed instead in respect of the benefit in question under Chapter 3 of this Part (deductions from benefits code earnings).

Travel costs and expenses where duties performed abroad

Travel costs and expenses where duties performed abroad: employee’s travel

370

(1) A deduction is allowed from earnings which are relevant taxable earnings if—

(a) the earnings include an amount in respect of—

(i) the provision of travel facilities for a journey made by the employee, or

(ii) the reimbursement of expenses incurred by the employee on such a journey, and

(b) the circumstances fall within Case A, B or C.

(2) The deduction is equal to the included amount.

(3) Case A is where—

(a) the employee is absent from the United Kingdom wholly and exclusively for the purpose of performing the duties of one or more employments,

(b) the duties concerned can only be performed outside the United Kingdom, and

(i) a journey from a place outside the United Kingdom where such duties are performed to a place in the United Kingdom, or

(ii) a return journey following such a journey.

(4) Case B is where—

(a) the duties of the employment are performed partly outside the United Kingdom,

(b) those duties are not performed on a vessel,

(c) the journey is between a place in the United Kingdom and a place outside the United Kingdom where duties of the employment are performed,

(d) the duties performed outside the United Kingdom can only be performed there, and

(e) the journey is made wholly and exclusively for the purpose of performing them or returning after performing them.

(5) Case C is where—

(a) the duties of the employment are performed partly outside the United Kingdom,

(b) those duties are performed on a vessel,

(c) the journey is between a place in the United Kingdom and a place outside the United Kingdom where duties of the employment are performed,

(d) the duties performed outside the United Kingdom can only be performed there, and

(e) the journey is made wholly and exclusively for the purpose of performing those duties, or those duties and other duties of the employment, or returning after performing them.

(6) In this section “relevant taxable earnings” means general earnings for a tax year ... that—

(a) are taxable earnings under section 15, and

(b) either—

(i) if the tax year is tax year 2024-2025 or an earlier tax year, would be taxable earnings under section 15 even if the employee made a claim under section 809B of ITA 2007 (claim for remittance basis) for that year, or

(ii) if the tax year is tax year 2025-2026 or a later tax year and the employee is a qualifying new resident for the purposes of Chapter 5C of Part 2 for that tax year, are not qualifying foreign general earnings within the meaning of section 41T (qualifying foreign general earnings).

Travel costs and expenses where duties performed abroad: visiting spouse’s or child’s travel

371

(1) A deduction is allowed from earnings which are relevant taxable earnings if—

(a) the earnings include an amount in respect of—

(i) the provision of travel facilities for a journey made by the employee’s spouse , civil partner or child, or

(ii) the reimbursement of expenses incurred by the employee on such a journey, and

(b) conditions A to C are met.

(2) The deduction is equal to the included amount.

(3) Condition A is that the employee is absent from the United Kingdom for a continuous period of at least 60 days for the purpose of performing the duties of one or more employments.

(4) Condition B is that the journey is between a place in the United Kingdom and a place outside the United Kingdom where such duties are performed.

(5) Condition C is that the employee’s spouse , civil partner or child is—

(a) accompanying the employee at the beginning of the period of absence,

(b) visiting the employee during that period, or

(6) A deduction is not allowed under this section for more than two outward and two return journeys by the same person in a tax year.

(7) In this section “child” includes a stepchild and an illegitimate child, but not a person who is 18 or over at the beginning of the outward journey.

(8) In this section “relevant taxable earnings” has the meaning given by section 370(6).

Where seafarers' duties are performed

372

For the purposes of—

(a) section 370 (employee’s travel costs and expenses where duties performed abroad), and

(b) section 371 (visiting spouse’s , civil partner's or child’s travel costs and expenses where duties performed abroad),

whether duties performed on a vessel are performed in or outside the United Kingdom is determined without regard to section 40(2) (certain duties treated as performed in UK).

Travel costs and expenses of non-resident or qualifying new resident employees where duties performed in UK

Non-domiciled employee’s travel costs and expenses where duties performed in UK

373

(1) This section applies if a person (“the employee”) who is non-UK resident or a qualifying new resident for the purposes of Chapter 5C of Part 2 of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)—

(a) receives earnings from an employment for duties performed in the United Kingdom, and

(b) an amount is included in the earnings in respect of—

(i) the provision of travel facilities for a journey made by the employee, or

(ii) the reimbursement of expenses incurred by the employee on such a journey.

(2) A deduction is allowed from earnings from the employment which are earnings charged on receipt if the journey meets conditions A and B.

(3) Condition A is that the journey ends on, or during the period of 5 years beginning with, a date that is a qualifying arrival date in relation to the employee (see section 375).

(4) Condition B is that the journey is made—

(a) from a country outside the United Kingdom in which the employee normally lives at the time the journey is made to a place in the United Kingdom in order to perform duties of the employment, or

(b) to such a country from a place in the United Kingdom in order to return to such a country after performing such duties.

(5) If the journey is wholly for a purpose specified in subsection (4), the deduction is equal to the included amount.

(6) If the journey is only partly for such a purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-domiciled employee’s spouse’s or child’s travel costs and expenses where duties performed in UK

374

(1) This section applies if a person (“the employee”) who is non-UK resident or a qualifying new resident for the purposes of Chapter 5C of Part 2 of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act)—

(a) receives earnings from an employment for duties performed in the United Kingdom, and

(b) an amount is included in the earnings in respect of—

(i) the provision of travel facilities for a journey made by the employee’s spouse , civil partner or child, or

(ii) the reimbursement of expenses incurred by the employee on such a journey.

(2) A deduction is allowed from earnings from the employment which are earnings charged on receipt if conditions A to C are met.

(3) Condition A is that the journey—

(a) is made between a country outside the United Kingdom in which the employee normally lives at the time the journey is made and a place in the United Kingdom, and

(b) ends on, or during the period of 5 years beginning with, a date that is a qualifying arrival date in relation to the employee (see section 375).

(4) Condition B is that the employee is in the United Kingdom for a continuous period of at least 60 days for the purpose of performing the duties of one or more employments from which the employee receives earnings for duties performed in the United Kingdom.

(5) Condition C is that the employee’s spouse , civil partner or child is—

(a) accompanying the employee at the beginning of that period,

(b) visiting the employee during that period, or

(c) returning to a country outside the United Kingdom in which the employee normally lives at the time the journey is made, after so accompanying or visiting the employee.

(6) If the journey is wholly for the purpose of so accompanying or visiting the employee or so returning, the deduction is equal to the included amount.

(7) If the journey is only partly for that purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

(8) A deduction is not allowed under this section for more than two inward journeys and two return journeys by the same person in a tax year.

(9) In this section “child” includes a stepchild and an illegitimate child, but not a person who is 18 or over at the beginning of the inward journey.

(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “qualifying arrival date”

375

(1) For the purposes of sections 373(3) and 374(3), a date is a qualifying arrival date in relation to a person if—

(a) it is a date on which the person arrives in the United Kingdom to perform duties of an employment from which the person receives earnings for duties performed in the United Kingdom, and

(b) condition A or B is met.

(2) Condition A is that the person has not been in the United Kingdom for any purpose during the period of 2 years ending with the day before the date.

(3) Condition B is that the person was not resident in the United Kingdom in either of the 2 tax years preceding the tax year in which the date falls.

(4) If, in a case where condition B applies, there are 2 or more dates in the tax year on which the person arrives in the United Kingdom to perform duties of an employment from which the person receives earnings for duties performed in the United Kingdom, the qualifying arrival date is the earliest of them.

Foreign accommodation and subsistence costs and expenses

Foreign accommodation and subsistence costs and expenses (overseas employments)

376

(1) A deduction from earnings from an employment is allowed if—

(a) the duties of the employment are performed wholly outside the United Kingdom,

(b) the employee is UK resident,

(c) in a case where the employer is a foreign employer, the employee is not a qualifying new resident for the purposes of Chapter 5C of Part 2 of this Act or Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act), and

(d) the earnings include an amount in respect of—

(i) the provision of accommodation or subsistence outside the United Kingdom for the employee for the purpose of enabling the employee to perform the duties of the employment, or

(ii) the reimbursement of expenses incurred by the employee on such accommodation or subsistence for that purpose.

(2) If the accommodation or subsistence is wholly for that purpose, the deduction is equal to the included amount.

(3) If the accommodation or subsistence is only partly for that purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

(4) Subsection (5) applies if in the tax year the employment is in substance one whose duties fall to be performed outside the United Kingdom.

(5) Duties of the employment performed in the United Kingdom, whose performance is merely incidental to the performance of duties outside the United Kingdom, are to be treated for the purposes of subsection (1)(a) as performed outside the United Kingdom.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Personal security assets and services

Costs and expenses in respect of personal security assets and services

377

(1) This section applies if—

(a) there is a special threat to an employee’s personal physical security which arises wholly or mainly because of the employee’s employment,

(b) an asset or service which improves personal security is provided for or used by the employee to meet the threat,

(i) the provision or use, or

(ii) expenses connected with it,

because the whole or part of the cost of the provision or use is borne, or the expenses are reimbursed to the employee, by or on behalf of another person (“the provider”), and

(d) the provider’s sole object in bearing the whole or part of the cost or reimbursing the expenses is meeting the threat.

(2) In the case of such an asset, if the provider intends it to be used solely for the purpose of improving personal physical security, a deduction equal to the included amount is allowed.

(3) If the provider intends the asset to be used solely to improve personal physical security, any use of the asset incidental to that purpose is ignored.

(4) If the provider intends the asset to be used only partly to improve personal physical security, a deduction equal to the proportion of the included amount attributable to the intended use for that purpose is allowed.

(5) In determining whether or not this section applies in relation to an asset, it does not matter if—

(a) the asset becomes fixed to land (even a dwelling or grounds), or

(b) the employee is or becomes entitled—

(i) to the property in the asset, or

(ii) if the asset is a fixture, to any estate or interest in the land concerned.

(6) In the case of a service within subsection (1), if the benefit resulting to the employee consists wholly or mainly of an improvement of the employee’s personal physical security, a deduction equal to the included amount is allowed.

(7) The fact that an asset or a service improves the personal physical security of a member of the employee’s family or household, as well as that of the employee, does not prevent a deduction being allowed.

(8) In this section—

“asset” includes equipment or a structure (such as a wall), but not a car, ship or aircraft or a dwelling or grounds appurtenant to a dwelling, and

“service” does not include a dwelling or grounds appurtenant to a dwelling.

Chapter 6 — Deductions from seafarers' earnings

Deduction from seafarers' earnings: eligibility

378

(1) A deduction is allowed from earnings from an employment as a seafarer if—

(a) the earnings are relevant general earnings,

(b) the duties of the employment are performed wholly or partly outside the United Kingdom, and

(2) In this Chapter “eligible period” means a period consisting of at least 365 days which is either—

(a) a period of consecutive days of absence from the United Kingdom, or

(b) a combined period.

(3) A combined period is a period—

(a) at least half of the days in which are days of absence from the United Kingdom, and

(b) which consists of 3 consecutive periods, A, B and C, where—

A is a period of consecutive days of absence from the United Kingdom or a period which is itself a combined period,

B is a period of not more than 183 days, and

C is a period of consecutive days of absence from the United Kingdom.

(4) For this purpose a person is only regarded as being absent from the United Kingdom on any day if absent at the end of the day.

(5) Relevant general earnings” means—

(a) taxable earnings under section 15, 22 or 26, or

(b) general earnings—

(i) to which section 27 applies, and

(ii) which are for a period in which the employee is liable under the law of an EEA State (other than the United Kingdom) to tax in that State by reason of domicile or residence.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Calculating the deduction

379

(1) The deduction under section 378—

(a) is allowed from the amount of the earnings from the employment attributable to the eligible period, and

(b) is equal to that amount.

(2) Earnings from the employment for a period of leave immediately after the eligible period are to be regarded as earnings attributable to the eligible period if or to the extent that they are earnings for the tax year in which the eligible period ends.

(3) This section is subject to section 380 (limit on deduction where UK duties etc. make amount unreasonable).

Limit on deduction where UK duties etc. make amount unreasonable

380

(1) If—

(a) section 378 (deduction from seafarers' earnings: eligibility) applies to earnings for a tax year, and

(b) in the tax year the employee performs some of the duties of the employment as a seafarer or of any associated employments in the United Kingdom,

the amount of earnings in respect of which the deduction under this Chapter is allowed is subject to the following limitation.

(2) The amount is restricted to the proportion of the aggregate earnings for that year from the employment as a seafarer and all associated employments that is reasonable having regard to—

(a) the nature of and time devoted to the duties performed outside and in the United Kingdom, and

(b) all other relevant circumstances.

(3) In this section “associated employments” means employments with the same employer or with associated employers.

(4) The same rules for determining whether employers are associated apply for the purposes of this section as apply for section 24(4) (limit on chargeable overseas earnings where duties of associated employment performed in UK) (see section 24(5)).

Taking account of other deductions

381

For the purposes of sections 379 and 380, the amount of the earnings from an employment for a tax year is the amount remaining after any deductions under—

(a) section 232 (giving effect to mileage allowance relief),

(b) Chapter 2, 3, 4 or 5 of this Part,

(d) sections 188 to 194 of FA 2004 (contributions to registered pension schemes).

Duties on board ship

382

(1) Duties which a person performs on a ship engaged—

(a) on a voyage beginning or ending outside the United Kingdom (but excluding any part of it beginning and ending in the United Kingdom), or

(b) on a part beginning or ending outside the United Kingdom of any other voyage,

are treated as performed outside the United Kingdom for the purposes of this Chapter.

(2) Duties which a person performs on a vessel engaged on a voyage not extending to a port outside the United Kingdom are treated for the purposes of this Chapter as performed in the United Kingdom.

(3) For the purposes of subsection (1) the areas designated under section 1(7) of the Continental Shelf Act 1964 (c. 29) are treated as part of the United Kingdom.

(4) Subsection (1) applies despite anything to the contrary in section 40 (duties on board vessel or aircraft).

Place of performance of incidental duties

383

(1) For the purposes of section 378(1)(b) (deduction from seafarers' earnings: eligibility), duties of an employment as a seafarer which are performed outside the United Kingdom are treated as performed in the United Kingdom if conditions A and B are met.

(2) Condition A is that in the tax year in which the duties are performed the employment is in substance one whose duties fall to be performed in the United Kingdom.

(3) Condition B is that the performance of the duties performed outside the United Kingdom is merely incidental to the performance of duties in the United Kingdom.

(4) Section 39 (duties in UK merely incidental to duties outside UK) does not affect the question—

(a) where any duties are performed, or

(b) whether a person is absent from the United Kingdom,

for the purposes of section 378(1) to (3).

Meaning of employment “as a seafarer”

384

(1) In this Chapter employment “as a seafarer” means an employment (other than Crown employment) consisting of the performance of duties on a ship or of such duties and others incidental to them.

(2) In this section “Crown employment” means employment under the Crown—

(a) which is of a public nature,

(aa) which is not employment in the Royal Fleet Auxiliary Service, and

(b) the earnings from which are payable out of the public revenue of the United Kingdom or of Northern Ireland.

Meaning of “ship”

385

In this Chapter “ship” does not include an offshore installation.

Chapter 1 — Payments to non-approved pension schemes

Charge on payments to non-approved retirement benefits schemes

386

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “non-approved retirement benefits scheme”

387

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Apportionment of payments in respect of more than one employee

388

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exception: employments where earnings charged on remittance

389

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exception: non-domiciled employees with foreign employers

390

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exception: seafarers with overseas earnings

391

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relief where no benefits are paid or payable

392

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2 — Benefits from employer-financed retirement benefits

Benefits treated as employment income

Application of this Chapter

393

(1) This Chapter applies to relevant benefits provided under an employer-financed retirement benefits scheme.

(2) Section 393A defines “employer-financed retirement benefits scheme” and section 393B defines “relevant benefits”.

Charge on benefit to which this Chapter applies

394

(1) If a benefit to which this Chapter applies is received by an individual, the amount of the benefit counts as employment income of the individual for the relevant tax year.

(1A) Subsection (1) does not apply in relation to the benefit if the total amount of the benefits to which this Chapter applies received by the individual in the relevant tax year does not exceed £100.

(2) If a benefit to which this Chapter applies is received by a person who is not an individual, the person who is (or persons who are) the responsible person in relation to the scheme under which the benefit is provided is chargeable to income tax on the amount of the benefit for the relevant tax year.

(3) In this section the “relevant tax year” is the tax year in which the benefit is received.

(4) For the purposes of subsection (2), the rate of tax is 45% or such other rate as may for the time being be specified by the Treasury by order.

(4A) Subsection (4B) applies if the receipt of a benefit to which this Chapter applies gives rise to other relevant income of the employee, or the former employee, to or in respect of whom the benefit is provided.

(4B) Subsection (1) or (2) (as the case may be) applies to the amount of the benefit only so far as that amount exceeds the other relevant income.

(4C) In subsections (4A) and (4B) “other relevant income” means—

(a) general earnings of the employee or former employee which are chargeable to income tax,

(b) an amount which counts as employment income of the employee or former employee under Chapter 2 of Part 7A, ...

(ba) an amount which would count as employment income of the employee or former employee under that Chapter but for the application of section 554Z5 (overlap with earlier relevant step), or

(i) the employee or former employee having been non-UK resident for any tax year, or

(ii) any tax year having been a split year as respects the employee or former employee.

(5) No liability to income tax arises by virtue of any other provision of this Act in respect of a benefit to which this Chapter applies.

(6) Subsection (5) does not affect—

(a) any liability to income tax on general earnings, or

(b) any liability to income tax on an amount which counts as employment income under Chapter 2 of Part 7A.

Application of sections 396 and 397: general rules

395

(1) This section applies in relation to a relevant benefit under an employer-financed retirement benefits scheme in the form of a lump sum where, under the scheme, an employee has paid any sum or sums by way of contribution to the provision of the lump sum.

(2) The amount which, by virtue of section 394, counts as employment income, or is chargeable to tax under subsection (2) of that section, is the amount of the lump sum reduced by the sum, or the aggregate of the sums, paid by the employee by way of contribution to the provision of the lump sum.

(3) A reduction under this section may not be claimed in respect of the same contribution in relation to more than one lump sum.

(4) It is to be assumed, unless the contrary is shown, that no reduction is applicable under this section.

Certain lump sums not taxed by virtue of section 394

396

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certain lump sums: calculation of amount taxed by virtue of section 394

397

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Valuation of benefits etc.

Valuation of benefits

398

(1) In the case of a cash benefit, for the purposes of this Chapter the amount of a 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 benefit is taken to be the greater of—

(a) the amount of earnings (as defined in Chapter 1 of Part 3) that the benefit would give rise to if it were received 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.

(3) For the purposes of subsection (2) the benefits code has effect with the modifications in subsections (4) to (6).

(4) References in the benefits code to the employee are to be taken as references to the person by whom the benefit is received.

(5) References in the benefits code to the employer are to be taken as including references to the former employer.

(6) Where—

(a) section 106 (cash equivalent: cost of accommodation over £75,000) applies, and

(b) the amount referred to in section 105(2)(b) (the sum made good) exceeds the amount referred to in section 105(2)(a) (the rental value),

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).

399

(1) This section applies if—

(a) an amount consisting of, or including, an amount representing the benefit of a loan (“a taxable amount”) counts as employment income of an individual in a tax year under section 394(1), or

(b) the person who is (or any of the persons who are) the responsible person in relation to a scheme is charged to tax on a taxable amount ... under section 394(2).

(2) The individual or the responsible person is to be treated for all purposes of the Tax Acts (other than this Chapter) as having paid interest on the loan in the tax year equal to the amount representing the cash equivalent of the loan.

(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.

(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).

Interpretation

400

(1) In this Chapter—

“administrator”, in relation to a scheme, has the same meaning as in section 611AA of ICTA;

“employee” has the same meaning as in Chapter 1 of Part 14 of ICTA (see section 612(1) of ICTA);

“ex-spouse” means a party to a marriage that has been dissolved or annulled and, in relation to any person, means the other party to a marriage with that person that has been dissolved or annulled;

“former civil partner” means a member of a civil partnership that has been dissolved or annulled and, in relation to any person, means the other member of a civil partnership with that person that has been dissolved or annulled;

“non-approved retirement benefits scheme” has the same meaning as in Chapter 1 of this Part (see section 387);

“relative”, in relation to an individual, means—the spouse or civil partner of the individual,the widow or widower or surviving civil partner of the individual,a child of the individual, anda dependant of the individual;

“relevant benefits” has the same meaning as in section 612(1) of ICTA.

(2) Section 612(2) of ICTA applies to the references in this Chapter to the provision of relevant benefits as it applies to such references in Chapter 1 of Part 14 of ICTA.

Chapter 3 — Payments and benefits on termination of employment etc.

Preliminary

Application of this Chapter

401

(1) This Chapter applies to payments and other benefits which are received directly or indirectly in consideration or in consequence of, or otherwise in connection with—

(a) the termination of a person’s employment,

(b) a change in the duties of a person’s employment, or

by the person, or the person’s spouse or civil partner, blood relative, dependant or personal representatives.

(2) Subsection (1) is subject to subsection (3) and sections 405 to 414A (exceptions for certain payments and benefits).

(3) This Chapter does not apply to any payment or other benefit chargeable to income tax apart from this Chapter.

(4) For the purposes of this Chapter—

(a) 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, and

(b) in relation to a payment or other benefit—

(i) any reference to the employee or former employee is to the person mentioned in subsection (1), and

(ii) any reference to the employer or former employer is to be read accordingly.

Meaning of “benefit”

402

(1) In this Chapter “benefit” includes anything in respect of which, were it received for performance of the duties of the employment, an amount—

(a) would be taxable earnings from the employment, or

(b) would be such earnings apart from an earnings-only exemption.

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

(2) In this Chapter “benefit” does not include a benefit received in connection with the termination of a person’s employment that is a benefit which, were it received for performance of the duties of the employment, would fall within—

(a) section 239(4) (exemption of benefits connected with taxable cars and vans and exempt heavy goods vehicles), so far as that section applies to a benefit connected with a car or van,

(b) section 269 (exemption where benefits or money obtained in connection with taxable car or van or exempt heavy goods vehicle),

(d) section 320 (limited exemption for computer equipment).

(3) In this Chapter “benefit” does not include a benefit received in connection with any change in the duties of, or earnings from, a person’s employment to the extent that it is a benefit which, were it received for performance of the duties of the employment, would fall within section 271(1) (limited exemption of removal benefits and expenses).

(4) The right to receive a payment or benefit is not itself a benefit for the purposes of this Chapter.

Payments and benefits treated as employment income

Charge on payment or other benefit

403

(1) The amount of a payment or benefit to which this section applies counts as employment income of the employee or former employee for the relevant tax year if and to the extent that it exceeds the £30,000 threshold.

(2) In this section “the relevant tax year” means the tax year in which the payment or other benefit is received.

(3) For the purposes of this Chapter (but see section 402B(3)) —

(a) a cash benefit is treated as received—

(i) when it is paid or a payment is made on account of it, or

(ii) when the recipient becomes entitled to require payment of or on account of it, and

(b) a non-cash benefit is treated as received when it is used or enjoyed.

(4) For the purposes of this Chapter the amount of a payment or benefit in respect of an employee or former employee exceeds the £30,000 threshold if and to the extent that, when aggregated with—

(a) other payments or benefits in respect of the employee or former employee that are payments or benefits to which this section applies, and

(b) other payments or benefits in respect of the employee or former employee that are payments or benefits—

(i) received in the tax year 2017-18 or an earlier tax year, and

(ii) to which this Chapter applied in the tax year of receipt,

it exceeds £30,000 according to the rules in section 404 (how the £30,000 threshold applies).

(5) If it is received after the death of the employee or former employee—

(a) the amount of a payment or benefit to which this section applies counts as the employment income of the personal representatives for the relevant year if or to the extent that it exceeds £30,000 according to the rules in section 404, and

(b) the tax is accordingly to be assessed and charged on them and is a debt due from and payable out of the estate.

(6) In this Chapter references to the taxable person are to the person in relation to whom subsection (1) or (5) provides for an amount to count as employment income or, as the case may be, in relation to whom section 402B(1) provides for an amount to be treated as an amount of earnings .

How the £30,000 threshold applies

404

(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,

(b) in respect of different employments with the same employer, and

(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

(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 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 section 403 applies is received in respect of the employee or former employee.

(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—

(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.

(6) In subsection (3)(b), the reference to a payment or other benefit to which section 403 applies includes a reference to a payment or other benefit—

(a) received in the tax year 2017-18 or an earlier tax year, and

(b) to which this Chapter applied in the tax year of receipt.

Exceptions and reductions

Exception for certain payments exempted when received as earnings

405

(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).

(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 section 271(1) (limited exemption of removal benefits and expenses).

Exception for death or disability payments and benefits

406

(1) 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

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

(2) Although “injury” in subsection (1) includes psychiatric injury, it does not include injured feelings.

Exception for payments and benefits under tax-exempt pension schemes

407

(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—

(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.

(2) For this purpose “tax-exempt pension scheme” means—

(a) a registered pension scheme,

(aa) a scheme set up by a government outside the United Kingdom for the benefit of 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exception for contributions to tax-exempt pension schemes

408

(1) This Chapter does not apply to a contribution to a registered pension scheme or an employer-financed retirement benefit scheme if the contribution is made—

(a) as part of an arrangement relating to the termination of a person’s employment, and

(b) in order to provide benefits for the person in accordance with the terms of the scheme or approved personal pension arrangements.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exception for payments and benefits in respect of employee liabilities and indemnity insurance

409

(1) This Chapter does not apply to a payment or other benefit received by an 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

(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 or by the employer or former employer on behalf of the individual.

(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.

(6) In this section and section 410—

“relevant employment” means the employment mentioned in section 401(1);

“run-off period” means the period which—starts with the day on which the relevant employment terminated, andends with the last day of the sixth tax year following the tax year in which the period started.

Exception for payments and benefits in respect of employee liabilities and indemnity insurance: individual deceased

410

(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 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 or by the former employer on behalf of the individual's personal representatives .

(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

(5) Condition C is that the amount is paid at a time which falls within the run-off period.

Exception for payments and benefits for forces

411

(1) 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 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.

(2) This Chapter does not apply to a payment or other benefit provided under a scheme established by an order under section 1(1) of the Armed Forces (Pensions and Compensation) Act 2004.

Exception for payments and benefits provided by foreign governments etc.

412

(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 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.

(2) References in subsection (1) to—

(a) an overseas territory,

(b) the government of such a territory, and

have the meanings given in section 615 of ICTA.

Exception in certain cases of foreign service

413

(A1) This section applies to a payment or other benefit if—

(a) the payment or other benefit is within section 401(1)(a), and the employee or former employee is non-UK resident for the tax year in which the employment terminates, or

(b) the payment or other benefit is within section 401(1)(b) or (c).

(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 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.

(2) In subsection (1) “foreign service” means service to which subsection (2A), (3), (4) or (6) applies.

(2A) This subsection applies to service in or after the tax year 2013-14—

(a) to the extent that it consists of duties performed outside the United Kingdom in respect of which earnings would not be relevant earnings, or

(b) if 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).

(3) This subsection applies to service in or after the tax year 2003-04 but before the tax year 2013-14 such that—

(a) any earnings from the employment would not be relevant earnings, 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).

(3ZA) In subsection (2A)(a) “relevant earnings” means—

(a) for service in or after the tax year 2025-26, earnings—

(i) to which section 15 applies, and

(ii) if the employee is a qualifying new resident for the purposes of Chapter 5C of Part 2 for that tax year, which are not qualifying foreign general earnings within the meaning of section 41T (qualifying foreign general earnings), and

(b) for service before tax year 2025-26, earnings to which section 15 applies and to which that section would apply even if the employee made a claim under section 809B of ITA 2007 (claim for remittance basis) for that year.

(3A) In subsection (3)(a) “relevant earnings” means—

(a) for service in or after the tax year 2008-09, earnings—

(i) which are for a tax year in which the employee is ordinarily UK resident,

(ii) to which section 15 applies, and

(iii) to which that section would apply, even if the employee made a claim under section 809B of ITA 2007 (claim for remittance basis) for that year, and

(b) for service before the tax year 2008-09, general earnings to which section 15 or 21 as originally enacted applies.

(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

(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,

(b) paragraph 1 of Schedule 7 to FA 1977, or

(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,

or it would not have been so chargeable had there been any such emoluments.

Reduction in other cases of foreign service

414

(1) This section applies if—

(za) either—

(i) the payment or other benefit is within section 401(1)(a), and the employee or former employee is non-UK resident for the tax year in which the employment terminates, or

(ii) the payment or other benefit is within section 401(1)(b) or (c),

(a) the service of the employee or former employee in the employment in respect of which the payment or other benefit is received includes foreign service, and

(b) section 413(1) does not except the payment or other benefit from the application of this Chapter.

(2) The taxable person may claim relief in the form of a proportionate reduction of the amount that would otherwise—

(a) be treated as earnings by section 402B(1), or

(b) count as employment income as a result of section 403

(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 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 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

Valuation of benefits

415

(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 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.

(3) For the purposes of subsection (2), the benefits code has effect with the modifications in subsections (4), (6) and (7).

(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.

(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),

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).

Notional interest treated as paid if amount charged for beneficial loan

416

(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 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

(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.

(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 — Employment income: income and exemptions relating to securities

Chapter 1 — Introduction

Scope of Part 7

417

(1) This Part contains special rules about cases where securities, interests in securities or securities options are acquired in connection with an employment.

(2) The rules are contained in—

Chapter 2 (restricted securities),

Chapter 3 (convertible securities),

Chapter 3A (securities with artificially depressed market value),

Chapter 3B (securities with artificially enhanced market value),

Chapter 3C (securities acquired for less than market value),

Chapter 3D (securities disposed of for more than market value),

Chapter 4 (post-acquisition benefits from securities),

Chapter 5 (securities options),

Chapter 6 (... share incentive plans),

Chapter 7 (... SAYE option schemes),

Chapter 8 (... 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—

Chapters 2 to 6, and

Chapter 8.

(4) The following make provision for exemptions and reliefs from income tax—

Chapters 2 and 3, and

Chapters 5 to 10.

(5) Chapter 11 contains supplementary provisions relating to employee benefit trusts.

(6) Section 5(1) (application of employment income Parts to office-holders generally) does not apply to Chapters 6 to 10; and section 549(5) makes provision about its application to Chapter 11.

418

(A1) This Part needs to be read with Chapter 5B of Part 2 (taxable specific income from employment-related securities etc: internationally mobile employees).

(1) In Part 3—

Chapter 1 (earnings), and

Chapter 10 (taxable benefits: residual liability to charge),

(1A) But Chapters 1 and 10 of Part 3 do not have effect in relation to—

(a) the acquisition of employment-related securities options (within the meaning of Chapter 5 of Part 7), or

(b) chargeable events (within the meaning given by section 477) occurring in relation to such options.

(2) Part 7 of Schedule 7 (transitional provisions relating to securities and securities options) may also be relevant.

(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, and

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.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Duties to provide information

419

If the result given by any formula under any provision of this Part would otherwise be a negative amount, the result is to be taken to be nil instead.

Negative amounts treated as nil

420

(1) Subject to subsections (5) and (6), for the purposes of this Chapter and Chapters 2 to 5 the following are “securities”—

(a) shares in any body corporate (wherever incorporated) or in any unincorporated body constituted under the law of a country or territory outside the United Kingdom,

(aa) rights under contracts of insurance other than excluded contracts of insurance,

(b) debentures, debenture stock, loan stock, bonds, certificates of deposit and other instruments creating or acknowledging indebtedness (other than contracts of insurance),

(c) warrants and other instruments entitling their holders to subscribe for securities (whether or not in existence or identifiable),

(d) certificates and other instruments conferring rights in respect of securities held by persons other than the persons on whom the rights are conferred and the transfer of which may be effected without the consent of those persons,

(e) units in a collective investment scheme,

(f) options and futures, ...

(g) rights under contracts for differences or contracts similar to contracts for differences (other than contracts of insurance), and

(h) arrangements to which section 564G of ITA 2007 (alternative finance arrangements: investment bond arrangements) applies.

(1A) For the purposes of subsection (1)(aa) a contract of insurance is an excluded contract of insurance if it is—

(a) a contract for an annuity which is (or will be) pension income (see Part 9),

(b) a contract of long-term insurance, other than an annuity contract, which does not have a surrender value and is not capable of acquiring one (whether on conversion or in any other circumstances), or

(c) a contract of general insurance other than one which falls, in accordance with generally accepted accounting practice, to be accounted for as a financial asset or liability.

(1B) In this section—

“contract of insurance”,

“contract of long-term insurance”, and

“contract of general insurance”,

have the same meaning as in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

(2) In subsection (1)(e) “collective investment scheme” means arrangements—

(a) which are made with respect to property of any description, including money, and

(b) the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.

(3) In subsection (1)(f) “futures” means rights under a contract for the sale of a commodity or other property under which delivery is to be made at a future date at a price agreed when the contract is made; and for this purpose a price is to be taken to be agreed when the contract is made—

(a) if it is left to be determined by reference to the price at which a contract is to be entered into on a market or exchange or could be entered into at a time and place specified in the contract, and

(b) in a case where the contract is expressed to be by reference to a standard lot and quality, even if provision is made for a variation in the price to take account of any variation in quantity or quality on delivery.

(4) For the purposes of subsection (1)(g) a contract similar to a contract for differences is a contract—

(a) which is not a contract for differences, but

(b) the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the value or price of property or an index or other factor designated in the contract.

(5) The following are not “securities” for the purposes of this Chapter or Chapters 2 to 5—

(a) cheques and other bills of exchange, bankers' drafts and letters of credit (other than bills of exchange accepted by a banker),

(b) money and statements showing balances on a current, deposit or savings account,

(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(e) securities options.

(6) The Treasury may by order amend subsections (1) to (5).

(7) An order under subsection (6) may include any appropriate consequential provision (including provision amending any enactment).

(8) In this Chapter and Chapters 2 to 5—

“interest”, in relation to securities (or shares), means an interest in them less than full beneficial ownership and includes an interest in proceeds of their sale, but does not include a right to acquire them,

“securities option” means a right to acquire securities other than a right to acquire securities which is acquired pursuant to a right or opportunity made available under arrangements the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions, and

“shares” includes stock.

Application of Part 7 to office-holders

421

(1) In this Chapter and Chapters 2 to 5 “market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act.

(2) Where consideration for anything is given in the form of an asset (as opposed to a payment), any reference in this Chapter or any of Chapters 2 to 5 to the amount of the consideration is to the market value of the asset.

Chapter 2 — Restricted securities

Introduction

Application of this Chapter

422

This Chapter applies to employment-related securities if they are—

(a) restricted securities, or

(b) a restricted interest in securities,

at the time of the acquisition.

Interests in shares acquired “as a director or employee”

423

(1) For the purposes of this Chapter employment-related securities are restricted securities or a restricted interest in securities if—

(a) there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) applies, and

(b) the market value of the employment-related securities is less than it would be but for that provision.

(2) This subsection applies to provision under which—

(a) there will be a transfer, reversion or forfeiture of the employment-related securities, or (if the employment-related securities are an interest in securities) of the interest or the securities, if certain circumstances arise or do not arise,

(b) as a result of the transfer, reversion or forfeiture the person by whom the employment-related securities are held will cease to be beneficially entitled to the employment-related securities, and

(c) that person will not be entitled on the transfer, reversion or forfeiture to receive in respect of the employment-related securities an amount of at least their market value (determined as if there were no provision for transfer, reversion or forfeiture) at the time of the transfer, reversion or forfeiture.

(3) This subsection applies to provision under which there is a restriction on—

(a) the freedom of the person by whom the employment-related securities are held to dispose of the employment-related securities or proceeds of their sale,

(b) the right of that person to retain the employment-related securities or proceeds of their sale, or

(not being provision to which subsection (2) applies).

(4) This subsection applies to provision under which the disposal or retention of the employment-related securities, or the exercise of a right conferred by the employment-related securities, may result in a disadvantage to—

(a) the person by whom the employment-related securities are held,

(b) the employee (if not the person by whom they are held), or

(not being provision to which subsection (2) or (3) applies).

Meaning of interest being “only conditional”

424

(1) Employment-related securities are not restricted securities or a restricted interest in securities by reason only that any one or more of the following is the case—

(a) the employment-related securities (or the securities in which they are an interest) are unpaid or partly paid shares which may be forfeited for non-payment of calls and there is no restriction on the meeting of calls by the person by whom they are held, or

(b) that person may be required to offer for sale or transfer the employment-related securities on the employee ceasing, as a result of misconduct, to be employed by the employer or a person connected with the employer, or

(2) Subsection (1) does not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions.

Cases where this Chapter does not apply

425

(1) Subsection (2) applies if the employment-related securities—

(a) are restricted securities, or a restricted interest in securities, by virtue of subsection (2) of section 423 (provision for transfer, reversion or forfeiture) at the time of the acquisition, and

(b) will cease to be restricted securities, or a restricted interest in securities, by virtue of that subsection within 5 years after the acquisition (whether or not they may remain restricted securities or a restricted interest in securities by virtue of the application of subsection (3) or (4) of that section).

(2) No liability to income tax arises in respect of the acquisition, except as provided by—

(a) Chapter 3 of this Part (acquisition by conversion),

(b) Chapter 3C of this Part (acquisition for less than market value), or

(3) But the employer and the employee may elect that subsection (2) is not to apply to the employment-related securities.

(4) An election under subsection (3)—

(a) is to be made by agreement by the employer and the employee, and

(b) is irrevocable.

(5) Such an agreement—

(a) must be made in a form approved by the Commissioners for Her Majesty’s Revenue and Customs , and

(b) may not be made more than 14 days after the acquisition.

(6) No election may be made under subsection (3) unless, at the time of the acquisition, the earnings from the employment are (or would be if there were any) general earnings to which any of the charging provisions of Chapters 4 and 5 of Part 2 applies.

Tax exemption

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Income Tax (Earnings and Pensions) Act 2003

Special rules for earnings with a foreign element

Deductions from earnings charged on remittance

353

Disallowance of expenses relating to earnings taxed on different basis or untaxed

354

Deductions for corresponding payments by non-domiciled employees with foreign employers

355

Disallowance of business entertainment and gifts expenses

Disallowance of business entertainment and gifts expenses

356

Business entertainment and gifts: exception where employer’s expenses disallowed

357

Business entertainment and gifts: other exceptions

358

Other rules preventing deductions of particular kinds

Disallowance of travel expenses: mileage allowances and reliefs

359

Disallowance of certain accommodation expenses of MPs and other representatives

360

Chapter 3 — Deductions from benefits code earnings

Introduction

Scope of this Chapter: cost of benefits deductible as if paid by employee

361

Deductions where amounts treated as earnings under the benefits code

Deductions where non-cash voucher provided

362

Deductions where credit-token provided

363

Deductions where living accommodation provided

364

Deductions where employment-related benefit provided

365

Chapter 4 — Fixed allowances for employee’s expenses

Introduction

Scope of this Chapter: amounts fixed by Treasury

366

Fixed sum deductions

Fixed sum deductions for repairing and maintaining work equipment

367

Fixed sum deductions from earnings payable out of public revenue

368

Chapter 5 — Deductions for earnings representing benefits or reimbursed expenses

Introduction

Scope of this Chapter: earnings representing benefits or reimbursed expenses

369

Travel costs and expenses where duties performed abroad

Travel costs and expenses where duties performed abroad: employee’s travel

370

Travel costs and expenses where duties performed abroad: visiting spouse’s or child’s travel

371

Where seafarers' duties are performed

372

Travel costs and expenses of non-resident or qualifying new resident employees where duties performed in UK

Non-domiciled employee’s travel costs and expenses where duties performed in UK

373

Non-domiciled employee’s spouse’s or child’s travel costs and expenses where duties performed in UK

374

Meaning of “qualifying arrival date”

375

Foreign accommodation and subsistence costs and expenses

Foreign accommodation and subsistence costs and expenses (overseas employments)

376

Personal security assets and services

Costs and expenses in respect of personal security assets and services

377

Chapter 6 — Deductions from seafarers' earnings

Deduction from seafarers' earnings: eligibility

378

Calculating the deduction

379

Limit on deduction where UK duties etc. make amount unreasonable

380

Taking account of other deductions

381

Duties on board ship

382

Place of performance of incidental duties

383

Meaning of employment “as a seafarer”