Legalize / United Kingdom / Public General Act

Income Tax (Earnings and Pensions) Act 2003

Type Public General Act

Publication 2003-03-06

State In force

Department Statute Law Database

Source legislation.gov.uk

Reform history JSON API

Part 1 — Overview

Benefit of living accommodation treated as earnings

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(1) This Act imposes charges to income tax on—

(a) employment income (see Parts 2 to 7A ),

(b) pension income (see Part 9), and

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

(3) This Act also—

(a) confers certain reliefs in respect of liabilities of former employees (see Part 8),

(aa) makes provision for the high income child benefit charge (see Chapter 8 of Part 10),

(b) provides for the assessment, collection and recovery of income tax in respect of employment, pension or social security income that is PAYE income (see Part 11), ...

(ba) allows deductions to be made from such income in respect of certain debts payable to the Commissioners for Her Majesty’s Revenue and Customs (see Part 11), and

Exemption of contributions to registered pension scheme

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(1) Schedule 1 (abbreviations and defined expressions) applies for the purposes of this Act.

(2) In Schedule 1—

(a) Part 1 gives the meaning of the abbreviated references to Acts and instruments used in this Act, and

(b) Part 2 lists the places where expressions used in this Act are defined or otherwise explained.

(3) Part 2 of Schedule 1 does not apply to expressions used in Chapters 6 to 9 of Part 7 (share incentive plans and other arrangements for acquiring shares): separate indexes relating to these Chapters appear at the end of Schedules 2 to 5.

Part 2 — Employment income: charge to tax

Chapter 1 — Introduction

Exclusions: public offers

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(1) The structure of the employment income Parts is as follows—

this Part imposes the charge to tax on employment income, and sets out—(a) how the amount charged to tax for a tax year is to be calculated, and(b) who is liable for the tax charged;

Part 3 sets out what are earnings and provides for amounts to be treated as earnings;

Part 4 deals with exemptions from the charge to tax under this Part (and, in some cases, from other charges to tax);

Part 5 deals with deductions from taxable earnings;

Part 6 deals with employment income other than earnings or share-related income; and

Part 7 deals with income and exemptions relating to securities and securities options acquired in connection with an employment.

Part 7A deals with employment income provided through third parties.

(2) In this Act “the employment income Parts” means this Part and Parts 3 to 7A .

Definitions

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(1) In the employment income Parts “employment” includes in particular—

(a) any employment under a contract of service,

(b) any employment under a contract of apprenticeship, and

(2) In those Parts “employed”, “employee” and “employer” have corresponding meanings.

Securities subject to restriction during relevant period

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(1) The provisions of the employment income Parts that are expressed to apply to employments apply equally to offices, unless otherwise indicated.

(2) In those provisions as they apply to an office—

(a) references to being employed are to being the holder of the office;

(b) “employee” means the office-holder;

(3) In the employment income Parts “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

Chapter 2 — Tax on employment income

Temporary non-residents

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(1) The charge to tax on employment income under this Part is a charge to tax on—

(a) general earnings, and

(b) specific employment income.

The meaning of “employment income”, “general earnings” and “specific employment income” is given in section 7.

(2) The amount of general earnings or specific employment income which is charged to tax in a particular tax year is set out in section 9.

(3) The rules in Chapters 4 and 5 of this Part, which are concerned with—

(a) the residence ... of an employee in a tax year, ...

(aa) whether section 809B, 809D or 809E of ITA 2007 (remittance basis) applied to an employee for a tax year, and

(b) the tax year in which amounts are received or remitted to the United Kingdom,

apply for the purposes of the charge to tax on general earnings but not that on specific employment income.

(3A) The rules in Chapter 5B, which are concerned with the matters mentioned in subsection (3)(a) to (b), apply for the purposes of the charge to tax on certain specific employment income arising under Part 7 (securities etc).

(4) The person who is liable for any tax charged on employment income is set out in section 13.

(5) Employment income is not charged to tax under this Part if it is within the charge to tax under

(a) Part 2 of ITTOIA 2005 (trading income) by virtue of section 15 (divers and diving supervisors), 16A (voluntary office-holders: compensation for lost profits), 16B (payments to company directors) or 16C (professionals in practice: incidental income from an office or employment) of that Act, or

(b) Part 3 of CTA 2009 (trading income) by virtue of section 40A (payments to company directors) or 40B (professionals in practice: incidental income from an office or employment) of that Act.

Oil and gas workers on the continental shelf

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(1) This section gives the meaning for the purposes of the Tax Acts of “employment income”, “general earnings” and “specific employment income”.

(2) “Employment income” means—

(a) earnings within Chapter 1 of Part 3,

(b) any amount treated as earnings (see subsection (5)), or

(3) “General earnings” means—

(a) earnings within Chapter 1 of Part 3, or

(b) any amount treated as earnings (see subsection (5)),

excluding in each case any exempt income.

(4) “Specific employment income” means any amount which counts as employment income (see subsection (6)), excluding any exempt income.

(5) Subsection (2)(b) or (3)(b) refers to any amount treated as earnings under—

(a) Chapters 7 to 10 of this Part (agency workers, workers under arrangements made by intermediaries, and workers providing services through managed service companies),

(b) Chapters 2 to 10 of Part 3 (the benefits code),

(ca) section 402B (termination payments, and other benefits, that cannot benefit from section 403 threshold), or

(d) section 262 of CAA 2001 (balancing charges to be given effect by treating them as earnings).

(6) Subsection (2)(c) or (4) refers to any amount which counts as employment income by virtue of—

(a) Part 6 (income which is not earnings or share-related),

(b) Part 7 (income and exemptions relating to securities and securities options)

(ba) Part 7A (employment income provided through third parties), or

Assessment of penalties

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For the purposes of the employment income Parts, an amount of employment income within paragraph (a), (b) or (c) of section 7(2) is “exempt income” if, as a result of any exemption in Part 4 or elsewhere, no liability to income tax arises in respect of it as such an amount.

Chapter 3 — Operation of tax charge

Annual returns

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(1) The amount of employment income which is charged to tax under this Part for a particular tax year is as follows.

(2) In the case of general earnings, the amount charged is the net taxable earnings from an employment in the year.

(3) That amount is calculated under section 11 by reference to any taxable earnings from the employment in the year (see section 10(2)).

(4) In the case of specific employment income, the amount charged is the net taxable specific income from an employment for the year.

(5) That amount is calculated under section 12 by reference to any taxable specific income from the employment for the year (see section 10(3)).

(6) Accordingly, no amount of employment income is charged to tax under this Part for a particular tax year unless—

(a) in the case of general earnings, they are taxable earnings from an employment in that year, or

(b) in the case of specific employment income, it is taxable specific income from an employment for that year.

Meaning of “taxable earnings” and “taxable specific income”

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(1) This section explains what is meant by “taxable earnings” and “taxable specific income” in the employment income Parts.

(2) “Taxable earnings from an employment in a tax year are to be determined in accordance with Chapters 4 and 5 of this Part.

(3) “Taxable specific income from an employment for a tax year means the full amount of any specific employment income which, by virtue of Part 6 , 7 or 7A or any other enactment, counts as employment income for that year in respect of the employment.

(4) Subsection (3) is subject to Chapter 5B (taxable specific income from employment-related securities etc: internationally mobile employees).

(5) Subsection (3) is also subject to sections 554Z9 to 554Z11 (employment income under Part 7A: remittance basis).

Calculation of “net taxable earnings”

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(1) For the purposes of this Part the “net taxable earnings” from an employment in a tax year are given by the formula—

$$TE-DE$where—TE means the total amount of any taxable earnings from the employment in the tax year, andDE means the total amount of any deductions allowed from those earnings under provisions listed in section 327(3) to (5) (deductions from earnings: general).$

(2) If the amount calculated under subsection (1) is negative, the net taxable earnings from the employment in the year are to be taken to be nil instead.

(3) Relief may be available under section 128 of ITA 2007 (set-off against general income)—

(a) where TE is negative, or

(b) in certain exceptional cases where the amount calculated under subsection (1) is negative.

(4) If a person has more than one employment in a tax year, the calculation under subsection (1) must be carried out in relation to each of the employments.

Calculation of “net taxable specific income”

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(1) For the purposes of this Part the “net taxable specific income” from an employment for a tax year is given by the formula—

$$TSI-DSI$where—TSI means the amount of any taxable specific income from the employment for the tax year, andDSI means the total amount of any deductions allowed from that income under provisions of the Tax Acts not included in the lists in section 327 (3) and (4) (deductions from earnings: general).$

(2) If the amount calculated under subsection (1) is negative, the net taxable specific income from the employment for the year is to be taken to be nil instead.

(3) If a person has more than one kind of specific employment income from an employment for a tax year, the calculation under subsection (1) must be carried out in relation to each of those kinds of specific employment income; and in such a case the “net taxable specific income” from the employment for that year is the total of all the amounts so calculated.

Person liable for tax

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(1) The person liable for any tax on employment income under this Part is the taxable person mentioned in subsection (2) or (3).

This is subject to subsection (4).

(2) If the tax is on general earnings, “the taxable person” is the person to whose employment the earnings relate.

(3) If the tax is on specific employment income, “the taxable person” is the person in relation to whom the income is, by virtue of Part 6 , 7 or 7A or any other enactment, to count as employment income.

(4) If the tax is on general earnings received, or remitted to the United Kingdom, after the death of the person to whose employment the earnings relate, the person’s personal representatives are liable for the tax.

(4A) If the tax is on specific employment income received, or remitted to the United Kingdom, after the death of the person in relation to whom the income is, by virtue of Part 7, to count as employment income, the person's personal representatives are liable for the tax.

(4B) Subject to section 554Z12, if—

(a) the tax is on specific employment income under Chapter 2 of Part 7A, and

(b) the relevant step is taken, or (if relevant) the income is remitted to the United Kingdom, after the death of A,

A's personal representatives are liable for the tax.

(4C) Terms used in subsection (4B) have the same meaning as in Part 7A.

(5) If subsection (4) , (4A) or (4B) or section 554Z12(3) applies, the tax is accordingly to be assessed on the personal representatives and is a debt due from and payable out of the estate.

Chapter 4 — Taxable earnings: UK resident employees

Taxable earnings

Taxable earnings under this Chapter: introduction

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(1) This Chapter sets out for the purposes of this Part what are taxable earnings from an employment in a tax year in cases where section 15 (earnings for year when employee UK resident) applies to general earnings for a tax year.

(2) In this Chapter—

(a) sections 16 and 17 deal with the year for which general earnings are earned, and

(b) sections 18 and 19 deal with the time when general earnings are received.

(3) In the employment income Parts any reference to the charging provisions of this Chapter is a reference to section 15.

UK resident employees

Earnings for year when employee resident, ordinarily resident and domiciled in UK

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(1) This section applies to general earnings for a tax year for which the employee is UK resident except that, in the case of a split year, it does not apply to any part of those earnings that is excluded.

(1A) General earnings are “excluded” if they—

(a) are attributable to the overseas part of the split year, and

(b) are neither—

(i) general earnings in respect of duties performed in the United Kingdom, nor

(ii) general earnings from overseas Crown employment subject to United Kingdom tax.

(2) The full amount of any general earnings within subsection (1) which are received in a tax year is an amount of “taxable earnings” from the employment in that year.

(3) Subsection (2) applies whether or not the employment is held when the earnings are received.

(4) Any attribution required for the purposes of subsection (1A)(a) is to be done on a just and reasonable basis.

(5) The following provisions of Chapter 5 of this Part apply for the purposes of subsection (1A)(b) as for the purposes of section 27(2)—

(a) section 28 (which defines “general earnings from overseas Crown employment subject to United Kingdom tax”), ...

(b) sections 38 to 41 (which contain rules for determining the place of performance of duties of employment) , and

(c) section 41ZA (which is about determining the extent to which general earnings are in respect of United Kingdom duties).

(6) Subject to any provision made in an order under section 28(5) for the purposes of subsection (1A)(b), provisions made in an order under that section for the purposes of section 27(2) apply for the purposes of subsection (1A)(b) too.

Year for which general earnings are earned

Meaning of earnings “for” a tax year

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(1) This section applies for determining whether general earnings are general earnings “for” a particular tax year for the purposes of this Chapter.

(2) General earnings that are earned in, or otherwise in respect of, a particular period are to be regarded as general earnings for that period.

(3) If that period consists of the whole or part of a single tax year, the earnings are to be regarded as general earnings “for” that tax year.

(4) If that period consists of the whole or parts of two or more tax years, the part of the earnings that is to be regarded as general earnings “for” each of those tax years is to be determined on a just and reasonable apportionment.

(5) This section does not apply to any amount which is required by a provision of Part 3 to be treated as earnings for a particular tax year.

Treatment of earnings for year in which employment not held

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(1) This section applies for the purposes of this Chapter in a case where general earnings from an employment would otherwise fall to be regarded as general earnings for a tax year in which the employee does not hold the employment.

(2) If that year falls before the first tax year in which the employment is held, the earnings are to be treated as general earnings for that first tax year.

(3) If that year falls after the last tax year in which the employment was held, the earnings are to be treated as general earnings for that last tax year.

(4) This section does not apply in connection with determining the year for which amounts are to be treated as earnings under Chapters 2 to 10 of Part 3 (the benefits code).

When general earnings are received

Receipt of money earnings

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(1) General earnings consisting of money are to be treated for the purposes of this Chapter as received at the earliest of the following times—

Rule 1

The time when payment is made of or on account of the earnings.

Rule 2

The time when a person becomes entitled to payment of or on account of the earnings.

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