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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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(3) Any reference in this Act to a case where the cash equivalent of the benefit of a van is treated as the employee's earnings for a year by virtue of this section includes a case where the cash equivalent is nil.

(4) This section is subject to section 154A.

Method of calculating the cash equivalent of the benefit of a van

155

(1) The cash equivalent of the benefit of a van for a tax year is calculated as follows.

(1A) If the restricted private use condition is met in relation to the van for the tax year, the cash equivalent is nil.

(1B) If that condition is not met in relation to the van for the tax year—

(a) if the van cannot in any circumstances emit CO₂ by being driven and the tax year is any of the tax years 2015-16 to 2020-21, the cash equivalent is the appropriate percentage of £3,500 ...

(aa) if the van cannot in any circumstances emit CO₂ by being driven and the tax year is 2021-22 or a subsequent tax year, the cash equivalent is nil, and

(b) in any other case, the cash equivalent is £4,020.

(1C) The appropriate percentage for the purposes of subsection (1B)(a) is—

(a) 20% for the tax year 2015-16,

(b) 20% for the tax year 2016-17;

(d) 80% for the tax year 2018-19, and

(e) 90% for the tax year 2019-20.

(f) 80% for the tax year 2020-21;

(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) The restricted private use condition is met in relation to a van for a tax year if—

(a) the commuter use requirement is satisfied throughout the year (or the part of the year on which it is available to the employee) or the extent to which it is not satisfied during that period is insignificant, and

(b) the business travel requirement is satisfied throughout the year (or the part of the year on which it is available to the employee).

(5) The commuter use requirement is satisfied at any time if—

(a) the terms on which the van is available to the employee at the time prohibit its private use otherwise than for the purposes of ordinary commuting or travel between two places that is for practical purposes substantially ordinary commuting, and

(b) neither the employee nor a member of the employee’s family or household makes private use of the van at the time otherwise than for those purposes.

(6) In subsection (5) “ordinary commuting” has the same meaning as in section 338 (travel for necessary attendance) (see subsection (3) of that section).

(7) The business travel requirement is satisfied at a time if the van is available to the employee at the time mainly for use for the purposes of the employee’s business travel (see section 171(1)).

(8) The cash equivalent of the van may be reduced—

(a) under section 156 for any periods when the van is unavailable,

(b) under section 157 where the van is shared, and

Meaning of “shared van”

156

(1) The cash equivalent of the benefit of a van for a tax year under section 155 is to be reduced if the van has been unavailable on any day during the year.

(2) For the purposes of this section a van is unavailable on any day if the day—

(a) falls before the first day on which the van is available to the employee,

(b) falls after the last day on which the van is available to the employee, or

(3) The amount of the reduction is given by the formula—

$$UY×CE$where—U is the number of days in the year on which the van is unavailable,Y is the number of days in the year, andCE is the amount of the cash equivalent before any reduction.$

Reduction of cash equivalent where van is shared

Value of exclusive availability

157

(1) This section applies if in a tax year a van—

(a) is available to more than one employee concurrently,

(b) is so made available by the same employer, and

(2) The cash equivalent of the benefit of the van to each of those employees for that year—

(a) is to be calculated separately under sections 155 and 156, and

(b) is then to be reduced on a just and reasonable basis.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) In this section the reference to the van being available for each employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.

Deduction for periods of unavailability or shared use

158

(1) The cash equivalent of the benefit of a van for a tax year under section 155 (after any reduction under sections 156 and 157) is to be reduced if, as a condition of the van being available for the employee’s private use, the employee—

(a) is required in that year to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and

(b) pays that amount on or before 6 July following that year.

(2) If the amount paid as mentioned in subsection (1)(b) by the employee in respect of that year is equal to or exceeds that cash equivalent, it is reduced to nil.

(3) In any other case that cash equivalent is reduced by the amount paid as mentioned in subsection (1)(b) by the employee.

(4) In this section the reference to the van being available for the employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.

Deduction for payments for private use

159

(1) This section applies if—

(a) the van normally available to an employee (“the normal van”) is not available to the employee for a period of less than 30 days,

(b) another van (“the replacement van”) is made available to the employee in order to replace the normal van for the whole or part of that period, and

(c) the employee is chargeable to tax in respect of both the normal van and the replacement van by virtue of section 154.

(2) If this section applies—

(a) section 156 applies so that the replacement van is to be treated as unavailable on the days during the period on which it replaces the normal van, and

(b) sections 155, 157 and 158 apply as if the replacement van were the normal van.

Van fuel: benefit treated as earnings

Value of shared availability

160

(1) If in a tax year—

(a) fuel is provided for a van by reason of an employee’s employment,

(b) that person is chargeable to tax in respect of the van by virtue of section 154 or 154A , and

the cash equivalent of the benefit of the fuel is to be treated as earnings from the employment for that year.

(2) The cash equivalent of the benefit of the fuel is calculated in accordance with sections 161 to 164.

(3) Fuel is to be treated as provided for a van, in addition to any other way in which it may be provided, if—

(a) any liability in respect of the provision of fuel for the van is discharged,

(b) a non-cash voucher or a credit-token is used to obtain fuel for the van,

(d) any sum is paid in respect of expenses incurred in providing fuel for the van.

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

(5) This section is subject to section 160A.

Value of shared availability: normal calculation

161

The cash equivalent of the benefit of the fuel is—

(a) where the tax year is the tax year 2005-06 or 2006-07, nil, and

(b) where the tax year is a later tax year, £769.

Shared van: meaning of “participating employee”

162

(1) The cash equivalent of the benefit of the fuel is nil if condition A or B is met.

(2) Condition A is met if ...—

(a) in the tax year in question, the employee is required to make good to the person providing the fuel the whole of the expense incurred by that person in connection with the provision of the fuel for the employee’s private use, and

(b) the employee does make good that expense on or before 6 July following that tax year .

(3) Condition B is met if in the tax year in question the fuel is made available only for business travel (see section 171(1)).

Shared van: basic value

163

(1) The cash equivalent of the benefit of the fuel is to be proportionately reduced if for any part of the tax year in question the van for which the fuel is provided is unavailable (within the meaning of section 156 (reduction for periods when van unavailable)).

(2) But if section 159 (van temporarily replaced) applies—

(a) section 160 applies as if the replacement van were the normal van, and

(b) for the purposes of subsection (1) the replacement van is to be treated as unavailable on the days during the period on which it replaces the normal van.

(3) The cash equivalent of the benefit of the fuel is also to be proportionately reduced if ...—

(a) for any part of the tax year in question, the facility for the provision of fuel as mentioned in section 160 (1) is not available,

(b) for any part of the tax year in question, the fuel is made available only for business travel (see section 171(1)), or

(i) for any part of the tax year in question,is required to make good to the person providing the fuel the whole of the expense incurred by that person in connection with the provision of the fuel for the employee’s private use , and

(ii) the employee does make good that expense on or before 6 July following that tax year

(4) The fact that any of the conditions specified in subsection (3) is met for part of a tax year is to be disregarded if there is a time later in that year when none of those conditions is met.

(5) Where the cash equivalent is to be proportionately reduced under subsection (1) or (3) (or under both those subsections), the reduced amount is given by the formula—

$$CE×Y-DY$where—CE is the amount of the cash equivalent before any reduction,Y is the number of days in the tax year in question, andD is the total number of days in the tax year on which either the van is unavailable or one or more of the conditions in subsection (3) is met.$

Value of shared availability: alternative calculation

164

If a reduction of the cash equivalent of the benefit of the van for which the fuel is provided is made under section 157 (reduction of cash equivalent where van is shared), a corresponding reduction is to be made in relation to the cash equivalent of the benefit of the fuel.

Deduction for payments for private use

165

(1) A deduction is to be made from the provisional sum calculated under step 6 of section 161(1) or step 3 of section 164(2) if, as a condition of the van or vans involved being available for the employee’s private use, the employee—

(a) is required in the tax year in question to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and

(b) makes such payment.

(2) If the relevant sum in respect of that year is equal to or exceeds the provisional sum, the provisional sum is reduced so that the value of shared availability is nil.

(3) In any other case the relevant sum in respect of the year is deducted from the provisional sum in order to give the value of shared availability.

(4) The relevant sum is found by—

(a) taking for any van involved the amount paid by the employee as a condition of it being available for the employee’s private use in respect of the period when it is a shared van in the year concerned, and

(b) where more than one van is involved, adding together all the amounts found under paragraph (a).

(5) In this section any reference to a van being available for the employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.

Vans: limit of cash equivalent

166

If—

(a) the cash equivalent of the benefit of vans to an employee for a tax year would (apart from this section) total more than £500, and

(b) no more than one of the vans is available to the employee for the employee’s private use, or the private use of a member of the employee’s family or household, at any one time in the year,

the cash equivalent of the benefit of the vans to the employee for the year is to be £500.

Cars and vans: exceptions

Pooled cars

167

(1) This section applies to a car in relation to a particular tax year if for that year the car has been included in a car pool for the use of the employees of one or more employers.

(2) For that tax year the car—

(a) is to be treated under section 114(1) (cars to which this Chapter applies) as not having been available for the private use of any of the employees concerned, and

(b) is not to be treated in relation to the employees concerned as an employment-related benefit within the meaning of Chapter 10 of this Part (taxable benefits: residual liability to charge) (see section 201).

(3) In relation to a particular tax year, a car is included in a car pool for the use of the employees of one or more employers if in that year—

(a) the car was made available to, and actually used by, more than one of those employees,

(b) the car was made available, in the case of each of those employees, by reason of the employee’s employment,

(d) in the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee’s other use of the car in that year, and

(e) the car was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the car available to them.

Pooled vans

168

(1) This section applies to a van in relation to a particular tax year if for that year the van has been included in a van pool for the use of the employees of one or more employers.

(2) For that tax year the van—

(a) is to be treated under section 114(1) (vans to which this Chapter applies) as not having been available for the private use of any of the employees concerned, and

(b) is not to be treated in relation to the employees concerned as an employment-related benefit within the meaning of Chapter 10 of this Part (taxable benefits: residual liability to charge) (see section 201).

(3) In relation to a particular tax year, a van is included in a van pool for the use of the employees of one or more employers if in that year—

(a) the van was made available to, and actually used by, more than one of those employees,

(b) the van was made available, in the case of each of those employees, by reason of the employee’s employment,

(d) in the case of each of those employees, any private use of the van made by the employee was merely incidental to the employee’s other use of the van in that year, and

(e) the van was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the van available to them.

Car available to more than one member of family or household employed by same employer

169

(1) This section applies where—

(a) an employee (“E”) and a member of the employee’s family or household (“M”) are employed by the same employer, and

(b) as a result of a car being made available to M in a tax year, E would (apart from this section) be chargeable to tax in respect of the car in that year by virtue of section 120.

(2) The cash equivalent of the benefit of the car and of any fuel provided for the car by reason of E’s employment is not to be treated as E’s earnings for that year if—

(a) M is chargeable to tax in respect of the car in that year by virtue of section 120, or

(b) M's employment is lower-paid employment as a minister of religion.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Orders

Orders etc. relating to this Chapter

170

(1) The Treasury may by order substitute a greater amount for that for the time being specified in—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) section 126(3)(d) (car: minimum price of later accessory),

(ca) section 132A(5)(b) (corresponding provision with respect to optional remuneration arrangements),

(d) section 147(1)(b) (classic car: minimum value), ...

(e) section 147(7)(b) (classic car: maximum contributions deduction) , or

(f) section 147A(1)(b) (classic car: minimum value: optional remuneration arrangements).

(1A) The Treasury may by order substitute a different amount for the amount for the time being specified in—

(a) section 155(1A) (cash equivalent where van subject only to restricted private use by employee),

(b) section 155(1B)(a) (cash equivalent for zero-emission van in tax years 2015-16 to 2020-21), ...

(ba) section 155(1B)(aa) (cash equivalent for zero-emissions vans in tax year 2021-22 and subsequent tax years), and

(2) An order under subsection (1) or (1A) must specify the tax years to which it applies.

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

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) The Treasury may by regulations provide for the value of the appropriate percentage as determined under sections 139 to 141 to be reduced—

(a) by such amount,

(b) in such circumstances, and

as may be prescribed in the regulations.

(5) The Treasury may by order substitute a different amount for that specified in section 150(1) (car fuel: cash equivalent) or section 161(b) (van fuel: cash equivalent).

(6) An order under subsection (5) must specify the tax years to which it applies, being tax years beginning after that in which it is made.

Supplementary

Minor definitions: general

171

(1) In this Chapter—

“business travel”, in relation to any employee, means travelling the expenses of which, if incurred and paid by the employee, would (if Chapter 2 of Part 4 did not apply) be deductible under sections 337 to 342, section 353 or under Chapter 5 of Part 5 (other than section 377);

“diesel” means any diesel fuel within the definition in Article 2 of Directive 98/70/EC of the European Parliament and of the Council;

“EC certificate of conformity” means a certificate of conformity within the meaning of— Council Directive 70/156/EEC, Directive 2007/46/EC of the European Parliament and of the Council of 5 September 2007, orRegulation (EU) 2018/858 of the European Parliament and of the Council of 30 May 2018 on the approval and market surveillance of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles;

“EC type-approval certificate” means— a type-approval certificate issued under any provision of the law of a Member State implementing Council Directive 70/156/EEC,an EC type-approval certificate within the meaning of Council Directive 2007/46/EC, oran EU type-approval certificate within the meaning of Regulation (EU) 2018/858 of the European Parliament and of the Council of 30 May 2018 on the approval and market surveillance of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles;

“qualifying emissions certificate” has the same meaning as in CAA 2001 (see section 268C(1) of that Act);

“relevant taxes” means any car tax, any value added tax, any customs or excise duty and any tax chargeable as if it were a customs duty;

“road fuel gas” means any substance which is gaseous at a temperature of 15°C and under a pressure of 1013.25 millibars, and which is for use as fuel in road vehicles;

“UK approval certificate” means—a certificate issued under—section 58(1) or (4) of the Road Traffic Act 1988, orArticle 31A(4) or (5) of the Road Traffic (Northern Ireland) Order 1981 (S.I. 1981/154 (N.I. 1)), orany other certificate or document issued in the United Kingdom on the basis of which a vehicle is first registered, other than an EC certificate of conformity or an EC type-approval certificate.

(2) In this Chapter references to the date of first registration in relation to a car ... are to the date on which the vehicle was first registered under VERA 1994 or under corresponding legislation of any country or territory.

(3) In this Chapter references to the age of a car ... at any time are to the interval between the date of first registration of the vehicle and that time.

(4) In this Chapter “disabled person’s badge” means a badge—

(a) which is issued to a disabled person under section 21 of the Chronically Sick and Disabled Persons Act 1970 (c. 44) or section 14 of the Chronically Sick and Disabled Persons (Northern Ireland) Act 1978 (c. 53), or has effect as if it had been issued under one of those provisions, and

(b) which is not required to be returned to the issuing authority under or by virtue of the provision referred to in paragraph (a).

Minor definitions: equipment to enable a disabled person to use a car

172

(1) In section 125(2)(c) “equipment to enable a disabled person to use a car” means equipment—

(a) which is designed solely for use by a chronically sick or disabled person, or

(b) which is made available for use with the car because it enables a disabled employee to use the car in spite of the disability.

(2) In this section—

“disabled employee” means an employee who, at the time when the car is first made available to the employee, holds a disabled person’s badge, and

“the disability” means the disability entitling the disabled employee to hold the disabled person’s badge.

Chapter 7 — Taxable benefits: loans

Introduction

Loans to which this Chapter applies

173

(1) This Chapter applies to a loan if it is an employment-related loan.

(1A) Where this Chapter applies to a loan—

(a) the loan is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms of the loan constitute a fair bargain), and

(b) sections 175 to 183 make provision about amounts which, in the case of a taxable cheap loan, are to be treated as earnings in certain circumstances .

(2) In this Chapter—

(a) “loan” includes any form of credit, and

(b) references to making a loan (and related expressions) include arranging, guaranteeing or in any way facilitating a loan.

(3) Sections 288 and 289 make provision for exemption and relief for certain bridging loans connected with employment moves.

174

(1) For the purposes of this Chapter an employment-related loan is a loan—

(a) made to an employee or a relative of an employee, and

(b) of a class described in subsection (2).

(2) For the purposes of this Chapter the classes of employment-related loan are—

A loan made by the employee’s employer.

A loan made by a company or partnership over which the employee’s employer had control.

A loan made by a company or partnership by which the employer (being a company or partnership) was controlled.

A loan made by a company or partnership which was controlled by a person by whom the employer (being a company or partnership) was controlled.

A loan made by a person having a material interest in—

(a) a close company which was the employer, had control over the employer or was controlled by the employer, or

(b) a company or partnership controlling that close company.

(3) In this section—

“employee” includes a prospective employee, and

“employer” includes a prospective employer.

(4) References in this section to a loan being made by a person extend to a person who—

(a) assumes the rights and liabilities of the person who originally made the loan, or

(b) arranges, guarantees or in any way facilitates the continuation of a loan already in existence.

(5) A loan is not an employment-related loan if—

(a) it is made by an individual in the normal course of the individual’s domestic, family or personal relationships, or

(b) it is made to a relative of the employee and the employee derives no benefit from it.

(6) For the purposes of this section a person (“X”) is a relative of another (“Y”) if X is—

(a) Y’s spouse or civil partner ,

(b) a parent, child or remoter relation in the direct line either of Y or of Y’s spouse or civil partner ,

(d) the spouse or civil partner of a person falling within paragraph (b) or (c).

Benefit of taxable cheap loan treated as earnings

175

(A1) This section applies where an employment-related loan is a taxable cheap loan in relation to a tax year.

(1) The cash equivalent of the benefit of the loan is to be treated as earnings from the employee's employment for the tax year.

(1A) If the benefit of the loan is provided pursuant to optional remuneration arrangements and the condition in subsection (1B) is met—

(a) subsection (1) does not apply, and

(b) the relevant amount (see section 175A) is to be treated as earnings from the employee's employment for the tax year.

(1B) The condition is that the amount foregone with respect to the benefit of the loan for the tax year (see section 69B) is greater than the modified cash equivalent of the benefit of the loan for the tax year (see section 175A).

(2) For the purposes of this Chapter an employment-related loan is a “taxable cheap loan” in relation to a particular tax year if—

(a) there is a period consisting of the whole or part of that year during which the loan is outstanding and the employee holds the employment,

(b) no interest is paid on it for that year, or the amount of interest paid on it for that year is less than the interest that would have been payable at the official rate, and

(3) The cash equivalent of the benefit of an employment-related loan for a tax year is the difference between—

(a) the amount of interest that would have been payable on the loan for that year at the official rate, and

(b) the amount of interest (if any) actually paid on the loan for that year.

(4) If there are two or more employment-related loans, this section applies to each separately.

(5) This section is subject to—

section 180 (threshold for benefit of loan to be treated as earnings);

section 186 (replacement loans).

Exception for loans on ordinary commercial terms

176

(1) A loan on ordinary commercial terms is not a taxable cheap loan.

(2) In this section a “loan on ordinary commercial terms” means a loan—

(a) made by a person (“the lender”) in the ordinary course of a business carried on by the lender which includes—

(i) the lending of money, or

(ii) the supplying of goods or services on credit, and

(b) in relation to which condition A, B or C is met.

(3) Condition A is met if—

(a) at the time the loan was made comparable loans were available to all those who might be expected to avail themselves of the services provided by the lender in the course of the lender’s business,

(b) a substantial proportion of the loans (consisting of the loan in question and the comparable loans) made by the lender at or about the time the loan in question was made were made to members of the public,

(c) the loan in question is held on the same terms as comparable loans generally made by the lender to members of the public at or about the time the loan in question was made, and

(d) where those terms differ from the terms applicable immediately after the loan in question was first made, they were imposed in the ordinary course of the lender’s business.

(4) For the purposes of condition A a loan is comparable to another loan if it is made for the same or similar purposes and on the same terms and conditions.

(5) Condition B is met if—

(a) the loan has been varied before 6th April 2000,

(b) a substantial proportion of the relevant loans were made to members of the public,

(c) the loan in question is held on the same terms as relevant loans generally made by the lender to members of the public at or about the relevant time, and

(d) where those terms differ from the terms applicable immediately after the relevant time, they were imposed in the ordinary course of the lender’s business.

(6) Condition C is met if—

(a) the loan has been varied on or after 6th April 2000,

(b) a substantial proportion of the relevant loans were made to members of the public,

(c) at the relevant time members of the public who had loans from the lender for similar purposes had a right to vary their loans on the same terms and conditions as applied in relation to the variation of the loan in question,

(d) the loan in question as varied is held on the same terms as any existing loans so varied, and

(e) where those terms differ from the terms applicable immediately after the relevant time, they were imposed in the ordinary course of the lender’s business.

(7) For the purposes of condition B and C—

(a) the “relevant time” is the time of the variation of the loan in question, and

(b) the “relevant loans” are—

(i) the loan in question,

(ii) any existing loans which were varied at or about the relevant time so as to be held on the same terms as the loan in question after it was varied, and

(iii) any new loans which were made by the lender at or about that time and are held on those terms.

(8) No account is to be taken of amounts which are incurred on fees, commission or other incidental expenses by the person to whom a loan is made for the purpose of obtaining the loan—

(a) in determining for the purposes of condition A whether loans made by a lender before 1st June 1994 are made or held on the same terms or conditions, or

(b) in determining for the purposes of condition B or C whether rights to vary loans are exercisable on the same terms and conditions or loans are held on the same terms.

(9) No account is to be taken of amounts which are incurred on penalties, interest or similar amounts by the person to whom a loan is made as a result of varying the loan in determining for the purposes of condition B or C whether rights to vary loans are exercisable on the same terms and conditions or loans are held on the same terms.

(10) For the purposes of this section a “member of the public” means a member of the public at large with whom the lender deals at arm’s length.

Exceptions for loans at fixed rate of interest

177

(1) A fixed rate loan made on or after 6th April 1978 is not a taxable cheap loan by reason only of an increase in the official rate of interest since the year in which the loan was made if the condition in subsection (2) is met.

(2) The condition in this subsection is met if the amount of interest paid on the loan for the tax year in which it was made was equal to or greater than the interest that would have been payable at the official rate for that year.

(3) A fixed rate loan made before 6th April 1978 is not a taxable cheap loan if the condition in subsection (4) is met.

(4) The condition in this subsection is met if the rate of interest for the loan is equal to or greater than the rate which could have been expected to apply to a loan made—

(a) at the same time as the loan in question,

(b) on the same terms (other than as to the rate of interest), and

(5) In this section a “fixed rate loan” means a loan—

(a) made for a fixed period which cannot be changed, and

(b) made at a fixed rate of interest which cannot be changed during that period.

Exception for loans where interest qualifies for tax relief

178

A loan is not a taxable cheap loan in relation to a particular tax year if, assuming interest is paid on the loan for that year (whether or not it is in fact paid), the whole of that interest—

(a) is eligible for relief under section 353 of ICTA or section 383 of ITA 2007 (relief for interest payments),

(b) would be eligible for relief under section 353 of ICTA but for the fact that it is a payment of relevant loan interest to which section 369 of ICTA applies (mortgage interest payable under deduction of tax),

(c) is deductible in computing the amount of the profits to be charged to tax in respect of a trade, profession or vocation carried on wholly or partly in the United Kingdom by the person to whom the loan is made, or

(d) is deductible in computing the amount of the profits to be charged to tax in respect of a UK property business (within the meaning of Chapter 2 of Part 3 of ITTOIA 2005 or Chapter 2 of Part 4 of CTA 2009) carried on by that person.

Exception for certain advances for necessary expenses

179

(1) An advance by an employer to an employee for the purpose of paying for—

(a) necessary expenses, or

(b) incidental overnight expenses,

is not a taxable cheap loan in relation to a particular tax year if the following conditions are met.

(2) The conditions are—

(a) that at all times in the tax year in question the amount outstanding on such advances made by the employer to the employee does not exceed £1,000,

(b) that the advance is spent within 6 months after the date on which it is made, and

(3) If, on an application made by the employer, an officer of Revenue and Customs is satisfied that there is good reason to do so in the case of a particular advance, the officer may authorise that either or both of the following limits are increased in relation to that advance—

(a) the sum of money specified in subsection (2)(a);

(b) the time limit specified in subsection (2)(b).

(4) An application under subsection (3)—

(a) must be in writing, and

(b) must contain such particulars and be supported by such evidence as an officer of Revenue and Customs may require.

(5) In this section “necessary expenses” are expenses (including travel expenses) which—

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

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

(6) In this section “incidental overnight expenses” are expenses which—

(a) are incidental to the employee’s absence from the place where the employee normally lives,

(b) relate to a continuous period of such absence in relation to which the overnight stay conditions are met, and

(c) would not be deductible under Part 5 if the employee incurred and paid them and Chapter 2 of Part 4 (mileage allowances and passenger payments) did not apply.

(7) In subsection (6)(b) “the overnight stay conditions” has the same meaning as in section 240 (exemption for incidental overnight expenses) (see section 240(4)).

Threshold for benefit of loan to be treated as earnings

180

(1) Section 175 does not have effect in relation to an employee and a tax year—

(a) if the normal £10,000 threshold is not exceeded, or

(b) where the loan is a non-qualifying loan and that threshold is exceeded, if the £10,000 threshold for non-qualifying loans is not exceeded.

(2) The normal £10,000 threshold is not exceeded if at all times in the year the amount outstanding on the loan (or, if two or more employment-related loans which are taxable cheap loans are outstanding in the year, the aggregate of the amount outstanding on them) does not exceed £10,000.

(3) The £10,000 threshold for non-qualifying loans is not exceeded if at all times in the year the amount outstanding on the loan (or if two or more employment-related loans which are non-qualifying loans are outstanding in the year, the aggregate of the amounts outstanding on them) does not exceed £10,000.

(4) In this section a “non-qualifying loan” means a taxable cheap loan which is not a qualifying loan.

(5) For the purposes of this section a loan is a “qualifying loan” in relation to a particular tax year if, assuming interest is paid on the loan for that year (whether or not it is in fact paid), the whole or part of that interest—

(a) is eligible for relief under section 353 of ICTA or section 383 of ITA 2007 (relief for interest payments),

(b) would be eligible for relief under section 353 of ICTA but for the fact that it is a payment of relevant loan interest to which section 369 of ICTA applies (mortgage interest payable under deduction of tax),

(c) is deductible in computing the amount of the profits to be charged to tax in respect of a trade, profession or vocation carried on wholly or partly in the United Kingdom by the person to whom the loan is made, or

(d) is deductible in computing the amount of the profits to be charged to tax in respect of a UK property business (within the meaning of Chapter 2 of Part 3 of ITTOIA 2005 or Chapter 2 of Part 4 of CTA 2009) carried on by that person.

Calculation of amount of interest at official rate

The official rate of interest

181

(1) “The official rate of interest” for the purposes of this Chapter means the rate applicable under section 178 of FA 1989 (general power of Treasury to specify rates of interest).

(2) Regulations under that section may make different provision in relation to a loan if—

(a) it was made in the currency of a country or territory outside the United Kingdom, and

(b) the employee normally lives in that country or territory, and has actually lived there at some time in the period of 6 years ending with the tax year in question.

(3) Subsection (2) does not affect the general power under section 178(3) of FA 1989 to make different provision for different purposes.

Normal method of calculation: averaging

182

The normal method of calculating for the purposes of this Chapter the amount of interest that would be payable on a loan for a tax year at the official rate is as follows. Step 1

Alternative method of calculation

183

(1) The alternative method of calculating for the purposes of this Chapter the amount of interest that would be payable on a loan for a tax year at the official rate applies for a tax year—

(a) if an officer of Revenue and Customs so requires , by notice to the employee, or

(b) if the employee so elects, by notice to an officer of Revenue and Customs .

(2) Notice may be given on or before the first anniversary of the normal self-assessment filing date for the tax year in relation to which the question arises whether the loan is a taxable cheap loan.

(3) The alternative method is as follows—

Step 1

Find for each day in the tax year in question the maximum amount of the loan outstanding on that day and multiply it by the official rate of interest in force on that day.

Step 2

Add together each of the amounts obtained under step 1.

Step 3

Divide the result by the number of days in the tax year.

(4) Where in any tax year the cash equivalent of the benefit of the same taxable cheap loan is to be treated as earnings of two or more employees then, for the purposes of determining the cash equivalent of the benefit of the loan, the alternative method applies if—

(a) the notice under subsection (1)(a) is given to all those employees, or

(b) the notice under subsection (1)(b) is given by all those employees.

Supplementary provisions relating to taxable cheap loans

Interest treated as paid

184

(1) This section applies where —

(a) the cash equivalent of the benefit of a taxable cheap loan is treated as earnings from an employee's employment for a tax year under section 175(1), or

(b) the relevant amount in respect of the benefit of a taxable cheap loan is treated as earnings from an employee's employment for a tax year under section 175(1A).

(2) The employee is to be treated for the purposes of the Tax Acts as having paid interest on the loan in that year equal to the cash equivalent.

(3) But the employee is not to be treated as having paid that interest for the purposes of this Chapter or of any of the following Chapters of this Part—

Chapter 3 (taxable benefits: expenses payments);

Chapter 6 (taxable benefits: cars, vans and related benefits);

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

(4) The interest is to be treated—

(a) as accruing during the period in the tax year during which the employee holds the employment and the loan is outstanding, and

(b) as paid by the employee at the end of the period.

(5) 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).

Apportionment of cash equivalent in case of joint loan etc.

185

Where in any tax year the cash equivalent of the benefit of the same taxable cheap loan is to be treated as earnings of two or more employees—

(a) the cash equivalent of the benefit of the loan (determined in accordance with the provisions of this Chapter) is to be apportioned between them in a just and reasonable manner, and

(b) the portion allocated to each employee is to be treated as the cash equivalent of the benefit of the loan so far as that employee is concerned.

Replacement loans

186

(1) This section applies where an employment-related loan (“the original loan”) is replaced, directly or indirectly, by—

(a) a further employment-related loan, or

(b) a loan which is not an employment-related loan but which in turn is, in the same tax year or within 40 days after the end of the tax year, replaced, directly or indirectly, by a further employment-related loan.

(2) In such a case, for the purposes of calculating the cash equivalent of the benefit of the original loan under section 175(3), section 182 (normal method of calculating interest at the official rate) applies as if the replacement loan, or each of the replacement loans, were the same loan as the original loan.

(3) Where section 182 is applied as modified by subsection (2) then for the purposes of section 175(3)(b) the amount of interest actually paid on the loan for the tax year in question is the total of—

(a) the amount of interest actually paid on the original loan for that year, and

(b) the amount of interest actually paid on the replacement loan or on each of the replacement loans for that year.

(4) In this section a “further employment-related loan” means a loan which is an employment-related loan made in relation to—

(a) the same or other employment with the person who is the employer in relation to the original loan, or

(b) employment with a person who is connected with that employer.

Aggregation of loans by close company to director

187

(1) This section applies where, in relation to any tax year, there are employment-related loans between the same lender and borrower which are aggregable with each other.

(2) The lender may elect for aggregation to apply for that tax year in the case of the borrower.

(3) The effect of the election is that all the aggregable loans are to be treated as a single loan for the purposes of—

section 175 (benefit of taxable cheap loan treated as earnings),

the provisions of this Chapter relating to the calculation of the cash equivalent of the benefit of a taxable cheap loan, and

section 184 (interest treated as paid).

(4) For this purpose loans are aggregable for any tax year if they are made in the same currency and all the following conditions are met in relation to each of them—

(a) there is a time in the tax year when—

(i) the loan is outstanding,

(ii) the lender is a close company, and

(iii) the borrower is a director of that company;

(b) at all times in the tax year the rate of interest on the loan is less than the official rate applying at that time;

(5) An election under this section must be made by the lender in a notice given—

(a) to an officer of Revenue and Customs , and

(b) before 7th July after the end of the tax year to which the election relates.

Loan released or written off

Loan released or written off: amount treated as earnings

188

(1) If—

(a) the whole or part of an employment-related loan is released or written off in a tax year, and

(b) at the time when it is released or written off the employee holds the employment in relation to which the loan is an employment-related loan (“employment E”),

the amount released or written off is to be treated as earnings from the employment for that year.

(2) But if the employment has terminated or become lower-paid employment as a minister of religion and there was a time when—

(a) the whole or part of the loan was outstanding,

(b) the employee held the employment, and

subsection (1) applies as if the employment had not terminated or become lower-paid employment as a minister of religion .

(3) Where subsection (2) applies, any loan which replaces directly or indirectly the employment-related loan is to be treated as an employment-related loan in relation to employment E if—

(a) it would, if employment E had not terminated or become lower-paid employment as a minister of religion, have been an employment-related loan in relation to employment E, and

(b) it is not an employment-related loan in relation to other employment.

(4) This section is subject to section 189 (exception where double charge).

Exception where double charge

189

(1) Section 188 (loan released or written off: amount treated as earnings) does not apply if, by virtue of any other provision of the Income Tax Acts, the amount released or written off—

(a) is employment income of the employee, or

(b) is or is treated as income of the employee (or of the employee as a borrower) which is not employment income and upon which that person is liable to pay income tax.

This is subject to subsections (2) and (3).

(2) If, as a result of subsection (1), Chapter 3 of Part 6 (payments and benefits on termination of employment etc.) would be the only provision by virtue of which the amount released or written off would be income of the employee—

(a) section 188 does apply, and

(b) accordingly Chapter 3 of Part 6 does not apply.

(3) If—

(a) an amount is treated as the employee’s income under section 633 of ITTOIA 2005 (capital sums paid to settlor by trustees of settlement) in respect of a capital sum paid in relation to the release or writing-off of the loan, and

(b) the amount released or written off exceeds the amount so treated as income,

section 188 does apply but only the amount of the excess is to be treated as earnings from the employment for the tax year in question under that section.

General supplementary provisions

Exclusion of charge after death of employee

190

(1) On the employee’s death a taxable cheap loan is to be treated—

(a) for the purposes of this Chapter as ceasing to be outstanding, and

(b) for the purposes of section 182 (normal method of calculating interest at the official rate) as being discharged on the date of death.

(2) Section 188 (loan released or written off: amount treated as earnings) does not apply in relation to a release or writing off which takes effect on or after the death of the employee.

Claim for relief to take account of event after assessment

191

(1) A claim may be made for relief in the following cases.

(2) The first case is where—

(a) the tax payable by an employee for a tax year in respect of a loan has been decided on the basis that, for the purposes of section 175 (benefit of taxable cheap loan treated as earnings), the whole or part of the interest payable on the loan for that year was not paid, and

(b) it is subsequently paid.

(3) The second case is where—

(a) the tax payable by an employee for a tax year in respect of a loan has been decided on that basis that, for the purposes of section 188 (loan released or written off: amount treated as earnings), the loan has been released or written off in that year, and

(b) the whole or part of the loan is subsequently repaid.

(4) The third case is where—

(a) the tax payable by an employee for a tax year in respect of a loan has been decided on the basis that—

(i) section 288 (limited exemption of certain bridging loans connected with employment moves), and

(ii) section 289 (relief for certain bridging loans not qualifying for exemption under section 288),

will not apply because the condition in section 288(1)(b) (which requires that the limit on the exemption under section 287(1) has not been reached) will not be met, and

(b) that condition is met.

(5) Where a claim is made under this section the tax payable is to be adjusted accordingly.

Chapter 8 — Taxable benefits: notional loans in respect of acquisitions of shares

Introduction

Application of this Chapter

192

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Acquisition of shares for less than market value

Notional loan where acquisition for less than market value

193

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The amount of the notional loan

194

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Discharge of notional loan: amount treated as earnings

195

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Supplementary provisions

Effects on other income tax charges

196

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Minor definitions

197

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Chapter 9 — Taxable benefits: disposals of shares for more than market value

Shares to which this Chapter applies

198

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Disposal for more than market value: amount treated as earnings

199

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Minor definitions

200

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Chapter 10 — Taxable benefits: residual liability to charge

Introduction

201

(1) This Chapter applies to employment-related benefits.

(2) In this Chapter—

“benefit” means a benefit or facility of any kind;

“employment-related benefit” means a benefit, other than an excluded benefit, which is provided in a tax year—for an employee, orfor a member of an employee’s family or household,by reason of the employment. For the definition of “excluded benefit” see section 202.

(3) A benefit provided by an employer is to be regarded as provided by reason of the employment unless—

(a) the employer is an individual, and

(b) the provision is made in the normal course of the employer’s domestic, family or personal relationships.

(4) For the purposes of this Chapter it does not matter whether the employment is held at the time when the benefit is provided so long as it is held at some point in the tax year in which the benefit is provided.

(5) References in this Chapter to an employee accordingly include a prospective or former employee.

Excluded benefits

202

(1) A benefit is an “excluded benefit” for the purposes of this Chapter if—

(a) any of Chapters 3 to 9 of the benefits code applies to the benefit,

(b) any of those Chapters would apply to the benefit but for an exception, or

(c) the benefit consists in the right to receive, or the prospect of receiving, sums treated as earnings under section 221 (payments where employee absent because of sickness or disability).

(1A) But a benefit provided to an employee or member of an employee's family or household is to be taken not to be an excluded benefit by virtue of subsection (1)(c) so far as it is provided under optional remuneration arrangements.

(2) In this section “exception”, in relation to the application of a Chapter of the benefits code to a benefit, means any enactment in the Chapter which provides that the Chapter does not apply to the benefit.

But for this purpose section 86 (transport vouchers under pre-26th March 1982 arrangements) is not an exception.

Cash equivalent of benefit treated as earnings

203

(1) The cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.

(2) The cash equivalent of an employment-related benefit is the cost of the benefit less any part of that cost made good by the employee , to the persons providing the benefit, on or before 6 July following the tax year in which it is provided.

(3) The cost of an employment-related benefit is determined in accordance with section 204 unless—

(a) section 205 provides that the cost is to be determined in accordance with that section, or

(b) section 206 provides that the cost is to be determined in accordance with that section.

Determination of the cost of the benefit

Cost of the benefit: basic rule

204

The cost of an employment-related benefit is the expense incurred in or in connection with provision of the benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters).

Cost of the benefit: asset made available without transfer

205

(1) The cost of an employment-related benefit (“the taxable benefit”) is determined in accordance with this section if—

(a) the benefit consists in an asset being made available for private use, and

(b) there is no transfer of the property in the asset.

(1A) In this section and section 205A, “private use” means private use by the employee or a member of the employee's family or household.

(1B) For the purposes of subsection (1) and sections 205A and 205B, an asset made available in a tax year for use by the employee or a member of the employee's family or household is to be treated as made available throughout the year for private use unless—

(a) at all times in the year when it is available for use by the employee or a member of the employee's family or household, the terms under which it is made available prohibit private use, and

(b) no private use is made of it in the year.

(1C) The cost of the taxable benefit is—

(a) the annual cost of the benefit determined in accordance with subsection (2), less

(b) any amount required to be deducted by section 205A (deduction for periods when asset unavailable for private use).

(1D) In certain cases, the cost of the taxable benefit is calculated under this section in accordance with section 205B (reduction of cost of taxable benefit where asset is shared).

(2) The annual cost of the benefit is the higher of—

(a) the annual value of the use of the asset, and

(b) the annual amount of the sums, if any, paid by those providing the benefit by way of rent or hire charge for the asset,

together with the amount of any additional expense.

(3) For the purposes of subsection (2), the annual value of the use of an asset is—

(a) in the case of land, its annual rental value;

(b) in any other case, 20% of the market value of the asset at the time when those providing the taxable benefit first applied the asset in the provision of an employment-related benefit (whether or not the person provided with that benefit is also the person provided with the taxable benefit).

If those providing the taxable benefit first applied the asset in the provision of an employment-related benefit before 6th April 1980, paragraph (b) is to be read as if the reference to 20% were a reference to 10%.

(4) In this section “additional expense” means the expense incurred in or in connection with provision of the taxable benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters), other than—

(a) the expense of acquiring or producing the asset incurred by the person to whom the asset belongs, and

(b) any rent or hire charge payable for the asset by those providing the asset.

(5) Where the asset is an emergency vehicle, the expense of providing fuel for it in a tax year is not an additional expense by virtue of subsection (4) so long as—

(a) the person incurring that expense incurs no expense in that tax year in the provision of fuel for the vehicle which is used for the employee's private travel (“private fuel expense”), or

(b) all private fuel expense that the person does incur in that tax year is made good by the employee on or before 6 July following the tax year.

(6) For the purposes of this section—

“emergency vehicle” has the same meaning as in section 248A;

“fuel” includes electrical energy;

“private travel” means travelling the expenses of which, if incurred and paid by the employee, would not be deductible under Chapter 2 or 5 of Part 5.

Cost of the benefit: transfer of used or depreciated asset

206

(1) The cost of an employment-related benefit is determined in accordance with this section if—

(a) the benefit consists in the transfer of an asset, and

(b) the asset has been used, or has depreciated, since the person transferring the asset (“the transferor”) acquired or produced it.

(2) The cost of the benefit is the market value of the asset at the time of the transfer.

(3) But the cost of the benefit (“the current benefit”) is the higher of the market value of the asset at the time of the transfer and the amount calculated in accordance with subsection (5) if—

(a) the asset is not an excluded asset (see subsection (6)) ,

(b) the asset has previously been applied in the provision of a relevant employment-related benefit (whether or not the person provided with that benefit is also the transferee), and

(4) In this section “relevant employment-related benefit” means an employment-related benefit the cost of which was to be determined in accordance with section 205.

(5) The amount referred to in subsection (3) is calculated in accordance with the following steps—

Step 1

Determine the tax years in which the asset was applied in the provision of a relevant employment-related benefit (including, if appropriate, the current tax year).

Step 2

Determine the cost of the benefit for each of those tax years in accordance with section 205.

Step 3

Calculate the total of the amounts determined under step 2.

Step 4

Calculate the market value of the asset at the time when the transferor first applied it in the provision of an employment-related benefit.

Step 5

Deduct the total calculated under step 3 from the market value calculated under step 4.

The result is the amount referred to in subsection (3).

(6) An excluded asset is—

(a) a car (within the meaning of Chapter 6),

(b) computer equipment that has previously been applied as mentioned in subsection (3)(b) in circumstances in which the conditions set out in section 320 were met, or

(c) a cycle or cyclist's safety equipment that has previously been so applied in circumstances in which the conditions set out in section 244 were met.

Supplementary provisions

Meaning of “annual rental value”

207

(1) For the purposes of this Chapter the “annual rental value” of land is the rent which might reasonably be expected to be obtained on a letting from year to year if—

(a) the tenant undertook to pay all taxes, rates and charges usually paid by a tenant, and

(b) the landlord undertook to bear the costs of the repairs and insurance and other expenses (if any) necessary for maintaining the land in a state to command the rent.

(2) For the purposes of subsection (1) that rent—

(a) is to be taken to be the amount that might reasonably be expected to be so obtained in respect of the letting, and

(b) is to be calculated on the basis that the only amounts that may be deducted in respect of services provided by the landlord are amounts in respect of the cost to the landlord of providing any relevant services.

(3) If the land is of a kind that might reasonably be expected to be let on terms under which—

(a) the landlord is to provide any services which are either—

(i) relevant services, or

(ii) the repair, insurance or maintenance of any premises which do not form part of the land but belong to or are occupied by the landlord, and

(b) amounts are payable in respect of the services in addition to the rent,

the rent to be established under subsection (1) in respect of the land is to be increased under subsection (4).

(4) That rent is to include—

(a) where the services are relevant services, so much of the additional amounts as exceeds the cost to the landlord of providing the services;

(b) where the services are within subsection (3)(a)(ii), the whole of the additional amounts.

(5) In this section “relevant service” means a service other than the repair, insurance or maintenance of the land or of any other land.

Meaning of “market value”

208

For the purposes of this Chapter the market value of an asset at any time is the price which the asset might reasonably be expected to fetch on a sale in the open market at that time.

Meaning of “persons providing benefit”

209

For the purposes of this Chapter the persons providing a benefit are the person or persons at whose cost the benefit is provided.

Power to exempt minor benefits

210

(1) The Treasury may make provision by regulations for exempting from the application of this Chapter such minor benefits as may be specified in the regulations.

(2) An exemption conferred by such regulations is conditional on the benefit being made available to the employer’s employees generally on similar terms.

Special rules for scholarships

Special rules for scholarships: introduction

211

(1) Sections 212 to 214 supplement the preceding provisions of this Chapter in the following ways—

section 212 provides for certain scholarships provided under arrangements entered into by an employer or a connected person to be regarded as provided by reason of an employment;

section 213 provides that this Chapter does not apply to certain scholarships provided under a trust fund or a scheme;

section 214 provides a different method of determining the cost of an employment-related benefit if it consists in the provision of a scholarship from a trust fund.

(2) Section 215 limits the extent to which section 776(1) of ITTOIA 2005 (exemption for scholarship income) applies to a scholarship whose provision constitutes an employment-related benefit.

(3) In this section and sections 212 to 215 “scholarship” includes a bursary, exhibition or other similar educational endowment.

Scholarships provided under arrangements entered into by employer or connected person

212

(1) A scholarship which is provided for a member of an employee’s family or household is to be regarded for the purposes of this Chapter as provided by reason of the employment if it is provided under arrangements entered into by—

(a) the employer, or

(b) a person connected with the employer.

(2) Subsection (1) applies whether or not the arrangements require the employer or the connected person to contribute directly or indirectly to the cost of providing the scholarship.

(3) A scholarship is not to be regarded as provided by reason of an employment by virtue of subsection (1) if—

(a) the employer is an individual, and

(b) the arrangements are made in the normal course of the employer’s domestic, family or personal relationships.

(4) This section is without prejudice to section 201(3).

Exception for certain scholarships under trusts or schemes

213

(1) This Chapter does not apply to an employment-related benefit consisting in the provision of a scholarship if conditions A, B, C and D are met.

(2) Condition A is that the scholarship would not be regarded as provided by reason of the employment if section 201(3) and section 212 were disregarded.

(3) Condition B is that the holder of the scholarship is a full-time student.

(4) Condition C is that the scholarship is provided from a trust fund or under a scheme.

(5) Condition D is that, in the tax year in which the scholarship is provided, not more than 25% of the total amount of relevant payments is attributable to scholarships provided by reason of a person’s employment.

(6) For the purposes of conditions B and D “full-time student” means a person who is in full-time education at a university, college, school or other educational establishment.

(7) For the purposes of condition D—

“employment” includes any employment within the meaning of the employment income Parts (see section 4), whether or not it is a taxable employment under Part 2;

“relevant payments” means the payments made from the fund or scheme mentioned in condition C in respect of scholarships held by full-time students.

Scholarships: cost of the benefit

214

If an employment-related benefit consists in the provision of a scholarship from a trust fund—

(a) section 204 does not apply, and

(b) the cost of the benefit is the total of the payments made from the fund to the person holding the scholarship.

Limitation of exemption for scholarship income in section 331 of ICTA

215

If an employment-related benefit consists in the provision of a scholarship, section 776(1) of ITTOIA 2005 (exemption for scholarship income) applies only in relation to the holder of the scholarship.

Chapter 11 — Taxable benefits: exclusion of lower-paid employments from parts of benefits code

Introduction

Provisions not applicable to lower-paid employments

216

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What is lower-paid employment

Meaning of “lower-paid employment”

217

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Calculation of earnings rate for a tax year

218

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Extra amounts to be added in connection with a car

219

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220

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Chapter 12 — Other amounts treated as earnings

Payments where employee absent because of sickness or disability

221

(1) This section applies if—

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

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

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

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

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

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

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

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

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

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

(a) by reason of the employment, and

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

Payments by employer on account of tax where deduction not possible

222

(1) This section applies if—

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

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

(c) the employee does not, before the end of the period of 90 days after the end of the tax year in which the relevant date falls, make good the due amount to the employer.

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

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

It also includes a person who is treated as making a payment of PAYE income by virtue of section 689(2) (payments by person for whom employee works but who is not the employer) or section 689A(3) (deemed payments of PAYE income of continental shelf workers by person other than employer) .

(4) In this section “the relevant date” means—

(a) if the employer is treated by virtue of any Act as making the notional payment before the date on which the Act is passed, that date, and

(b) in any other case, the date on which the employer is treated as making the notional payment.

Payments on account of director’s tax other than by the director

223

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

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

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

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

(e) either or both of the following occur—

(i) P accounts to the Commissioners for Her Majesty’s Revenue and Customs for some or all of the deductible tax (whether or not P has actually deducted the amount accounted for);

(ii) one or more persons other than P (apart from the director) account to the Commissioners for Her Majesty’s Revenue and Customs for some or all of the deductible tax.

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

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

(4) The deductible tax accounted for to the Commissioners for Her Majesty’s Revenue and Customs is to be treated as earnings of the director from the director’s employment for the tax year in which it is accounted for.

(5) But if—

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

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

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

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

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

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

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

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

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

(b) the company is—

(i) non-profit-making, or

(ii) a charitable company .

(8) In this section—

“director” has the same meaning as in the benefits code (see section 67);

“director’s employment”, in relation to a person who is employed as a director, means that employment;

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

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

“non-profit-making”, in relation to a company, means that—the company does not carry on a trade, andits functions do not consist wholly or mainly in the holding of investments or other property.

Payments to non-approved personal pension arrangements

224

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

Payments for restrictive undertakings

225

(1) This section applies where—

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

(b) a payment is made in respect of—

(i) the giving of the undertaking, or

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

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

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

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

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

(6) This section only applies where—

(a) if there are general earnings from the employment that are earned in, or otherwise in respect of, the tax year mentioned in subsection (3), subsection (7) applies to any of those general earnings, or

(b) it is reasonable to assume that, if there were such general earnings, subsection (7) would apply to any of those general earnings.

(7) This subsection applies to general earnings if either—

(a) section 15 applies to the general earnings and the general earnings are not—

(i) qualifying foreign general earnings within the meaning of section 41T (qualifying foreign general earnings), or

(ii) general earnings to which section 22 or section 26 would apply if the individual made a claim under section 809B of ITA 2007 (claim for the remittance basis) for the tax year mentioned in section 22(1) or 26(1) (being a tax year before tax year 2025-26), or

(b) section 27 applies to the general earnings.

(8) In this section “restrictive undertaking” means an undertaking which restricts the individual’s conduct or activities.

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

Valuable consideration given for restrictive undertakings

226

(1) In a case where—

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

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

(i) the giving of the undertaking, or

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

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

(2) For this purpose—

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

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

Part 4 — Employment income: exemptions

Chapter 1 — Exemptions: general

Scope of Part 4

227

(1) This Part contains—

(a) earnings-only exemptions, and

(b) employment income exemptions.

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

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

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

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

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

(za) section 418(1A) (acquisition of, and chargeable events occurring in relation to, employment-related securities options);

(a) section 425 (restricted securities: no charge in respect of acquisition in certain circumstances),

(b) section 475 (no charge in respect of acquisition of securities option),

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

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

(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

(5) In relation to the interaction between this Part and Part 7A, see section 554P(1).

Effect of exemptions on liability under provisions outside Part 2

228

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

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

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

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

(d) Chapter 8 of this Part (exemptions for special kinds of employees) except for sections 290, 290C to 291 and 306A ,

(da) section 308B (independent advice in respect of conversions and transfers of pension scheme benefits),

(db) section 308C (provision of pensions advice),

(e) section 323 (long service awards),

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

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

Chapter 2 — Exemptions: mileage allowances and passenger payments

Mileage allowances

Mileage allowance payments

229

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

(2) Mileage allowance payments are amounts, other than passenger payments (see section 233), paid to an employee for expenses related to the employee’s use of such a vehicle for business travel (see sections 235A and 236(1)).

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

(4) Subsection (1) does not apply if—

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

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

The approved amount for mileage allowance payments

230

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

$$M×R$where—M is the number of miles of business travel by the employee (other than as a passenger) using that kind of vehicle in the tax year in question;R is the rate applicable to that kind of vehicle.$

(2) The rates applicable are as follows—

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Income Tax (Earnings and Pensions) Act 2003

Method of calculating the cash equivalent of the benefit of a van

155

Meaning of “shared van”

156

Reduction of cash equivalent where van is shared

Value of exclusive availability

157

Deduction for periods of unavailability or shared use

158

Deduction for payments for private use

159

Van fuel: benefit treated as earnings

Value of shared availability

160

Value of shared availability: normal calculation

161

Shared van: meaning of “participating employee”

162

Shared van: basic value

163

Value of shared availability: alternative calculation

164

Deduction for payments for private use

165

Vans: limit of cash equivalent

Vans: limit of cash equivalent

166

Cars and vans: exceptions

Pooled cars

167

Pooled vans

168

Car available to more than one member of family or household employed by same employer

169

Orders

Orders etc. relating to this Chapter

170

Supplementary

Minor definitions: general

171

Minor definitions: equipment to enable a disabled person to use a car

172

Chapter 7 — Taxable benefits: loans

Introduction

Loans to which this Chapter applies

173

Employment-related loans

174

Benefit of taxable cheap loan treated as earnings

Benefit of taxable cheap loan treated as earnings

175

Exception for loans on ordinary commercial terms

176

Exceptions for loans at fixed rate of interest

177

Exception for loans where interest qualifies for tax relief

178

Exception for certain advances for necessary expenses

179

Threshold for benefit of loan to be treated as earnings

180

Calculation of amount of interest at official rate

The official rate of interest

181

Normal method of calculation: averaging

182

Alternative method of calculation

183

Supplementary provisions relating to taxable cheap loans

Interest treated as paid

184

Apportionment of cash equivalent in case of joint loan etc.

185

Replacement loans

186

Aggregation of loans by close company to director

187

Loan released or written off

Loan released or written off: amount treated as earnings