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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) The payment is treated as made on the latest of the following days—

(a) the day on which the relevant step is taken,

(b) the day on which A's employment with B starts, and

(4) Subsection (2) does not apply if the person who takes the relevant step (whether or not a person to whom PAYE regulations apply) deducts income tax from the payment, and accounts for it, in accordance with PAYE regulations.

Disapplication of exceptions from charges

695A

(1) This section applies if—

(a) the value of a relevant step counts as employment income under Chapter 2 of Part 7A, and

(b) the relevant step is not the payment of a sum of money,

and references to A and B are to be read accordingly.

(2) For the purposes of PAYE regulations B is treated as making a payment of PAYE income of A of an amount which, on the basis of the best estimate which can reasonably be made, is—

(a) the amount of the employment income, less

(b) so much of that amount (if any) to which section 554Z9(2) or 554Z10(2) applies.

(3) The payment is treated as made on the latest of the following days—

(a) the day on which the relevant step is taken,

(b) the day on which A's employment with B starts, and

(4) Subsection (2) does not apply if the person who takes the relevant step (whether or not a person to whom PAYE regulations apply) accounts for income tax on the relevant step in accordance with PAYE regulations.

Disapplication of exceptions from charges

Introduction to taxation of securities options

Definitions

Amount of charge

Operation of tax advantages in connection with Schedule 2 SIP

125A

(1) This section applies where a car made available to an employee has a relevant security feature.

(2) The relevant security feature is not an accessory for the purposes of this Chapter if it is provided in order to meet a threat to the employee's personal physical security which arises wholly or mainly because of the nature of the employee's employment.

(3) In this section “relevant security feature” means—

(a) armour designed to protect the car's occupants from explosions or gunfire,

(b) bullet-resistant glass,

(c) any modification to the car's fuel tank designed to protect the tank's contents from explosions or gunfire (including by making the tank self-sealing), and

(d) any modification made to the car in consequence of anything which is a relevant security feature by virtue of paragraph (a), (b) or (c).

(4) The Treasury may by regulations amend the definition of “relevant security feature” in subsection (3).

Taxable specific income: internationally mobile employees etc

297C

(1) No liability to income tax arises in respect of payments of the Continuity of Education Allowance to or in respect of members of the armed forces of the Crown during their employment under the Crown or after their deaths.

(2) The Continuity of Education Allowance is an allowance designated as such under a Royal Warrant made under section 333 of the Armed Forces Act 2006.

CHAPTER 8 — High income child benefit charge

681B

(1) A person (“P”) is liable to a charge to income tax for a tax year if—

(a) P's adjusted net income for the year exceeds £60,000, and

(b) one or both of conditions A and B are met.

(2) The charge is to be known as a “high income child benefit charge”.

(3) Condition A is that—

(a) P is entitled to an amount in respect of child benefit for a week in the tax year, and

(b) there is no other person who is a partner of P throughout the week and has an adjusted net income for the year which exceeds that of P.

(4) Condition B is that—

(a) a person (“Q”) other than P is entitled to an amount in respect of child benefit for a week in the tax year,

(b) Q is a partner of P throughout the week, and

681C

(1) The amount of the high income child benefit charge to which a person (“P”) is liable for a tax year is the appropriate percentage of the total of—

(a) any amounts in relation to which condition A is met, and

(b) any amounts in relation to which condition B is met.

For conditions A and B, see section 681B.

(2) “The appropriate percentage” is—

(a) 100%, or

(b) if less, the percentage determined by the formula—

$$ANI – L X %$Where—ANI is P's adjusted net income for the tax year;L is £60,000;X is £200.$

(3) If—

(a) the total of the amounts mentioned in paragraphs (a) and (b) of subsection (1), or the amount of the charge determined under that subsection, is not a whole number of pounds, or

(b) the percentage determined under subsection (2)(b) is not a whole number,

it is to be rounded down to the nearest whole number.

681D

(1) This section applies where—

(a) a person (“R”) is entitled to an amount in respect of child benefit for a child for a week in a tax year by virtue of section 143(1)(b) of SSCBA 1992 or section 139(1)(b) of SSCB(NI)A 1992 (persons contributing to the cost of providing for a child),

(b) neither R, nor any person who is a partner of R throughout that week, is liable for a charge to income tax in respect of that amount under section 681B, and

(c) there is another person (“S”) who, for the purposes of section 143(1)(a) of SSCBA 1992 or section 139(1)(a) of SSCB(NI)A 1992 (persons with whom child is living), is a person who has the child living with him or her in that week.

(2) Section 681B applies as if S were entitled to the amount of child benefit mentioned in subsection (1)(a).

(3) Where there is more than one person to whom subsection (1)(c) applies in relation to an amount of child benefit for a week, subsection (2) applies only to the one with the highest adjusted net income for the tax year.

(4) For the purposes of subsection (1)(a), an amount of child benefit to which R is entitled for a week is to be ignored if—

(a) the period (which includes that week) for which R is entitled to child benefit by virtue of section 143(1)(b) of SSCBA 1992 or section 139(1)(b) of SSCB(NI)A 1992 in respect of the same child does not exceed 52 weeks, and

(b) R is entitled to child benefit in respect of the child for the week immediately before and the week immediately after that period by virtue of section 143(1)(a) of SSCBA 1992 or section 139(1)(a) of SSCB(NI)A 1992.

(5) In this section “child” means—

(a) a child within the meaning of section 142 of SSCBA 1992 or section 138 of SSCB(NI)A 1992, or

(b) a qualifying young person within the meaning of either of those sections.

681E

(1) The following amounts are to be disregarded for the purposes of this Chapter—

(a) amounts to which a person is entitled but in respect of which an election under section 13A of the Social Security Administration Act 1992 or section 11A of the Social Security Administration (Northern Ireland) Act 1992 (election for payment of child benefit not to be made if high income child benefit charge would be triggered) has effect;

(b) amounts to which a person is entitled by virtue of section 145A of SSCBA 1992 or section 141A of SSCB(NI)A 1992 (entitlement to child benefit after death of child or qualifying young person).

(2) Subsection (3) applies if—

(a) a person (“T”) is entitled to an amount in respect of child benefit for a week in a tax year or is treated as so entitled by virtue of section 681D(2),

(b) two or more other persons are partners of T throughout the week, and

(c) two or more of those persons would, apart from subsection (3), each be liable to a charge under section 681B(1) in relation to that amount.

(3) Only one of those persons is liable, namely the person with the highest adjusted net income for the tax year.

681F

(1) The Treasury may by order—

(a) substitute another amount for the amount for the time being specified in section 681B(1)(a) and defined as “L” in section 681C(2), or

(b) substitute another amount for the amount defined as “X” in section 681C(2).

(2) An order under this section has effect for tax years beginning after the order is made.

(3) A statutory instrument containing an order under this section which increases any person's liability to income tax may not be made unless a draft of it has been laid before and approved by a resolution of the House of Commons.

681G

(1) For the purposes of this Chapter a person is a “partner” of another person at any time if either condition A or condition B is met at that time.

(2) Condition A is that the persons are married to, or civil partners of, each other and are neither—

(a) separated under a court order, nor

(b) separated in circumstances in which the separation is likely to be permanent.

(3) Condition B is that the persons are not married to, or civil partners of, each other but are living together as if they were a married couple or civil partners.

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

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

681H

(1) This section applies for the purposes of this Chapter.

(2) “Adjusted net income” of a person for a tax year means the person's adjusted net income for that tax year as determined under section 58 of ITA 2007.

(3) “Week” means a period of 7 days beginning with a Monday; and a week is in a tax year if (and only if) the Monday with which it begins is in the tax year.

Notional loan

PAYE regulations

Travel expenses of workers providing services through intermediaries: recovery of unpaid tax

26A

(1) An employee meets the requirement of this section for a tax year if the employee was—

(a) non-UK resident for the previous 3 tax years, or

(b) UK resident for the previous tax year but non-UK resident for the 3 tax years before that, or

(d) non-UK resident for the previous tax year, UK resident for the tax year before that and non-UK resident for the 3 tax years before that.

(2) The residence status of the employee before the 3 years of non-UK residence is not relevant for these purposes.

Apportionment of earnings

41ZA

The extent to which general earnings are in respect of duties performed in the United Kingdom is to be determined under this Chapter on a just and reasonable basis.

Benefit of living accommodation treated as earnings

293B

(1) No liability to income tax arises in respect of a payment to which this section applies if it is expressed to be made in respect of relevant UK travel expenses.

(2) This section applies to payments—

(a) made to members of the Scottish Parliament under section 81(2) of the Scotland Act 1998,

(b) made to members of the National Assembly for Wales under section 20(2) of the Government of Wales Act 2006 or to a member of the Welsh Assembly Government under section 53(2) of that Act, or

(3) In this section “relevant UK travel expenses” means expenses necessarily incurred on journeys of the following kinds within the United Kingdom—

(a) journeys within subsection (4) made by the member that are necessary for the performance of his or her duties as a member;

(b) if the member shares caring responsibilities with a spouse or partner, journeys made by the spouse or partner between the constituency or region and the member's parliamentary home.

(4) The journeys referred to in subsection (3)(a) are those—

(a) between the constituency or region and the Parliament or Assembly to which the member belongs,

(b) between the constituency or region and the member's parliamentary home, or

(5) A journey is excluded if—

(a) in the case of a member who has only one local office, it is between the member's local home and that office, and

(b) in any other case, it is between the member's local home and the principal local office.

(6) In this section—

“constituency or region”, in relation to a member, means the constituency or region which the member represents and the area within 20 miles of the boundary of that constituency or region;

“local office”, in relation to a member, means an office which is situated in the constituency or region and occupied by the member for the purposes of performing duties as a member;

“the member's local home” means a residence of the member situated in the constituency or region;

“the member's parliamentary home” means the member's only or main residence in the area comprising—the main site of the Parliament or Assembly to which the member belongs, andthe area within 20 miles of that site;

“principal local office”, in relation to a member, means the local office most frequently occupied by the member for the purposes of performing duties as a member.

(7) A person has “caring responsibilities” if the person—

(a) has parental responsibility for a dependent child aged under 17 or for a child aged 17 or 18 who is in full-time education, or

(b) is the primary carer for a family member in receipt of—

(i) attendance allowance,

(ii) disability living allowance at the middle or highest rate for personal care,

(iii) the daily living component of personal independence payment, or

(iv) constant attendance allowance at or above the maximum rate with an industrial injuries disablement benefit, or the basic (full day) rate with a war disablement pension.

(8) The Treasury may by order amend the definition of “caring responsibilities” in subsection (7).

394A

(1) This section applies if an individual is temporarily non-resident.

(2) Any benefits within subsection (3) are to be treated for the purposes of section 394(1) as if they were received by the individual in the period of return.

(3) A benefit is within this subsection if—

(a) this Chapter applies to it,

(b) it is in the form of a lump sum,

(d) ignoring this section—

(i) no charge to tax arises by virtue of section 394(1) in respect of it, but

(ii) such a charge would arise if the existence of any double taxation relief arrangements were disregarded.

(4) Subsection (3)(d)(i) includes a case where the charge could be prevented by making a DTR claim, even if no claim is in fact made.

(5) Subsection (2) does not affect the operation of section 394(1A) (and, accordingly, “the relevant tax year” for the purposes of section 394(1A) remains the tax year in which the benefit is actually received).

(6) Nothing in any double taxation relief arrangements is to be read as preventing the individual from being chargeable to income tax in respect of any benefit treated by virtue of this section as received in the period of return (or as preventing a charge to that tax from arising as a result).

(7) Part 4 of Schedule 45 to FA 2013 (statutory residence test: anti-avoidance) explains—

(a) when an individual is to be regarded as “temporarily non-resident”, and

(b) what “the temporary period of non-residence” and “the period of return” mean.

(8) In this section—

“double taxation relief arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010;

“DTR claim” means a claim for relief under section 6 of that Act.

554Z4A

(1) This section applies if A is temporarily non-resident.

(2) Any relevant step within subsection (3) is to be treated for the purposes of section 554Z2 as if it were taken in the period of return.

(3) A relevant step is within this subsection if—

(a) it is the payment of a lump sum to a relevant person (see section 554C(2)),

(b) the lump sum is a relevant benefit provided under a relevant scheme,

(d) ignoring this section—

(i) no charge to tax arises by virtue of section 554Z2 by reason of the step, but

(ii) such a charge would arise if the existence of any double taxation relief arrangements were disregarded.

(4) Subsection (3)(d)(i) includes a case where the charge could be prevented by making a DTR claim, even if no claim is in fact made.

(5) Nothing in any double taxation relief arrangements is to be read as preventing A from being chargeable to income tax in respect of any relevant step treated by virtue of this section as taken in the period of return (or as preventing a charge to that tax from arising as a result).

(6) Part 4 of Schedule 45 to FA 2013 (statutory residence test: anti-avoidance) explains—

(a) when an individual is to be regarded as “temporarily non-resident”, and

(b) what “the temporary period of non-residence” and “the period of return” mean.

(7) In this section—

“double taxation relief arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010;

“DTR claim” means a claim for relief under section 6 of that Act;

“relevant benefit” has the same meaning as in Chapter 2 of Part 6;

“relevant scheme” means an employer-financed retirement benefits scheme (within the meaning of that Chapter) or a superannuation fund to which section 615(3) of ICTA applies.

554Z11A

(1) This section applies if A is temporarily non-resident.

(2) Any amount within subsection (3) is to be treated for the purposes of section 554Z9(2) or (2A) or (as the case may be) 554Z10(2) or (2AA) as if it were remitted to the United Kingdom in the period of return.

(3) An amount is within this subsection if—

(a) it is all or part of a relevant benefit provided to a relevant person (see section 554C(2)) under a relevant scheme,

(b) it is provided in the form of the lump sum,

(d) ignoring this section—

(i) no charge to tax arises by virtue of section 554Z9(2) or 554Z10(2) in respect of it, but

(ii) such a charge would arise by virtue of one of those sections if the existence of any double taxation relief arrangements were disregarded.

(4) Subsection (3)(d)(i) includes a case where the charge could be prevented by making a DTR claim, even if no claim is in fact made.

(5) Nothing in any double taxation relief arrangements is to be read as preventing A from being chargeable to income tax in respect of any income treated by virtue of this section as remitted to the United Kingdom in the period of return (or as preventing a charge to that tax from arising as a result).

(6) Part 4 of Schedule 45 to FA 2013 (statutory residence test: anti-avoidance) explains—

(a) when an individual is to be regarded as “temporarily non-resident”, and

(b) what “the temporary period of non-residence” and “the period of return” mean.

(7) In this section—

“double taxation relief arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010;

“DTR claim” means a claim for relief under section 6 of that Act;

“relevant benefit” has the same meaning as in Chapter 2 of Part 6;

“relevant scheme” means an employer-financed retirement benefits scheme (within the meaning of that Chapter) or a superannuation fund to which section 615(3) of ICTA applies;

“remitted to the United Kingdom” has the same meaning as in Chapter A1 of Part 14 of ITA 2007.

572A

(1) This section applies if an individual is temporarily non-resident.

(2) Any pension within subsection (3) is to be treated for the purposes of section 571 as if it accrued in the period of return.

(3) A pension is within this subsection if—

(a) section 569 applies to it,

(b) it is in the form of a lump sum,

(d) ignoring this section—

(i) it is not chargeable to tax under this Chapter, but

(ii) it would be so chargeable if the existence of any double taxation relief arrangements were disregarded.

(4) Subsection (3)(d)(i) includes a case where the charge could be prevented by making a DTR claim, even if no claim is in fact made.

(5) Nothing in any double taxation relief arrangements is to be read as preventing the individual from being chargeable to income tax in respect of any pension treated by virtue of this section as accruing in the period of return (or as preventing a charge to that tax from arising as a result).

(6) Part 4 of Schedule 45 to FA 2013 (statutory residence test: anti-avoidance) explains—

(a) when an individual is to be regarded as “temporarily non-resident”, and

(b) what “the temporary period of non-residence” and “the period of return” mean.

(7) In this section—

“double taxation relief arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010;

“DTR claim” means a claim for relief under section 6 of that Act.

Taxable amount under Chapter 4

Deductible amounts

Definitions

Enterprise management incentives: qualifying options

Exercise of options: company events

25A

(1) The scheme may provide that share options relating to shares in a company may be exercised within 6 months after the relevant date for the purposes of sub-paragraph (2), (6) , (6ZA) or (6A).

(2) The relevant date for the purposes of this sub-paragraph is the date when—

(a) a person has obtained control of the company as a result of making an offer falling within sub-paragraph (3), and

(b) any condition subject to which the offer is made has been satisfied.

(3) An offer falls within this sub-paragraph if it is—

(a) a general offer to acquire the whole of the issued ordinary share capital of the company which is made on a condition such that, if it is met, the person making the offer will have control of the company, or

(b) a general offer to acquire all the shares in the company which are of the same class as the shares to which the option relates.

(4) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.

(5) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.

(6) The relevant date for the purposes of this sub-paragraph is the date when the court sanctions under section 899 of the Companies Act 2006 (court sanction for compromise or arrangement) a compromise or arrangement applicable to or affecting—

(a) all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or

(b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in a Schedule 4 CSOP scheme.

(6ZA) The relevant date for the purposes of this sub-paragraph is the date when the court sanctions under section 901F of the Companies Act 2006 (court sanction for compromise or arrangement) a compromise or arrangement applicable to or affecting—

(a) all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or

(b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in a Schedule 4 CSOP scheme.

(6A) The relevant date for the purposes of this sub-paragraph is the date on which a non-UK company reorganisation arrangement applicable to or affecting—

(a) all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or

(b) all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employments or directorships or their participation in a Schedule 4 CSOP scheme,

becomes binding on the shareholders covered by it.

(7) The scheme may provide that share options relating to shares in a company may be exercised at any time when any person is bound or entitled to acquire shares in the company under sections 979 to 982 or 983 to 985 of the Companies Act 2006 (takeover offers: right of offeror to buy out minority shareholder etc).

(7A) Sub-paragraphs (7B) to (7F) apply if the scheme makes provision under sub-paragraph (1) or (7).

(7B) The scheme may provide that if, in consequence of a relevant event, shares in the company to which a share option relates no longer meet the requirements of Part 4 of this Schedule, the share option may be exercised under the provision made under sub-paragraph (1) or (7) (as the case may be) no later than 20 days after the day on which the relevant event occurs, notwithstanding that the shares no longer meet the requirements of Part 4 of this Schedule.

(7C) In sub-paragraph (7B) “relevant event” means—

(a) a person obtaining control of the company as mentioned in sub-paragraph (2)(a);

(b) a person obtaining control of the company as a result of a compromise or arrangement sanctioned by the court as mentioned in sub-paragraph (6) or (6ZA);

(c) a person obtaining control of the company as a result of a non-UK company reorganisation arrangement which has become binding on the shareholders covered by it as mentioned in sub-paragraph (6A);

(d) a person who is bound or entitled to acquire shares in the company as mentioned in sub-paragraph (7) obtaining control of the company.

(7D) Provision made under sub-paragraph (7B) may not authorise the exercise of a share option, as the case may be—

(a) at a time outside the 6 month period mentioned in sub-paragraph (1), or

(b) at a time not covered by sub-paragraph (7).

(7E) The scheme may provide that a share option relating to shares in a company which is exercised during the period of 20 days ending with—

(a) the relevant date for the purposes of sub-paragraph (2), (6) , (6ZA) or (6A), or

(b) the date on which any person becomes bound or entitled to acquire shares in the company as mentioned in sub-paragraph (7),

is to be treated as if it had been exercised in accordance with the provision made under sub-paragraph (1) or (7) (as the case may be).

(7F) If the scheme makes provision under sub-paragraph (7E) it must also provide that if—

(a) a share option is exercised in reliance on that provision in anticipation of—

(i) an event mentioned in sub-paragraph (2), (6) , (6ZA) or (6A) occurring, or

(ii) a person becoming bound or entitled to acquire shares in the company as mentioned in sub-paragraph (7), but

(b) as the case may be—

(i) the relevant date for the purposes of sub-paragraph (2), (6) , (6ZA) or (6A) does not fall during the period of 20 days beginning with the date on which the share option is exercised, or

(ii) the person does not become bound or entitled to acquire shares in the company by the end of the period of 20 days beginning with the date on which the share option is exercised,

the exercise of the share option is to be treated as having had no effect.

(8) For the purposes of this paragraph a person is to be treated as obtaining control of a company if that person and others acting in concert together obtain control of it.

Payments

Shares of employee shareholders

226A

(1) This section applies if shares having a market value of no less than £2000 are acquired by an employee in consideration of an employee shareholder agreement.

(2) An amount equal to the market value of the shares is to be treated as earnings from the employment, in respect of the acquisition of the shares, for the tax year in which they are acquired.

But this is subject to subsection (4).

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

(4) If the shares are acquired pursuant to an employment-related securities option, subsection (2) does not apply.

(5) If subsection (2) applies, nothing else constitutes earnings under this Part from the employment in respect of the acquisition of the shares.

(6) For the purposes of this section ...—

shares are “acquired” by an employee if the employee becomes beneficially entitled to them (and they are acquired at the time when the employee becomes so entitled);

“employee shareholder agreement” means an agreement by virtue of which an employee is an employee shareholder (see section 205A(1)(a) to (d) of the Employment Rights Act 1996);

“employee shareholder share” means a share acquired by an employee in consideration of an employee shareholder agreement;

“employee” and “employer company”, in relation to an employee shareholder agreement, mean the individual and the company which enter into the agreement;

“employment-related securities option” has the same meaning as in Chapter 5 of Part 7 (see section 471(5));

“market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act; and the market value of shares is their market value on the day on which they are acquired (but see also subsection (7)).

(7) For the purposes of subsection (1) (but not subsection (2)) , the market value of the shares is to be determined ignoring—

(a) any election under section 431 (election for market value of restricted shares to be calculated as if not restricted), and

(b) section 437 (market value of convertible securities to be determined as if not convertible).

226B

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

226C

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

226D

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

Employee shareholder agreements

326B

(1) No liability to income tax arises by virtue of—

(a) the provision of relevant advice by a relevant independent adviser, or

(b) the payment or reimbursement, in accordance with section 205A(7) of the Employment Rights Act 1996, of any reasonable costs incurred in obtaining relevant advice.

(2) “Relevant advice” means—

(a) advice, other than tax advice, which is provided for the purposes of section 205A(6)(a) of that Act (advice as to terms and effect of employee shareholder agreement), and

(b) tax advice which is so provided and consists only of an explanation of the tax effects of employee shareholder agreements generally.

(3) In this section—

“employee shareholder agreement” means an agreement by virtue of which an employee is an employee shareholder (see section 205A(1)(a) to (d) of that Act);

“relevant independent adviser” has the meaning that it has for the purposes of section 203(3)(c) of that Act.

Amount of charge

Deemed election for disapplication of Chapter 2

No charge on award or acquisition of shares: general

Enterprise management incentives: qualifying options

No charge on receipt of qualifying option

241A

(1) No liability to income tax arises in respect of a sum if or to the extent that it is paid wholly and exclusively for the purpose of paying or reimbursing travel expenses in respect of which conditions A to C are met.

(2) Condition A is that—

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

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

(3) Condition B is that the employment is employment as a director of a not-for-profit company.

(4) Condition C is that the employment is one from which the employee receives no employment income other than sums to which Chapter 3 of Part 3 applies (expenses payments).

(5) In this section—

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

(b) “not-for-profit company” means a company that does not carry on activities for the purpose of making profits for distribution to its members or others.

241B

(1) No liability to income tax arises in respect of a sum if or to the extent that it is paid wholly and exclusively for the purpose of paying or reimbursing travel expenses in respect of which conditions A to D are met.

(2) Condition A is that the employee is obliged to incur the expenses as holder of the employment.

(3) Condition B is that the employment is employment as a director of a company.

(4) Condition C is that the employee carries on a trade, profession or vocation (alone or in partnership).

(5) Condition D is that, in calculating the profits of that trade, profession or vocation for income tax purposes, a deduction is allowed under ITTOIA 2005 for the expenses, but no such deduction is to be made.

(6) In this section “director” has the same meaning as in the benefits code (see section 67).

340A

(1) A deduction from earnings from an employment is allowed for travel expenses if conditions A to E are met.

(2) Condition A is that the employee is obliged to incur and pay the expenses.

(3) Condition B is that the travel—

(a) takes place within the United Kingdom, and

(b) is for the purpose of performing duties of the employment at the destination.

(4) Condition C is that the employee has performed duties of another employment at the place of departure.

(5) Condition D is that—

(a) at least one of the employments is as a director of a company (“company X”), and

(b) the other employment is also with a company (“company Y”) but not necessarily as a director of it.

(6) Condition E is that the employee was appointed as a director of company X because company Y, or a company in the same group as company Y, has a shareholding or other financial interest in company X.

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

(8) In this section—

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

“group” means a company and its 51% subsidiaries.

395B

(1) This section applies if—

(a) a benefit to which this Chapter applies is provided to or in respect of an employee or former employee in the form of a lump sum,

(b) the employer-financed retirement benefits scheme under which the lump sum is provided is established in a country or territory outside the United Kingdom,

(ca) the recipient is not resident in the United Kingdom in the tax year in which the lump sum is received,

(d) all or part of the lump sum (“the relevant part”) would, but for this section, count as employment income by virtue of section 394(1) or be chargeable to income tax under section 394(2) (account having been taken of section 394(4B) and section 395), and

(e) the service in respect of which rights to receive the relevant part of the lump sum accrued (referred to as “reckonable service”) is or includes foreign service.

(2) Section 394(1) or, as the case may be, section 394(2) does not apply to the relevant part of the lump sum if the condition in subsection (3) is met.

(3) The condition is that—

(a) three-quarters or more of the period of reckonable service is made up of foreign service,

(b) if the period of reckonable service exceeds 10 years, the whole of the last 10 years of that period is made up of foreign service, or

(c) if the period of reckonable service exceeds 20 years, one-half or more of that period, including any 10 of the last 20 years, is made up of foreign service.

(4) If the condition in subsection (3) is not met, the amount that counts as employment income by virtue of section 394(1) or, as the case may be, is chargeable to income tax under section 394(2) is to be reduced by the appropriate proportion.

(5) The appropriate proportion is a proportion of the relevant part of the lump sum equal to the proportion that the period of foreign service included in the reckonable service bears to the period of reckonable service.

(6) In determining the service in respect of which rights to receive the relevant part of the lump sum accrued—

(a) service in a previous employment or with a previous employer is to be taken into account if rights to receive the relevant part of the lump sum also accrued in respect of that service, and

(b) it does not matter if the rights originally accrued under a different employer-financed retirement benefits scheme (whether one established in the United Kingdom or in a country or territory outside the United Kingdom).

(7) “Related person”, in relation to an employee or former employee (E), means any of the following—

(a) E’s spouse or civil partner or E’s widow or widower or surviving civil partner,

(b) a person who is financially dependent on E, whose financial relationship with E is one of mutual dependence or who is dependent on E because of physical or mental impairment (or, if the lump sum is paid after E’s death, anyone who was such a person at the time of E’s death), and

(8) In this section “foreign service” has the meaning given by section 395C.

414A

(1) This Chapter does not apply to a payment or other benefit provided in the form of a lump sum under a section 615(3) scheme.

(2) In this section, “section 615(3) scheme” means a superannuation fund to which section 615(3) of ICTA applies.

689A

(1) This section applies if—

(a) any payment of, or on account of, PAYE income of a continental shelf worker in respect of a period is made by a person who is the employer or an intermediary of the employer or of the relevant person,

(b) PAYE regulations do not apply to the person making the payment or, if that person makes the payment as an intermediary of the employer or of the relevant person, to the employer, and

(c) income tax and any relevant debts are not deducted, or not accounted for, in accordance with PAYE regulations by the person making the payment or, if that person makes the payment as an intermediary of the employer or of the relevant person, by the employer.

(2) Subject to subsection (5), subsection (1)(a) does not apply in relation to a payment so far as the sum paid is employment income under Chapter 2 of Part 7A.

(3) The relevant person is to be treated, for the purposes of PAYE regulations, as making a payment of PAYE income of the continental shelf worker of an amount equal to the amount given by subsection (4).

(4) The amount referred to is—

(a) if the amount of the payment actually made is an amount to which the recipient is entitled after deduction of income tax and any relevant debts under PAYE regulations, the aggregate of the amount of the payment and the amount of any income tax due and any relevant debts deductible, and

(b) in any other case, the amount of the payment.

(5) If, by virtue of any of sections 687A and 693 to 700, an employer would be treated for the purposes of PAYE regulations (if they applied to the employer) as making a payment of any amount to a continental shelf worker, this section has effect as if—

(a) the employer were also to be treated for the purposes of this section as making an actual payment of that amount, and

(b) paragraph (a) of subsection (4) were omitted.

(6) For the purposes of this section a payment of, or on account of, PAYE income of a continental shelf worker is made by an intermediary of the employer or of the relevant person if it is made—

(a) by a person acting on behalf of the employer or the relevant person and at the expense of the employer or the relevant person or a person connected with the employer or the relevant person, or

(b) by trustees holding property for any persons who include, or a class of persons which includes, the continental shelf worker.

(7) PAYE regulations may make provision for, or in connection with, the issue by Her Majesty's Revenue and Customs of a certificate to a relevant person in respect of one or more continental shelf workers—

(a) confirming that, in respect of payments of, or on account of, PAYE income of the continental shelf workers specified or described in the certificate, income tax and any relevant debts are being deducted, or accounted for, as mentioned in subsection (1)(c), and

(b) disapplying this section in relation to payments of, or on account of, PAYE income of those workers while the certificate is in force.

(8) Regulations under subsection (7) may, in particular, make provision about—

(a) applying for a certificate;

(b) the circumstances in which a certificate may, or must, be issued or cancelled;

(d) the effect of a certificate (including provision modifying the effect mentioned in subsection (7)(b) or specifying further effects);

(e) the effect of cancelling a certificate.

(9) Subsection (10) applies if—

(a) there is more than one relevant person in relation to a continental shelf worker, and

(b) in consequence of the same payment within subsection (1)(a), each of them is treated under subsection (3) as making a payment of PAYE income of the worker.

(10) If one of the relevant persons complies with section 710 (notional payments: accounting for tax) in respect of the payment that person is treated as making, the other relevant persons do not have to comply with that section in respect of the payments they are treated as making.

(11) In this section—

“continental shelf worker” means a person in an employment some or all of the duties of which are performed—in the UK sector of the continental shelf (as defined in section 41), andin connection with exploration or exploitation activities (as so defined);

“employer” means the employer of the continental shelf worker;

“relevant person”, in relation to a continental shelf worker, means—if the employer has an associated company (as defined in section 449 of CTA 2010) with a place of business or registered office in the United Kingdom, the associated company, orin any other case, the person who holds the licence under Part 1 of the Petroleum Act 1998 in respect of the area of the UK sector of the continental shelf where some or all of the duties of the continental shelf worker's employment are performed.

(12) The Treasury may by regulations modify the definitions of “continental shelf worker” and “relevant person”, as the Treasury thinks appropriate.

(13) Regulations under subsection (12) may—

(a) make different provision for different cases or different purposes,

(b) make incidental, consequential, supplementary or transitional provision or savings, and

Disapplication of Chapter 3B

Deductible amounts

Application of Chapter 2: close companies

Interpretation: persons linked with A

Anti-avoidance

46A

(1) This section applies if—

(a) an individual (“W”) personally provides services (which are not excluded services) to another person (“C”),

(b) a third person (“A”) enters into arrangements the main purpose, or one of the main purposes, of which is to secure that the services are not treated for income tax purposes under section 44 as duties of an employment held by W with A, and

(2) In subsection (1)(b) “arrangements” includes any scheme, transaction or series of transactions, agreement or understanding, whether or not legally enforceable, and any associated operations.

(3) Subject to subsection (2) of section 44, that section applies in relation to the services.

(4) For the purposes of subsection (3)—

(a) W is to be treated as being the worker,

(b) C is to be treated as being the client,

(d) section 44 has effect as if subsections (4) to (6) of that section were omitted.

421JA

(1) This section applies in relation to a person who is (or has been) a responsible person (see section 421L) in relation to reportable events (see section 421K).

(2) The person must give to Her Majesty's Revenue and Customs (“HMRC”) a return for each tax year falling (wholly or partly) in the person's reportable event period.

(3) The person's “reportable event period” is the period—

(a) beginning when the first reportable event occurs in relation to which the person is a responsible person, and

(b) ending when the person will no longer be a responsible person in relation to reportable events.

(4) The return for a tax year must—

(a) contain, or be accompanied by, such information as HMRC may require, and

(b) be given on or before 6 July in the following tax year.

(5) The information which may be required under subsection (4)(a) includes (in particular) information to enable HMRC to determine the liability to tax, including capital gains tax, of any employee.

(6) If the person becomes aware that—

(a) anything which should have been included in, or should have accompanied, a return for a tax year was not included in, or did not accompany, the return,

(b) anything which should not have been included in, or should not have accompanied, a return for a tax year was included in, or accompanied, the return, or

the person must give an amended return correcting the position to HMRC without delay.

(7) A person's return for a tax year under this section need not contain, or be accompanied by, duplicate information and a person is not required to give a return for a tax year under this section if it would only contain, or be accompanied by, duplicate information.

(8) “Duplicate information” means information which is contained in or accompanies—

(a) a return which another person gives for the tax year under this section, or

(b) a return which any person gives for the tax year under any of the following provisions—

(i) paragraph 81B of Schedule 2 (annual return for Schedule 2 SIP);

(ii) paragraph 40B of Schedule 3 (annual return for Schedule 3 SAYE option scheme);

(iii) paragraph 28B of Schedule 4 (annual return for Schedule 4 CSOP scheme);

(iv) paragraph 52 of Schedule 5 (annual return for company whose shares are subject to qualifying options under the EMI code).

421JB

(1) A return under section 421JA, and any information accompanying the return, must be given electronically.

(2) But, if HMRC consider it appropriate to do so, HMRC may allow a person to give a return or any accompanying information in another way; and, if HMRC do so, the return or information must be given in that other way.

(3) The Commissioners for Her Majesty's Revenue and Customs—

(a) must prescribe how returns and accompanying information are to be given electronically;

(b) may make different provision for different cases or circumstances.

421JC

(1) This section applies if a person fails to give a return under section 421JA for a tax year (containing, or accompanied by, all required information) on or before the date mentioned in section 421JA(4)(b) (“the date for delivery”).

(2) The person is liable for a penalty of £100.

(3) If the person's failure continues after the end of the period of 3 months beginning with the date for delivery, the person is liable for a further penalty of £300.

(4) If the person's failure continues after the end of the period of 6 months beginning with the date for delivery, the person is liable for a further penalty of £300.

(5) The person is liable for a further penalty under this subsection if—

(a) the person's failure continues after the end of the period of 9 months beginning with the date for delivery,

(b) HMRC decide that such a penalty should be payable, and

(The person may be liable for more than one penalty under this subsection.)

(6) The penalty under subsection (5) is £10 for each day that the failure continues during the period specified in the notice under subsection (5)(c).

(7) The period specified in the notice under subsection (5)(c)—

(a) may begin earlier than the date on which the notice is given, but

(b) may not begin until after the end of the period mentioned in subsection (5)(a) or, if relevant, the end of any period specified in any previous notice under subsection (5)(c) given in relation to the failure.

(8) Liability for a penalty under this section does not arise if the person satisfies HMRC (or, on an appeal under section 421JF, the tribunal) that there is a reasonable excuse for the person's failure.

(9) For the purposes of subsection (8)—

(a) an insufficiency of funds is not a reasonable excuse, unless attributable to events outside the person's control,

(b) where the person relies on any other person to do anything, that is not a reasonable excuse unless the (first mentioned) person took reasonable care to avoid the failure, and

(c) where the person had a reasonable excuse for the failure but the excuse ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

421JD

(1) This section applies if a return under section 421JA, or any information accompanying such a return—

(a) is given otherwise than in accordance with section 421JB, or

(b) contains a material inaccuracy—

(i) which is careless or deliberate, or

(ii) which is not corrected as required by section 421JA(6).

(2) The person in question is liable for a penalty of an amount decided by HMRC.

(3) The penalty must not exceed £5,000.

(4) For the purposes of subsection (1)(b)(i) an inaccuracy is careless if it is due to a failure by the person in question to take reasonable care.

421JE

(1) This section applies if a person is liable for a penalty under section 421JC or 421JD.

(2) HMRC must assess the penalty and notify the person of the assessment.

(3) Subject to subsection (4), the assessment must be made no later than 12 months after the date on which the person becomes liable for the penalty.

(4) In the case of a penalty under section 421JD(1)(b), the assessment must be made no later than—

(a) 12 months after the date on which HMRC become aware of the inaccuracy, and

(b) 6 years after the date on which the person becomes liable for the penalty.

(5) A penalty payable under this Part must be paid—

(a) no later than 30 days after the date on which the notice under subsection (2) is given to the person, or

(b) if notice of appeal is given against the penalty under section 421JF(1) or (2), no later than 30 days after the date on which the appeal is determined or withdrawn.

(6) The penalty may be enforced as if it were income tax or, if the person is a company within the charge to corporation tax, corporation tax charged in an assessment and due and payable.

(7) Sections 100 to 103 of TMA 1970 do not apply to a penalty under section 421JC or 421JD.

421JF

(1) A person may appeal against a decision of HMRC that the person is liable for a penalty under section 421JC or 421JD.

(2) A person may appeal against a decision of HMRC as to the amount of a penalty payable by the person under section 421JC or 421JD.

(3) Notice of appeal must be given to HMRC no later than 30 days after the date on which the notice under section 421JE(2) is given to the person.

(4) On an appeal under subsection (1) which is notified to the tribunal, the tribunal may affirm or cancel the decision.

(5) On an appeal under subsection (2) which is notified to the tribunal, the tribunal may—

(a) affirm the amount of the penalty decided, or

(b) substitute another amount for that amount.

(6) Subject to this section and section 421JE, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to an appeal under this section as they have effect in relation to an appeal against an assessment to income tax or, if the person is a company within the charge to corporation tax, corporation tax.

Associated persons

Amount of charge

Definitions

Interpretation: persons linked with A

Enterprise management incentives: qualifying options

Overlap with money or asset subject to earlier tax liability

Notice of SIP to be given to HMRC

81A

(1) For a SIP to be a Schedule 2 SIP, notice of the SIP must be given to Her Majesty's Revenue and Customs (“HMRC”).

(2) The notice must—

(a) be given by the company,

(b) contain, or be accompanied by, such information as HMRC may require, and

(3) A declaration within this sub-paragraph is a declaration—

(a) that the requirements of Parts 2 to 9 of this Schedule are met in relation to the SIP, and

(b) if the declaration is made after the first date on which awards of shares are made under the SIP (“the first award date”), that those requirements—

(i) were met in relation to those awards of shares, and

(ii) have otherwise been met in relation to the SIP at all times on or after the first award date when shares appropriated to, or acquired on behalf of, individuals under the SIP have been held under the SIP.

(4) If notice is given under this paragraph in relation to a SIP, for the purposes of the SIP code the SIP is to be a Schedule 2 SIP at all times on and after the relevant date (but not before that date).

(5) But if the notice is given after the initial notification deadline, the SIP is to be a Schedule 2 SIP only from the beginning of the relevant tax year.

(5A) Sub-paragraph (5) does not apply if the company satisfies HMRC (or, on an appeal under paragraph 81K, the tribunal) that there is a reasonable excuse for failing to give notice on or before the initial notification deadline.

(5B) Paragraph 81C(9) (what constitutes a reasonable excuse) applies for the purposes of sub-paragraph (5A).

(5C) Where HMRC are required under sub-paragraph (5A) to consider whether there was a reasonable excuse, HMRC must notify the company of their decision within the period of 45 days beginning with the day on which HMRC received the company's request to consider the excuse.

(5D) Where HMRC are required to notify the company as specified in sub-paragraph (5C) but do not do so—

(a) HMRC are to be treated as having decided that there was no reasonable excuse, and

(b) HMRC must notify the company of the decision which they are treated as having made.

(6) For the purposes of this Part—

“the initial notification deadline” is 6 July in the tax year following that in which the first award date falls,

“the relevant date” is—the date on which the declaration within sub-paragraph (3) is made, orif that declaration is made after the first award date, the first award date, and

“the relevant tax year” is—the tax year in which the notice under this paragraph is given, orif that notice is given on or before 6 July in that tax year, the preceding tax year.

(7) Sub-paragraph (4) is subject to the following paragraphs of this Part.

Annual returns

81B

(1) This paragraph applies if notice is given in relation to a SIP under paragraph 81A.

(2) The company must give to HMRC a return for the tax year in which the relevant date falls and for each subsequent tax year (subject to sub-paragraph (9)).

(3) If paragraph 81A(5) applies in relation to the SIP, in sub-paragraph (2) the reference to the tax year in which the relevant date falls is to be read as a reference to the relevant tax year.

(4) A return for a tax year must—

(a) contain, or be accompanied by, such information as HMRC may require, and

(b) be given on or before 6 July in the following tax year.

(5) The information which may be required under sub-paragraph (4)(a) includes (in particular) information to enable HMRC to determine the liability to tax, including capital gains tax, of—

(a) any person who has participated in the SIP, or

(b) any other person whose liability to tax the operation of the SIP is relevant to.

(6) If during a tax year an alteration is made in a key feature of—

(a) the SIP, or

(b) the plan trust,

the return for the tax year must contain a declaration within sub-paragraph (7) made by such persons as HMRC may require.

(7) A declaration within this sub-paragraph is a declaration that the alteration has not caused the requirements of Parts 2 to 9 of this Schedule not to be met in relation to the SIP.

(8) For the purposes of sub-paragraph (6) a “key feature” of a SIP or plan trust is a provision of the SIP or plan trust which is necessary in order for the requirements of Parts 2 to 9 of this Schedule to be met in relation to the SIP.

(9) A return is not required for any tax year following that in which the termination condition is met in relation to the SIP.

(10) For the purposes of this Part “the termination condition” is met in relation to a SIP when—

(a) a plan termination notice has been issued in relation to it under paragraph 89, and

(b) all the requirements under paragraphs 56(3), 68(4)(c) and 90 have been met by the trustees.

(11) If the company becomes aware that—

(a) anything which should have been included in, or should have accompanied, a return for a tax year was not included in, or did not accompany, the return,

(b) anything which should not have been included in, or should not have accompanied, a return for a tax year was included in, or accompanied, the return, or

the company must give an amended return correcting the position to HMRC without delay.

81C

(1) This paragraph applies if the company fails to give a return for a tax year (containing, or accompanied by, all required information and declarations) on or before the date mentioned in paragraph 81B(4)(b) (“the date for delivery”).

(2) The company is liable for a penalty of £100.

(3) If the company's failure continues after the end of the period of 3 months beginning with the date for delivery, the company is liable for a further penalty of £300.

(4) If the company's failure continues after the end of the period of 6 months beginning with the date for delivery, the company is liable for a further penalty of £300.

(5) The company is liable for a further penalty under this sub-paragraph if—

(a) the company's failure continues after the end of the period of 9 months beginning with the date for delivery,

(b) HMRC decide that such a penalty should be payable, and

(The company may be liable for more than one penalty under this sub-paragraph.)

(6) The penalty under sub-paragraph (5) is £10 for each day that the failure continues during the period specified in the notice under sub-paragraph (5)(c).

(7) The period specified in the notice under sub-paragraph (5)(c)—

(a) may begin earlier than the date on which the notice is given, but

(b) may not begin until after the end of the period mentioned in sub-paragraph (5)(a) or, if relevant, the end of any period specified in any previous notice under sub-paragraph (5)(c) given in relation to the failure.

(8) Liability for a penalty under this paragraph does not arise if the company satisfies HMRC (or, on an appeal under paragraph 81K, the tribunal) that there is a reasonable excuse for its failure.

(9) For the purposes of sub-paragraph (8)—

(a) an insufficiency of funds is not a reasonable excuse, unless attributable to events outside the company's control,

(b) where the company relies on any other person to do anything, that is not a reasonable excuse unless the company took reasonable care to avoid the failure, and

(c) where the company had a reasonable excuse for the failure but the excuse ceased, the company is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

Notices and returns to be given electronically etc

81D

(1) A notice under paragraph 81A, and any information accompanying the notice, must be given electronically.

(2) A return under paragraph 81B, and any information accompanying the return, must be given electronically.

(3) But, if HMRC consider it appropriate to do so, HMRC may allow the company to give a notice or return or any accompanying information in another way; and, if HMRC do so, the notice, return or information must be given in that other way.

(4) The Commissioners for Her Majesty's Revenue and Customs—

(a) must prescribe how notices, returns and accompanying information are to be given electronically;

(b) may make different provision for different cases or circumstances.

81E

(1) This paragraph applies if a return under paragraph 81B, or any information accompanying such a return—

(a) is given otherwise than in accordance with paragraph 81D, or

(b) contains a material inaccuracy—

(i) which is careless or deliberate, or

(ii) which is not corrected as required by paragraph 81B(11).

(2) The company is liable for a penalty of an amount decided by HMRC.

(3) The penalty must not exceed £5,000.

(4) For the purposes of sub-paragraph (1)(b)(i) an inaccuracy is careless if it is due to a failure by the company to take reasonable care.

Enquiries

81F

(1) This paragraph applies if notice is given in relation to a SIP under paragraph 81A.

(2) HMRC may enquire into the SIP if HMRC give notice to the company of HMRC's intention to do so no later than—

(a) 6 July in the tax year following the tax year in which the initial notification deadline falls, or

(b) if the notice under paragraph 81A is given after the initial notification deadline, 6 July in the second tax year following the relevant tax year.

(3) HMRC may enquire into the SIP if HMRC give notice to the company of HMRC's intention to do so no later than 12 months after the date on which a declaration within paragraph 81B(7) is given to HMRC.

(4) Sub-paragraph (5) applies if (at any time) HMRC have reasonable grounds for believing that requirements of Parts 2 to 9 of this Schedule—

(a) are not met in relation to the SIP, or

(b) have not been met in relation to the SIP.

(5) HMRC may enquire into the SIP if HMRC give notice to the company of HMRC's intention to do so.

(6) Notice may be given, and an enquiry may be conducted, under sub-paragraph (2), (3) or (5) even though the termination condition has been met in relation to the SIP.

81G

(1) An enquiry under paragraph 81F(2), (3) or (5) is completed when HMRC give the company a notice (a “closure notice”) stating—

(a) that HMRC have completed the enquiry, and

(b) that—

(i) paragraph 81H is to apply,

(ii) paragraph 81I is to apply, or

(iii) neither paragraph 81H nor paragraph 81I is to apply.

(2) If the company receives notice under paragraph 81F(2), (3) or (5), the company may make an application to the tribunal for a direction requiring a closure notice for the enquiry to be given within a specified period.

(3) The application is to be subject to the relevant provisions of Part 5 of TMA 1970 (see, in particular, section 48(2)(b) of that Act).

(4) The tribunal must give a direction unless satisfied that HMRC have reasonable grounds for not giving the closure notice within the specified period.

81H

(1) This paragraph applies if HMRC decide—

(a) that requirements of Parts 2 to 9 of this Schedule—

(i) are not met in relation to the SIP, or

(ii) have not been met in relation to the SIP, and

(b) that the situation is, or was, so serious that this paragraph should apply.

(2) If this paragraph applies—

(a) the SIP is not to be a Schedule 2 SIP with effect from—

(i) such relevant time as is specified in the closure notice, or

(ii) if no relevant time is specified, the time of the giving of the closure notice, and

(b) the company is liable for a penalty of an amount decided by HMRC.

(3) Sub-paragraph (2)(a) does not affect the operation of the SIP code in relation to shares appropriated to, or acquired on behalf of, an individual under the SIP before the time mentioned in sub-paragraph (2)(a)(i) or (ii) (as the case may be).

(4) In particular, if the SIP was a Schedule 2 SIP when the shares were appropriated to, or acquired on behalf of, the individual, the SIP is to continue to be a Schedule 2 SIP in relation to those shares.

(5) The penalty under sub-paragraph (2)(b) must not exceed an amount equal to twice HMRC's reasonable estimate of—

(a) the total income tax for which participants in the SIP have not been liable, or will not be liable in the future, and

(b) the total contributions under Part 1 of SSCBA 1992 or SSCB(NI)A 1992 for which any persons have not been liable, or will not be liable in the future,

in consequence of the SIP having been a Schedule 2 SIP at any relevant time before the time mentioned in sub-paragraph (2)(a)(i) or (ii) (as the case may be).

(6) The liabilities covered by sub-paragraph (5) include liabilities for income tax or contributions which a person has not had, or will not have, in consequence of sub-paragraphs (3) and (4).

(7) In this paragraph “relevant time” means any time before the giving of the closure notice when requirements of Parts 2 to 9 of this Schedule were not met in relation to the SIP.

81I

(1) This paragraph applies if HMRC decide—

(a) that requirements of Parts 2 to 9 of this Schedule—

(i) are not met in relation to the SIP, or

(ii) have not been met in relation to the SIP, but

(b) that the situation is not, or was not, so serious that paragraph 81H should apply.

(2) If this paragraph applies, the company—

(a) is liable for a penalty of an amount decided by HMRC, and

(b) must, no later than 90 days after the relevant day, secure that the requirements of Parts 2 to 9 of this Schedule are met in relation to the SIP.

(3) The penalty under sub-paragraph (2)(a) must not exceed £5,000.

(4) In sub-paragraph (2)(b) “the relevant day” means—

(a) the last day of the period in which notice of an appeal under paragraph 81K(2)(b) may be given, or

(b) if notice of such an appeal is given, the day on which the appeal is determined or withdrawn.

(5) Sub-paragraph (2)(b) does not apply if the termination condition was met in relation to the SIP before the giving of the closure notice or is met before the end of the 90 day period mentioned in sub-paragraph (2)(b).

(6) If the company fails to comply with sub-paragraph (2)(b), HMRC may give the company a notice stating that that is the case (a “default notice”).

(7) If the company is given a default notice—

(a) the SIP is not to be a Schedule 2 SIP with effect from—

(i) such relevant time as is specified in the default notice, or

(ii) if no relevant time is specified, the time of the giving of the default notice, and

(b) the company is liable for a further penalty of an amount decided by HMRC.

(8) Sub-paragraph (7)(a) does not affect the operation of the SIP code in relation to shares appropriated to, or acquired on behalf of, an individual under the SIP before the time mentioned in sub-paragraph (7)(a)(i) or (ii) (as the case may be).

(9) In particular, if the SIP was a Schedule 2 SIP when the shares were appropriated to, or acquired on behalf of, the individual, the SIP is to continue to be a Schedule 2 SIP in relation to those shares.

(10) The penalty under sub-paragraph (7)(b) must not exceed an amount equal to twice HMRC's reasonable estimate of—

(a) the total income tax for which participants in the SIP have not been liable, or will not be liable in the future, and

(b) the total contributions under Part 1 of SSCBA 1992 or SSCB(NI)A 1992 for which any persons have not been liable, or will not be liable in the future,

in consequence of the SIP having been a Schedule 2 SIP at any relevant time before the time mentioned in sub-paragraph (7)(a)(i) or (ii) (as the case may be).

(11) The liabilities covered by sub-paragraph (10) include liabilities for income tax or contributions which a person has not had, or will not have, in consequence of sub-paragraphs (8) and (9).

(12) In this paragraph “relevant time” means any time before the giving of the default notice when requirements of Parts 2 to 9 of this Schedule were not met in relation to the SIP.

Assessment of penalties

81J

(1) This paragraph applies if the company is liable for a penalty under this Part.

(2) HMRC must assess the penalty and notify the company of the assessment.

(3) Subject to sub-paragraphs (4) and (5), the assessment must be made no later than 12 months after the date on which the company becomes liable for the penalty.

(4) In the case of a penalty under paragraph 81E(1)(b), the assessment must be made no later than—

(a) 12 months after the date on which HMRC become aware of the inaccuracy, and

(b) 6 years after the date on which the company becomes liable for the penalty.

(5) In the case of a penalty under paragraph 81H(2)(b) or 81I(2)(a) or (7)(b) where notice of appeal is given under paragraph 81K(2) or (3), the assessment must be made no later than 12 months after the date on which the appeal is determined or withdrawn.

(6) A penalty payable under this Part must be paid—

(a) no later than 30 days after the date on which the notice under sub-paragraph (2) is given to the company, or

(b) if notice of appeal is given against the penalty under paragraph 81K(1) or (4), no later than 30 days after the date on which the appeal is determined or withdrawn.

(7) The penalty may be enforced as if it were corporation tax or, if the company is not within the charge to corporation tax, income tax charged in an assessment and due and payable.

(8) Sections 100 to 103 of TMA 1970 do not apply to a penalty under this Part.

Appeals

81K

(A1) The company may appeal against a decision of HMRC under paragraph 81A(5A) that there was no reasonable excuse for its failure to give notice on or before the initial notification deadline.

(1) The company may appeal against a decision of HMRC that the company is liable for a penalty under paragraph 81C or 81E.

(2) The company may appeal against—

(a) a decision of HMRC mentioned in paragraph 81H(1) or a decision of HMRC to specify, or not to specify, a relevant time in the closure notice;

(b) a decision of HMRC mentioned in paragraph 81I(1).

(3) The company may appeal against a decision of HMRC—

(a) to give the company a default notice under paragraph 81I;

(b) to specify, or not to specify, a relevant time in the default notice.

(4) The company may appeal against a decision of HMRC as to the amount of a penalty payable by the company under this Part.

(5) The company may appeal against a decision of an officer of Revenue and Customs to give a direction under section 998 of CTA 2009 (withdrawal of corporation tax deductions in relation to a Schedule 2 SIP).

(6) Notice of appeal must be given to HMRC no later than 30 days after the date on which—

(za) in the case of an appeal under sub-paragraph (A1), notice of HMRC's decision is given to the company;

(a) in the case of an appeal under sub-paragraph (1) or (4), the notice under paragraph 81J(2) is given to the company;

(b) in the case of an appeal under sub-paragraph (2), the closure notice is given;

(d) in the case of an appeal under sub-paragraph (5), notice of the officer's decision is given to the company.

(7) On an appeal under sub-paragraph (A1), (1), (3)(a) or (5) which is notified to the tribunal, the tribunal may affirm or cancel the decision.

(8) On an appeal under sub-paragraph (2) or (3)(b) which is notified to the tribunal, the tribunal may—

(a) affirm or cancel the decision, or

(b) substitute for the decision another decision which HMRC had power to make.

(9) On an appeal under sub-paragraph (4) which is notified to the tribunal, the tribunal may—

(a) affirm the amount of the penalty decided, or

(b) substitute another amount for that amount.

(10) Subject to this paragraph and paragraph 81J, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to an appeal under this paragraph as they have effect in relation to an appeal against an assessment to corporation tax or, if the company is not within the charge to corporation tax, income tax.

Notice of scheme to be given to HMRC

40A

(1) For an SAYE option scheme to be a Schedule 3 SAYE option scheme, notice of the scheme must be given to Her Majesty's Revenue and Customs (“HMRC”).

(2) The notice must—

(a) be given by the scheme organiser,

(b) contain, or be accompanied by, such information as HMRC may require, and

(3) A declaration within this sub-paragraph is a declaration—

(a) that the requirements of Parts 2 to 7 of this Schedule are met in relation to the scheme, and

(b) if the declaration is made after the first date on which share options are granted under the scheme (“the first grant date”), that those requirements—

(i) were met in relation to those grants of share options, and

(ii) have otherwise been met in relation to the scheme at all times on or after the first grant date when share options granted under the scheme are outstanding.

(4) If notice is given under this paragraph in relation to an SAYE option scheme, for the purposes of the SAYE code the scheme is to be a Schedule 3 SAYE option scheme at all times on and after the relevant date (but not before that date).

(5) But if the notice is given after the initial notification deadline, the scheme is to be a Schedule 3 SAYE option scheme only from the beginning of the relevant tax year.

(5A) Sub-paragraph (5) does not apply if the scheme organiser satisfies HMRC (or, on an appeal under paragraph 40K, the tribunal) that there is a reasonable excuse for the failure to give notice on or before the initial notification deadline.

(5B) Paragraph 40C(9) (what constitutes a reasonable excuse) applies for the purposes of sub-paragraph (5A).

(5C) Where HMRC are required under sub-paragraph (5A) to consider whether there was a reasonable excuse, HMRC must notify the scheme organiser of their decision within the period of 45 days beginning with the day on which HMRC received the scheme organiser's request to consider the excuse.

(5D) Where HMRC are required to notify the scheme organiser as specified in sub-paragraph (5C) but do not do so—

(a) HMRC are to be treated as having decided that there was no reasonable excuse, and

(b) HMRC must notify the scheme organiser of the decision which they are treated as having made.

(6) For the purposes of this Part—

“the initial notification deadline” is 6 July in the tax year following that in which the first grant date falls,

“outstanding”, in relation to a share option, means that the option—has not been exercised, butis capable of being exercised in accordance with the scheme (whether on the meeting of any condition or otherwise),

“the relevant date” is—the date on which the declaration within sub-paragraph (3) is made, orif that declaration is made after the first grant date, the first grant date, and

“the relevant tax year” is—the tax year in which the notice under this paragraph is given, orif that notice is given on or before 6 July in that tax year, the preceding tax year.

(7) Sub-paragraph (4) is subject to the following paragraphs of this Part.

40B

(1) This paragraph applies if notice is given in relation to an SAYE option scheme under paragraph 40A.

(2) The scheme organiser must give to HMRC a return for the tax year in which the relevant date falls and for each subsequent tax year (subject to sub-paragraph (9)).

(3) If paragraph 40A(5) applies in relation to the scheme, in sub-paragraph (2) the reference to the tax year in which the relevant date falls is to be read as a reference to the relevant tax year.

(4) A return for a tax year must—

(a) contain, or be accompanied by, such information as HMRC may require, and

(b) be given on or before 6 July in the following tax year.

(5) The information which may be required under sub-paragraph (4)(a) includes (in particular) information to enable HMRC to determine the liability to tax, including capital gains tax, of—

(a) any person who has participated in the scheme, or

(b) any other person whose liability to tax the operation of the scheme is relevant to.

(6) If during a tax year—

(a) an alteration is made in a key feature of the scheme, or

(b) variations are made under a provision made under paragraph 28(3) to take account of a variation in any share capital,

the return for the tax year must contain a declaration within sub-paragraph (7) made by such persons as HMRC may require.

(7) A declaration within this sub-paragraph is a declaration, as the case may be—

(a) that the alteration has, or

(b) that the variations have,

not caused the requirements of Parts 2 to 7 of this Schedule not to be met in relation to the scheme.

(8) For the purposes of sub-paragraph (6)(a) a “key feature” of a scheme is a provision of the scheme which is necessary in order for the requirements of Parts 2 to 7 of this Schedule to be met in relation to the scheme.

(9) A return is not required for any tax year following that in which the termination condition is met in relation to the scheme.

(10) For the purposes of this Part “the termination condition” is met in relation to a scheme when—

(a) all share options granted under the scheme—

(i) have been exercised, or

(ii) are no longer capable of being exercised in accordance with the scheme (because, for example, they have lapsed or been cancelled), and

(b) no more share options will be granted under the scheme.

(11) If the scheme organiser becomes aware that—

(a) anything which should have been included in, or should have accompanied, a return for a tax year was not included in, or did not accompany, the return,

(b) anything which should not have been included in, or should not have accompanied, a return for a tax year was included in, or accompanied, the return, or

the scheme organiser must give an amended return correcting the position to HMRC without delay.

40C

(1) This paragraph applies if the scheme organiser fails to give a return for a tax year (containing, or accompanied by, all required information and declarations) on or before the date mentioned in paragraph 40B(4)(b) (“the date for delivery”).

(2) The scheme organiser is liable for a penalty of £100.

(3) If the scheme organiser's failure continues after the end of the period of 3 months beginning with the date for delivery, the scheme organiser is liable for a further penalty of £300.

(4) If the scheme organiser's failure continues after the end of the period of 6 months beginning with the date for delivery, the scheme organiser is liable for a further penalty of £300.

(5) The scheme organiser is liable for a further penalty under this sub-paragraph if—

(a) the scheme organiser's failure continues after the end of the period of 9 months beginning with the date for delivery,

(b) HMRC decide that such a penalty should be payable, and

(The scheme organiser may be liable for more than one penalty under this sub-paragraph.)

(6) The penalty under sub-paragraph (5) is £10 for each day that the failure continues during the period specified in the notice under sub-paragraph (5)(c).

(7) The period specified in the notice under sub-paragraph (5)(c)—

(a) may begin earlier than the date on which the notice is given, but

(b) may not begin until after the end of the period mentioned in sub-paragraph (5)(a) or, if relevant, the end of any period specified in any previous notice under sub-paragraph (5)(c) given in relation to the failure.

(8) Liability for a penalty under this paragraph does not arise if the scheme organiser satisfies HMRC (or, on an appeal under paragraph 40K, the tribunal) that there is a reasonable excuse for its failure.

(9) For the purposes of sub-paragraph (8)—

(a) an insufficiency of funds is not a reasonable excuse, unless attributable to events outside the scheme organiser's control,

(b) where the scheme organiser relies on any other person to do anything, that is not a reasonable excuse unless the scheme organiser took reasonable care to avoid the failure, and

(c) where the scheme organiser had a reasonable excuse for the failure but the excuse ceased, the scheme organiser is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

Notices and returns to be given electronically etc

40D

(1) A notice under paragraph 40A, and any information accompanying the notice, must be given electronically.

(2) A return under paragraph 40B, and any information accompanying the return, must be given electronically.

(3) But, if HMRC consider it appropriate to do so, HMRC may allow the scheme organiser to give a notice or return or any accompanying information in another way; and, if HMRC do so, the notice, return or information must be given in that other way.

(4) The Commissioners for Her Majesty's Revenue and Customs—

(a) must prescribe how notices, returns and accompanying information are to be given electronically;

(b) may make different provision for different cases or circumstances.

40E

(1) This paragraph applies if a return under paragraph 40B, or any information accompanying such a return—

(a) is given otherwise than in accordance with paragraph 40D, or

(b) contains a material inaccuracy—

(i) which is careless or deliberate, or

(ii) which is not corrected as required by paragraph 40B(11).

(2) The scheme organiser is liable for a penalty of an amount decided by HMRC.

(3) The penalty must not exceed £5,000.

(4) For the purposes of sub-paragraph (1)(b)(i) an inaccuracy is careless if it is due to a failure by the scheme organiser to take reasonable care.

40F

(1) This paragraph applies if notice is given in relation to an SAYE option scheme under paragraph 40A.

(2) HMRC may enquire into the scheme if HMRC give notice to the scheme organiser of HMRC's intention to do so no later than—

(a) 6 July in the tax year following the tax year in which the initial notification deadline falls, or

(b) if the notice under paragraph 40A is given after the initial notification deadline, 6 July in the second tax year following the relevant tax year.

(3) HMRC may enquire into the scheme if HMRC give notice to the scheme organiser of HMRC's intention to do so no later than 12 months after the date on which a declaration within paragraph 40B(7) is given to HMRC.

(4) Sub-paragraph (5) applies if (at any time) HMRC have reasonable grounds for believing that requirements of Parts 2 to 7 of this Schedule—

(a) are not met in relation to the scheme, or

(b) have not been met in relation to the scheme.

(5) HMRC may enquire into the scheme if HMRC give notice to the scheme organiser of HMRC's intention to do so.

(6) Notice may be given, and an enquiry may be conducted, under sub-paragraph (2), (3) or (5) even though the termination condition is met in relation to the scheme.

40G

(1) An enquiry under paragraph 40F(2), (3) or (5) is completed when HMRC give the scheme organiser a notice (a “closure notice”) stating—

(a) that HMRC have completed the enquiry, and

(b) that—

(i) paragraph 40H is to apply,

(ii) paragraph 40I is to apply, or

(iii) neither paragraph 40H nor paragraph 40I is to apply.

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Income Tax (Earnings and Pensions) Act 2003

Disapplication of exceptions from charges

695A

Disapplication of exceptions from charges

Introduction to taxation of securities options

Definitions

Definitions

Amount of charge

Amount of charge

Operation of tax advantages in connection with Schedule 2 SIP

125A

Taxable specific income: internationally mobile employees etc

297C

CHAPTER 8 — High income child benefit charge

681B

681C

681D

681E

681F

681G

681H

Notional loan

PAYE regulations

Travel expenses of workers providing services through intermediaries: recovery of unpaid tax

26A

Apportionment of earnings

41ZA

Benefit of living accommodation treated as earnings

293B

394A

554Z4A

554Z11A

572A

Taxable amount under Chapter 4

Deductible amounts

Definitions

Enterprise management incentives: qualifying options

Exercise of options: company events

25A

Payments

Shares of employee shareholders

226A

226B

226C

226D

Employee shareholder agreements

326B

Amount of charge

Deemed election for disapplication of Chapter 2

No charge on award or acquisition of shares: general

Enterprise management incentives: qualifying options

No charge on receipt of qualifying option

241A

241B

340A

395B

414A

689A

Disapplication of Chapter 3B

Deductible amounts

Charge on cancellation payments in respect of partnership share agreement

Application of Chapter 2: close companies

Interpretation: persons linked with A

Anti-avoidance

46A

421JA

421JB

421JC

421JD

421JE

421JF

Associated persons

Amount of charge

Definitions

Definitions

Interpretation: persons linked with A

Enterprise management incentives: qualifying options

Overlap with money or asset subject to earlier tax liability

Notice of SIP to be given to HMRC

81A