Finance Act 1998

PAYE: non-cash benefits etc.U.K.

64 Transitory provision relating to tradeable assets.U.K.

(1)In relation to any asset provided on or after 2nd July 1997 and before 6th April 1998, section 203F of the Taxes Act 1988 (application of PAYE where payment is in the form of the provision of a tradeable asset) shall have effect with the following two modifications.

(2)The first modification is the insertion in subsection (2), before the word “and" at the end of paragraph (b), of the following paragraph—

“(ba)an asset not falling within paragraph (a) or (b) above which consists in the rights of an assignee, or any other rights, in respect of a trade debt that is or may become due to the employer;”.

(3)The second modification is the insertion in subsection (3), before the word “and" at the end of paragraph (a), of the following paragraph—

“(aa)in the case of an asset falling within subsection (2)(ba) above, the amount of the debt;”.

(4)The preceding provisions of this section shall be deemed, in accordance with subsections (5) and (6) below, to have come into force on 2nd July 1997.

(5)Subject to subsection (6) below, this section shall not be taken to have changed—

(a)the amounts which were deductible by any person under section 203 of the Taxes Act 1988 at any time on or before 17th March 1998; or

(b)the amounts which should have been accounted for to the Board under section 203J(3) of that Act at any time on or before 5th April 1998.

(6)Where, by virtue of this section, any employer would (but for subsection (5) above) be treated as having been under an obligation at any time on or before 17th March 1998 to make deductions from payments made by the employer of, or on account of, an employee’s assessable income—

(a)sections 203 and 203J of the Taxes Act 1988, and

(b)the provisions of any regulations under section 203 of that Act,

shall have effect, and be deemed to have had effect, as if the employer had been obliged (subject to section 203J(3) of that Act) to make those deductions from any payments that were so made on or after 24th March 1998 and before 6th April 1998.

(7)Expressions used in subsection (6) above and in section 203J of the Taxes Act 1988 have the same meanings in that subsection as in that section.

65 Payment in the form of a readily convertible asset.U.K.

(1)Section 203F of the Taxes Act 1988 (tradeable assets) shall be amended as follows.

(2)In subsection (1) (provision of tradeable asset to be treated as payment), for “a tradeable asset" there shall be substituted “ a readily convertible asset ”.

(3)For subsections (2) and (3) (meaning of “tradeable asset" and amount of deemed payment) there shall be substituted the following subsections—

“(2)In this section “readily convertible asset” means—

(a)an asset capable of being sold or otherwise realised on a recognised investment exchange (within the meaning of the M1Financial Services Act 1986) or on the London Bullion Market;

(b)an asset capable of being sold or otherwise realised on a market for the time being specified in PAYE regulations;

(c)an asset consisting in the rights of an assignee, or any other rights, in respect of a money debt that is or may become due to the employer or any other person;

(d)an asset consisting in, or in any right in respect of, any property that is subject to a fiscal warehousing regime;

(e)an asset consisting in anything that is likely (without anything being done by the employee) to give rise to, or to become, a right enabling a person to obtain an amount or total amount of money which is likely to be similar to the expense incurred in the provision of the asset;

(f)an asset for which trading arrangementrposes of this section trading arrangements for any asset provided to any person exist whenever there exist any arrangements the effect of which in relation to that asset is to enable that person, or a member of his family or household, to obtain an amount or total amount of money that is, or is likely to be, similar to the expense incurred in the provision of that asset.

(g)an asset for which trading arrangements are likely to come into existence in accordance with any arrangements of another description existing when the asset is provided or with any understanding existing at that time.

(3)The amount referred to is the amount which, on the basis of the best estimate that can be reasonably be made, is the amount of income likely to be chargeable to tax under Scheule E in respect of the provision of the asset.

(3A)For the purposes of this section trading arrangements for any asset provided to any person exist whenever there exist any arrangements the effect of which in relation to that asset is to enable that person, or a member of his family or household, to obtain an amount or total amount of money that is, or is likely to be, similar to the expense incurred in the provision of that asset.

(3B)References in this section to enabling a person to obtain an amount of money shall be construed—

(a)as references to enabling an amount to be obtained by that person by any means at all, including, in particular—

(i)by using any asset or other property as security for a loan or advance, or

(ii)by using any rights comprised in or attached to any asset or other property to obtain any asset for which trading arrangements exist;

and

(b)as including references to cases where a person is enabled to obtain an amount as a member of a class or description of persons, as well as where he is so enabled in his own right.

(3C)For the purposes of this section an amount is similar to the expense incurred in the provision of any asset if it is, or is an amount of money equivalent to—

(a)the amount of the expense so incurred; or

(b)a greater amount; or

(c)an amount that is less than that amount but not substantially so.”

(4)In subsections (4) and (5) (meaning of “asset"), for the words “subsection (2) above", in each place where they occur, there shall be substituted “ this section ”.

(5)After subsection (5) there shall be inserted the following subsection—

“(6)In this section—

• “EEA State” means a State which is a Contracting Party to the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993;

• “family or household” has the same meaning as it has, by virtue of section 168(4), in Chapter II of this Part;

• “fiscal warehousing regime” means—

  (a)

  a warehousing regime or fiscal warehousing regime (within the meaning of sections 18 to 18F of the M2Value Added Tax Act 1994); or

  (b)

  any corresponding arrangements in an EEA State other than the United Kingdom;

• “money” includes money expressed in a currency other than sterling or in the European currency unit (as for the time being defined in Council Regulation No. 3180/78/EEC or any Community instrument replacing it); and

• “money debt” means any obligation which falls to be, or may be, settled—

  (a)

  by the payment of money, or

  (b)

  by the transfer of a right to settlement under an obligation which is itself a money debt.”

(6)The preceding provisions of this section have effect in relation to any asset provided on or after 6th April 1998 and shall be deemed, in accordance with subsection (7) below, to have come into force on that date.

(7)This section shall not be taken to have changed—

(a)the amounts which were deductible by any person under section 203 of the Taxes Act 1988 at any time on or before the day on which this Act is passed; or

(b)the amounts which should have been accounted for to the Board under section 203J(3) of that Act at any time on or before the fifth of the month following that in which this Act is passed;

but, the amounts which (but for this subsection) would have been deductible, or would have been amounts for which any person should have accounted, shall be deducted or accounted for in accordance with any such provision as may be made by regulations under section 203 of the Taxes Act 1988.

66 Enhancing the value of an asset.U.K.

(1)After section 203F of the Taxes Act 1988 there shall be inserted the following section—

“203FA PAYE: enhancing the value of an asset.

(1)Where—

(a)any assessable income of an employee is provided in the form of anything enhancing the value of an asset in which the employee or a member of his family or household already has an interest, and

(b)that asset, with its value enhanced, would be treated as a readily convertible asset for the purposes of section 203F if assessable income were provided to the employee in the form of that asset at the time of the enhancement,

that section shall have effect (subject to subsection (2) below) as if the employee had been provided, at that time, with assessable income in the form of the asset (with its value enhanced), instead of with whatever enhanced its value.

(2)Where section 203F has effect in accordance with subsection (1) above, subsection (3) of that section shall apply as if the reference in subsection (3) of that section to the provision of the asset were a reference to the enhancement of its value.

(3)Subject to subsection (4) below, any reference in this section to enhancing the value of an asset is a reference to—

(a)the provision of any services by which that asset or any right or interest in it is improved or otherwise made more valuable,

(b)the provision of any property the addition of which to the asset in question improves it or otherwise increases its value, or

(c)the provision of any other enhancement by the application of money or property to the improvement of the asset in question or to securing an increase in its value or in the value of any right or interest in it.

(4)PAYE regulations may make provision excluding such matters as may be described in the regulations from the scope of what constitutes enhancing the value of an asset for the purposes of this section.

(5)Expressions used in this section and in section 203F have the same meanings in this section as in that section.”

(2)The preceding provisions of this section have effect in relation to any assessable income provided on or after 6th April 1998 and shall be deemed, in accordance with subsection (3) below, to have come into force on that date.

(3)This section shall not be taken to have changed—

(a)the amounts which were deductible by any person under section 203 of the Taxes Act 1988 at any time on or before the day on which this Act is passed; or

(b)the amounts which should have been accounted for to the Board under section 203J(3) of that Act at any time on or before the fifth of the month following that in which this Act is passed;

but, the amounts which (but for this subsection) would have been deductible, or would have been amounts for which any person should have accounted, shall be deducted or accounted for in accordance with any such provision as may be made by regulations under section 203 of the Taxes Act 1988.

67 Gains from share options etc.U.K.

(1)After the section 203FA of the Taxes Act 1988 that is inserted by section 66 above there shall be inserted the following section—

“203FB PAYE: gains from share options etc.

(1)This section applies where an event occurs by virtue of which an amount is assessable on any person (“the relevant person") by virtue of section 135, 140A(4) or 140D.

(2)If that event is the exercise of a right to acquire shares, section 203F shall have effect, subject to subsection (7) below, as if the relevant person were being provided—

(a)at the time he acquires the shares in exercise of that right, and

(b)in respect of the office or employment by reason of which he was granted the right,

with assessable income in the form of those shares.

(3)If that event is the assignment or release of a right to acquire shares, sections 203 to 203F shall have effect, subject to subsection (7) below—

(a)in so far as the consideration for the assignment or release takes the form of a payment, as if so much of that payment as does not exceed the amount assessable by virtue of section 135 were a payment of assessable income of the relevant person; and

(b)in so far as that consideration consists in the provision of an asset, as if the provision of that asset were the provision—

(i)to the relevant person, and

(ii)in respect of the office or employment by reason of which he was granted the right,

of assessable income in the form of that asset.

(4)If that event is an event falling within subsection (4)(a) or (b) of section 140A, sections 203 to 203F shall have effect, subject to subsection (7) below, as if—

(a)the provision to the relevant person of the employee’s interest in the shares included the provision to him at the time of the event of a further interest in those shares; and

(b)the further interest were not subject to any terms by virtue of which it would fall for the purposes of section 140A to be treated as only conditional.

(5)If that event is an event falling within subsection (3) of section 140D, sections 203 to 203F shall have effect, subject to subsection (7) below, as if the original provision to the relevant person of the convertible shares or securities included the provision to him at the time of the event of the shares or securities into which they are converted.

(6)Subsection (5) above shall apply in a case where the convertible shares or securities were themselves acquired by means of a taxable conversion (as defined in section 140D(7)), or by a series of such conversions, as if the reference to the original provision of the convertible shares or securities were a reference to the provision of the shares or securities which were converted by the earlier or earliest conversion.

(7)Where section 203F has effect in accordance with any of the preceding provisions of this section, subsection (3) of section 203F shall apply as if the reference in that subsection to the amount of income likely to be chargeable to tax under Schedule E in respect of the provision of the asset were a reference to the amount on which tax is likely to be chargeable by virtue of section 135, 140A or 140D in respect of the event in question.

(8)PAYE regulations may make provision for excluding payments from the scope of subsection (3)(a) above in such circumstances as may be specified in the regulations.

(9)In this section “asset” means—

(a)any asset within the meaning of section 203F; or

(b)any non-cash voucher, credit-token or cash voucher (as defined for the purposes of section 141, 142 or, as the case may be, 143).

(10)Expressions used in this section and in any of sections 135 and 140A to 140H have the same meanings in this section as in that section, and any reference in this section to—

(a)an event falling within subsection (4)(a) or (b) of section 140A, or

(b)an event falling within subsection (3) of section 140D,

includes a reference to an event which is treated for the purposes of that section as such an event by virtue of section 140A(8) or 140F(1).”

(2)The preceding provisions of this section have effect in relation to events occurring on or after 6th April 1998 and shall be deemed, in accordance with subsection (3) below, to have come into force on that date.

(3)This section shall not be taken to have changed—

(a)the amounts which were deductible by any person under section 203 of the Taxes Act 1988 at any time on or before the day on which this Act is passed; or

(b)the amounts which should have been accounted for to the Board under section 203J(3) of that Act at any time on or before the fifth of the month following that in which this Act is passed;

but, the amounts which (but for this subsection) would have been deductible, or would have been amounts for which any person should have accounted, shall be deducted or accounted for in accordance with any such provision as may be made by regulations under section 203 of the Taxes Act 1988.

68 Vouchers and credit-tokens.U.K.

(1)For subsections (3) and (4) of section 203G of the Taxes Act 1988 (conditions for the receipt of a non-cash voucher to be treated as a payment for PAYE purposes) there shall be substituted the following subsections—

“(3)The first condition is fulfilled with respect to a non-cash voucher if it is capable of being exchanged for anything which, if provided to the employee at the time when the voucher is received, would fall to be regarded as a readily convertible asset for the purposes of section 203F.

(4)The second condition is fulfilled with respect to a non-cash voucher if (but for section 203F(4)(b)) it would itself fall to be regarded as a readily convertible asset for the purposes of section 203F.

(5)Subsection (5) of section 141 (time of receipt of voucher appropriated to employee) shall apply for the purposes of this section as it applies for the purposes of subsections (1) and (2) of that section.”

(2)In subsection (1) of section 203H of that Act (use of credit tokens to be treated as payment for PAYE purposes), for paragraph (b) there shall be substituted—

“(b)anything which, if provided to the employee at the time when the credit-token is used, would fall to be regarded as a readily convertible asset for the purposes of section 203F,”; and subsection (2) of that section shall cease to have effect.

(3)In section 203I of that Act (cash vouchers), after subsection (2) there shall be inserted the following subsection—

“(3)Subsection (2) of section 143 (time of receipt of voucher appropriated to employee) shall apply for the purposes of this section as it applies for the purposes of subsections (1) and (5) of that section.”

(4)The preceding provisions of this section have effect—

(a)in relation to non-cash vouchers or cash vouchers received on or after 6th April 1998, and

(b)in relation to any use of a credit-token on or after that date,

and shall be deemed, in accordance with subsection (5) below, to have come into force on that date.

(5)This section shall not be taken to have changed—

(a)the amounts which were deductible by any person under section 203 of the Taxes Act 1988 at any time on or before the day on which this Act is passed; or

(b)the amounts which should have been accounted for to the Board under section 203J(3) of that Act at any time on or before the fifth of the month following that in which this Act is passed;

but, the amounts which (but for this subsection) would have been deductible, or would have been amounts for which any person should have accounted, shall be deducted or accounted for in accordance with any such provision as may be made by regulations under section 203 of the Taxes Act 1988.

69 Intermediaries, non-UK employers, agencies etc.U.K.

(1)In section 203C of the Taxes Act 1988 (application of PAYE to payments to employees of a non-UK employer working for another where payment made without deduction by the employer or his intermediary), in subsection (1)(b), (c) and (d), after “of the employer" there shall be inserted “ or of the relevant person ”.

(2)In that section, the following subsections shall be inserted after subsection (3)—

“(3A)Where, by virtue of any of sections 203F to 203I, an employer would be treated for the purposes of PAYE regulations (if they applied to him) as making a payment of any amount to an employee, this section shall have effect—

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

(b)as if paragraph (a) of subsection (3) above were omitted.

(3B)References in this section to the making of any payment by an intermediary of the relevant person shall be construed in accordance with subsection (4) of section 203B as if references in that subsection to the employer were references to the relevant person.”

(3)For subsections (1) and (2) of section 203L of that Act (interpretation) there shall be substituted the following subsections—

“(1)Subject to subsections (1A) and (1B) below and section 203J(2)(b), in sections 203B to 203J—

• “employee” means a person who holds or has held any office or employment under or with another person; and

• “employer”—

  (a)

  in relation to an employee, means a person under or with whom that employee holds or has held an office or employment; and

  (b)

  in relation to any assessable income of an employee, means the person who is the employer of that employee in relation to the office or employment in respect of which that income is or was provided or, as the case may be, by reference to which it falls to be regarded as assessable.

(1A)Subject to subsection (1B) below, where the remuneration receivable by an individual under or in consequence of any contract falls to be treated under section 134 (agency workers) as the emoluments of an office or employment, sections 203B to 203K (except section 203E) shall have effect as if that person held that office or employment under or with the agency.

(1B)Where—

(a)the remuneration receivable by an individual under or in consequence of any contract falls to be so treated under section 134, and

(b)a payment of, or on account of, assessable income of that individual is made by a person acting on behalf of the client and at the expense of the client or a person connected with the client,

section 203B and, in relation to any payment treated as made by the client under section 203B, section 203J shall have effect in relation to that payment as if the client and not the agency were the employer for the purposes of sections 203B to 203K.

(1C)In subsections (1A) and (1B) above “the agency” and “the client” have the same meanings as in section 134; and section 839 applies for the purposes of those subsections.

(2)In sections 203B to 203K and in this section “assessable” means assessable to income tax under Schedule E.”

(4)In section 144A(2) of that Act (payments etc. received free of tax), after “employer" there shall be inserted “ , in relation to any provision of sections 203B to 203J, is a reference to the person taken to be the employer for the purposes of that provision and ”.

(5)The preceding provisions of this section have effect in relation to payments made, assets provided and vouchers received at any time on or after 6th April 1998 and in relation to any use of a credit-token on or after that date.

(6)Nothing in this section shall be taken to have changed—

(a)the amounts which were deductible by any person under section 203 of the Taxes Act 1988 at any time on or before the day on which this Act is passed; or

(b)the amounts which should have been accounted for to the Board under section 203J(3) of that Act at any time on or before the fifth of the month following that in which this Act is passed;

but, the amounts which (but for this subsection) would have been deductible, or would have been amounts for which any person should have accounted, shall be deducted or accounted for in accordance with any such provision as may be made by regulations under section 203 of the Taxes Act 1988.