795.This Chapter derives from the provisions of sections 154 and 156 of ICTA, but has a very different structure. The structure of the benefits code is outlined in the overview of Chapter 2 Part 3 of this Act.
796.Sections 201 and 202 together identify the benefits which are within this Chapter.
797.Section 203 provides that the cash equivalent of the benefit is treated as earnings and gives details of how to calculate its amount.
798.Sections 204, 205 and 206 indicate how to calculate the cash equivalent for each different way of providing an employment-related benefit.
799.Sections 207, 208, 209 and 210 are the supplementary provisions.
800.Sections 212, 213, 214 and 215 provide that certain scholarships are benefits within this Chapter.
801.This section derives from parts of sections 154 and 168(3) of ICTA.
802.Subsections (1) and (2) derive from section 154(1) of ICTA and introduce the labels “employment-related benefit” and “excluded benefit”.
803.Subsection (3) derives from section 168(3) of ICTA.
804.Subsections (4) and (5) make it explicit that if the employment is held at some time in the tax year it is immaterial whether or not the employment is held at the time the benefit is provided. Subsection (4) further clarifies this proposition by stating that references to an employee may therefore include a former or a prospective employee. These provisions derive from and clarify the meaning of the words “where in any year a person is employed” in section 154(1) of ICTA. This change in approach is explained more fully in Note 14 in Annex 2.
805.This section derives from section 154(1)(b) and part of section 154(2) of ICTA. It clarifies what is meant by “the cost of the benefit is not (apart from this section) chargeable to tax as his income.” Benefits which are within, or specifically excepted from, other chapters of the benefits code are not within this Chapter. This section does not exclude benefits which are earnings within section 62 of this Act. That is not necessary because section 64 of this Act applies to prevent any element of double charge. See Change 15 in Annex 1. The identification of excluded benefits is explained more fully in Note 25 in Annex 2. The benefit of certain transport vouchers in section 86 of this Act is not excluded from this Chapter because Chapter 4 of Part 3 provides an exemption only for the lower paid.
806.This section establishes that the cash equivalent is to be treated as earnings, and provides guidance on how to work out the cash equivalent.
807.Subsection (1) derives from the closing words of section 154(1) of ICTA. It provides that the cash equivalent is the amount treated as earnings. The words “for the tax year in which it is provided” are not in section 154. This clarification of the timing rule is explained more fully in Note 7 in Annex 2.
808.Subsection (2) derives from section 156(1) of ICTA. It provides the basic rule that the cash equivalent is the cost of provision less amounts made good.
809.Subsection (3) derives from section 156(2) to (7) of ICTA and indicates which sections provide the rules for finding the cost of the benefit.
810.This section derives from section 156(2) of ICTA. The benefits within this Chapter can be provided in different ways. The “cost of the benefit” is the basic amount and this section sets out what that is.
811.The words “(including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters)” provide for apportionment of the cost of the benefit in appropriate circumstances. A case before the Special Commissioners reported recently has made that possibility clear.
812.This section, which derives from section 156(5) to (7) and (9)(b) of ICTA, explains how to quantify the cost of the benefit when the ownership of the asset is not transferred to the employee.
813.Subsection (1) derives from the opening words of section 156(5) of ICTA. It establishes the circumstances in which the following provisions of this section will apply.
814.Subsections (2) to (5) derive from section 156(5)(a) and (b) to (7) of ICTA and provide the rules for determining the cost of the benefit.
815.This section derives from section 156(3), (4) and (9)(b) of ICTA. Under the normal rules for determining the cash equivalent for the purposes of this Chapter, the cost of the asset would be used. This section provides that market value at the time of transfer may be used instead of cost.
816.Subsections (1) and (2) provide for the alternative of market value to be used. They derive from section 156(3) and the opening words of section 156(4).
817.Subsections (3) to (5) derive from section 156(4) and (9)(b). As the relief provided by subsections (1) and (2) of this section could be abused by providing an asset for use and subsequently transferring it when the market value was very small, the relief is limited. This provision applies only to assets within section 205. In the case of an asset provided before this Act comes into force the transitional provision in paragraph 32 of Schedule 7 to this Act will apply.
818.Subsection (5) is derived from section 156(4)(a) and (b).
819.This section defines “annual rental value” for the purposes of this Chapter. It does not replace the use of gross rateable value, which will continue. It derives from section 156(6) and section 837 of ICTA which in turn draws on section 23 of the General Rate Act 1967 (although that Act was repealed in 1988).
820.This section does not affect the Inland Revenue practice of using the gross rateable value as a proxy for “annual value”. That practice will continue. The main use of this section is to provide guidance on how to arrive at the annual value of properties for which rent is not paid and in practice is only needed in cases where no gross rateable value can be found. It provides the definition of annual rental value for land. Schedule 1 to the Interpretation Act 1978 defines “land” as including “buildings and other structures”. Chapter 5 of Part 3 of this Act applies to living accommodation, so this Chapter applies only to accommodation which is not living accommodation.
821.Subsection (1) defines “annual rental value”. Section 837(1) refers to “rates and taxes” on the premises. This section includes a fuller and more updated description of domestic property charges: “taxes, rates or charges”. See Change 24 in Annex 1.
822.The following subsections set out the adjustments to make in order to arrive at the rent to be used for land. They derive from section 23 of the General Rate Act 1967 which was repealed in 1988. As a consequence of that repeal the reference to that Act in section 837(2) has not been included here. Instead the general thrust of the rules have been rewritten in this section. See Change 23 in Annex 1.
823.Subsection (2) applies in relation to subsection (1). It ensures that the annual value does not include the cost of anything provided which is not provided in the case of unfurnished property. This is important in cases where the only available comparisons are rent of fully furnished and serviced properties. If, in considering what the rent of the property would be, the nearest comparison is rent for a property for which services are provided at an inclusive rent, in order to reduce the rent to that for an unfurnished, non-serviced property the cost of the services provided are deducted. This means that if there is a profit element in the provision of the services it is treated as rent in arriving at the annual value.
824.Subsections (3) and (4) extend the process of comparison and adjustment. They follow the thrust of section 23(3) and (4) of General Rate Act 1967, which ensured that when a property was valued by looking at comparative rents of similar properties the value was not distorted by the existence (in the comparative case) of separate payments for services in addition to what one might call the basic rent. In particular it added the separate payments to the rental payments and allowed for certain deductions to be made. It did not allow any deduction in computing the value based on a comparative rent for amounts paid in respect of repairs, insurance or maintenance of other property belonging to or occupied by the landlord. In the case of payments for other types of services only the cost element of them was deducted. These subsections follow that method of comparison and adjustment.
825.Subsection (5) has the effect that the services whose cost of provision may be deducted are those which are not normally met by a landlord in the provision of unfurnished property. Again, the wording is not derived directly from section 23 of the General Rate Act 1967 but follows the general thrust of provisions of that section.
826.This section derives from section 168(7) of ICTA and defines market value.
827.This section derives from section 154(3) of ICTA and identifies the person providing the benefit.
828.This section derives from section 155ZB of ICTA, which allows regulations to be used to introduce minor exemptions from section 154 of ICTA where the benefits in question are generally available to all employees on similar terms. Before FA 2000 introduced this provision all exemptions from a charge under section 154 had to be introduced through a Finance Act.
829.This group of sections derives from section 165 of ICTA.
830.This is mainly an introductory section which explains the layout and provides the meaning of scholarship.
831.This section extends the circumstances in which a scholarship is a benefit provided by reason of the employment.
832.Subsection (1) derives from section 165(2) of ICTA. A scholarship is an employment-related benefit by virtue of section 201 of this Act if it is provided by reason of the employment. That would not be the case if the provision of the scholarship did not fall within the normal meaning of “by reason of the employment” because of the way in which it was provided. This section extends the meaning of “by reason of the employment”.
833.Subsection (2) derives from the closing words of section 165(2) of ICTA. It prevents claims being made that the scholarship is not within subsection (2)(b) because no cost to the employer or connected person is involved.
834.Subsection (3) is a minor change to the law. It is possible that the extended meaning of “by reason of the employment” could result in arrangements made by individuals to provide for the education of members of their family or household being employment-related benefits because of the terms of subsection (1) of this section. An example would be an educational trust set up by a grandparent and the parent of someone who benefited from the trust was an employee in the grandparent’s business. See Change 39 in Annex 1.
835.Subsection (4) prevents subsection (1) from disapplying the opening words of section 201(3) of this Act.
836.This section, which derives from section 165(3) of ICTA, provides an exception for certain full-time scholarships. This may apply where the scholar is a member of the employee’s family or household but where the scholarship has been awarded on merit and is one which satisfies the conditions of section 331 of ICTA.
837.Subsection (1) derives from the opening words of section 165(3) of ICTA.
838.Subsection (2) derives from section 165(3)(c). It states one of the conditions which must be met for the exception to apply. That condition is that if the opening words of section 201(3) of this Act were disregarded, or the extension to the usual definition of “by reason of the employment” in section 212 were disregarded, the scholarship would not be an employment-related benefit.
839.Subsection (3) derives from section 165(3)(b) and provides the terms to satisfy the condition.
840.Subsection (4) derives from section 165(3)(a). The exception can apply only to scholarships provided from a trust fund or scheme.
841.Subsection (5) derives from the closing words of section 165(3). It ensures that for the exception to apply only a limited amount of the total amount paid out is on scholarships for members of the household or family of employees. The scholarships included are those provided by reason of any employee’s employment. For this purpose subsection (6) explains the meaning of employment.
842.Subsection (6) derives from section 165(6)(b). “Employment” for the purposes of condition D has a special meaning. It includes all employments even if the employee is not resident and not ordinarily resident in the United Kingdom and performs the duties of the employment outside the United Kingdom. It also includes scholarships which are payable by reason of “excluded” employments.
843.Subsection (7) provides definitions of terms used in the section.
844.This section derives from SE 30003 in the Inland Revenue Schedule E Manual. It provides a special rule for determining the cost of the benefit of an employment-related scholarship which is provided from a trust fund. Incorporating this practice is a minor change to the law. See Change 40 in Annex 1. The application of the normal rule for the cost of the benefit in section 204 of this Act could result in the whole of the amount of capital paid into such a trust fund being taken into account. This section prevents that and provides that the cost of the benefit is to be the total of payments made to the scholar.
845.This section derives from section 165(1) of ICTA. Section 331 of ICTA gives exemption from income tax for scholarship income where the holder of the scholarship is in full-time education. The cases of Wicks v Firth and Johnson v Firth (1982) 56 TC 318 in the House of Lords decided that scholarship income was exempt from all income tax charges if it fulfilled the conditions in section 331. This section prevents section 331 from applying to a scholarship which is an employment-related benefit within section 212 if the scholar is not an employee.