The Social Security (Contributions) Regulations 2001

Regulation 26

SCHEDULE 3U.K. PAYMENTS TO BE DISREGARDED IN THE CALCULATION OF EARNINGS FOR THE PURPOSES OF EARNINGS-RELATED CONTRIBUTIONS

PART IU.K. INTRODUCTORY

IntroductionU.K.

1.—(1) This Schedule contains provisions about payments which are to be disregarded in the calculation of earnings for the purposes of earnings-related contributions.U.K.

(2) Part II contains provisions about the treatment of payments in kind.

(3) Part III and IV specifies payments by way of assets which are not to be disregarded by virtue of paragraph 1 of Part II.

(4) Part V specifies non-cash vouchers which are to be disregarded by virtue of paragraph 1 of Part II.

(5) In computing earnings there are also to be disregarded—

(a)the pensions and pension contributions specified in Part VI;

(b)the payments in respect of training and similar courses specified in Part VII;

(c)the travelling, relocation and overseas expenses specified in Part VIII;

(d)the share incentives specified in Part IX; and

(e)the miscellaneous payments specified in Part X.

InterpretationU.K.

2.—(1) In this Schedule, unless the context otherwise requires—

(a)a reference to a numbered Part is a reference to the Part of this Schedule which bears that number;

(b)a reference in a Part, to a numbered paragraph is a reference to the paragraph of that Part which bears that number; and.

(c)a reference in a paragraph to a lettered or numbered sub-paragraph is a reference to the sub-paragraph of that paragraph which bears that letter or number.

PART IIU.K. PAYMENTS IN KIND

Certain payments in kind to be disregardedU.K.

1.  A payment in kind, or by way of the provision of services, board and lodging or other facilities is to be disregarded in the calculation of earnings.

This is subject to the paragraph 2 and also to any provision about a payment in kind of a particular description or in particular circumstances in any other Part of this Schedule.

Payments by way of assets not to be disregardedU.K.

2.  Payments falling within paragraph 1 do not include any payment by way of—

(a)the conferment of any beneficial interest in—

(i)any asset mentioned in Part III or Part IV,

[F1(ii)any contract of long-term insurance which falls within paragraph I, III or VI of Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;]

(b)a non-cash voucher not of a description mentioned in Part V or to which paragraph 4 of Part X applies.

(2) Sub-paragraph (1)(a)(i) is subject to the qualification that an asset, which falls within either Part III or Part IV, shall nevertherless be disregarded under paragraph 1 if it would be disregarded for the purposes of income tax under Inland Revenue Extra-Statutory Concession A22 (long service awards), as published at 1st September 2000.

(3) For the purposes of sub-paragraph (1)(a)(ii), if the [F2contract—

(a)falls within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and Part I of that Schedule; or

(b)is treated for the purposes of that Order as falling within Part II of that Schedule by Article 3(3) of that Order,

that contract shall be treated as a contract of long-term insurance.]

PART IIIU.K. PAYMENTS BY WAY OF READILY CONVERTIBLE ASSETS NOT DISREGARDED AS PAYMENTS IN KIND

1.  A readily convertible asset.U.K.

For the purposes of this paragraph, subsections (3A) to 6 of section 203F of the Taxes Act (PAYE: readily convertible assets) F3, apply as they apply for the purposes of that section.

2.  An asset which, in accordance with the provisions of section 203F of the Taxes Act (PAYE: enhancing the value of an asset) F4, would be treated as a readily convertible asset for the purposes of section 203F of that Act.U.K.

3.  Any voucher, stamp or similar document—U.K.

(a)whether used singularly or together with other such vouchers, stamps or documents; and

(b)which is capable of being exchanged for an asset falling within paragraph 1 or 2.

PART IVU.K. PAYMENTS BY WAY OF SPECIFIC ASSETS NOT DISREGARDED AS PAYMENTS IN KIND

Shares and stockU.K.

1.  Shares and stock in the share capital of a company.

Here “company” includes—

(a)any body corporate constituted under the law of, or of any part of, the United Kingdom or of any other country or territory and also any unincorporated body constituted under the law of a country or territory outside the United Kingdom; and

(b)any body incorporated under the law of, or of any part of, the United Kingdom relating to a building society within the meaning of section119(1) of the Building Societies Act 1986 F5 or an industrial and provident society registered, or deemed to be registered, under the Industrial and Provident Societies Act 1965 F6 or the Industrial and Provident Societies Act (Northern Ireland) 1969 F7.

Certain debentures and other securities for loansU.K.

2.  Debentures, including debenture stock, loan stock, bonds, certificates of deposit and other instruments creating or acknowledging indebtedness which are not instruments falling within paragraph 3.

Loans stocks of public and local authoritiesU.K.

3.  Loan stock, bonds and other instruments creating or acknowledging indebtedness issued by or on behalf of a government, a local authority or public authority.

Here—

(a)“government” means the government of the United Kingdom, of Northern Ireland, or of any country or territory outside the United Kingdom;

(b)“local authority” means a local authority in the United Kingdom or elsewhere, and in respect of a local authority in the United Kingdom, has the meaning given to it in section 842A of the Taxes Act F8; and

(c)“public authority” means any international organisation the members of which include the United Kingdom or another member State.

Warrants etc for loan stock and debenturesU.K.

4.  Warrants or other instruments entitling the holder to subscribe for assets falling within paragraph 1, 2 or 3.

Units in collective investment schemesU.K.

5.  Units in a collective investment scheme, including shares or securities in an open-ended investment company.

Here—

(a)“collective investment scheme” has the meaning given in section [F9235 of the Financial Services and Markets Act 2000] ; and

[F10(b)“an open-ended investment company” has the meaning given in section 236 of the Financial Services and Markets Act 2000.]

Options to acquire assets, currency, precious metals or other optionsU.K.

6.  Options to acquire, or dispose of—

(a)currency of the United Kingdom or any other country or territory;

(b)gold, silver, palladium or platinum;

(c)an asset falling within any other paragraph of this Part of this Schedule;

(d)an option to acquire, or dispose of, an asset falling within sub-paragraph (a), (b) or (c).

Contracts for futuresU.K.

7.  A contract for the sale of a commodity or property of any other description under which delivery is to be made at a future date and at a price agreed upon when the contract is made.

For the purposes of this paragraph a price shall be taken to have been agreed upon when a contract is made—

(a)notwithstanding that it is left to be determined by reference to the price at which a contract is to be entered into on a market or exchange or could be entered into at a time and place specified in the contract; or

(b)in a case where the contract is expressed to be by reference to a standard lot and quality, notwithstanding that the provision is made for a variation in the price to take account of any variation in quantity or quality on delivery.

Contracts for differences or to secure profit by reference to movements of indicesU.K.

8.  A contract for differences or any other contract the purpose or pretended purpose of which is to secure a profit and avoid a loss by reference to fluctuations in the value or price of property of any description or in an index or other factor designed for that purpose in the contract.

Alcoholic liquor on which duty has not been paidU.K.

9.  Any alcoholic liquor, within the meaning of section 1 of the Alcoholic Liquor Duties Act 1979 F11 in respect of which no duty has been paid under that Act.

GemstonesU.K.

10.  Any gemstone, including stones such as diamond, emerald, ruby, sapphire, amethyst, jade, opal or topaz and organic gemstones such as amber or pearl, whether cut or uncut and whether or not having an industrial use.

Certificates etc. conferring rights in respect of assetsU.K.

11.  Certificates or other instruments which confer—

(a)property rights in respect of any asset falling within paragraphs 1 to 4, 9 or 10;

(b)any right to acquire, dispose of, underwrite or convert an asset, being a right to which the holder would be entitled if he held any such asset to which the certificate or instrument relates; or

(c)a contractual right, other than an option, to acquire any such asset otherwise than by subscription.

VouchersU.K.

12.  Any voucher, stamp or similar document—

(a)whether used singularly or together with other such vouchers, stamps or documents; and

(b)which is capable of being exchanged for an asset falling within any other paragraph of this Part.

PART VU.K. CERTAIN NON-CASH VOUCHERS TO BE DISREGARDED AS PAYMENTS IN KIND

1.—(1) Subject to sub-paragraph (2), a non-cash voucher provided, to or for the benefit of the employed earner, by the employer or any other person on his behalf is to be disregarded in the calculation of an employed earner’s earnings by virtue of paragraph 1 of Part II only if it falls within any of paragraphs 2 to 8.U.K.

[F12(2) A non-cash voucher may also be disregarded—

(a)by virtue of paragraph 7D of Part VIII (car fuel); or

(b)in the circumstances specified in paragraph 4 of Part X (payments by way of incidental expenses).]

2.  A non-cash voucher which is not treated as an emolument from employment for the purposes of section 141(1) of the Taxes Act (charge to tax in respect of non-cash vouchers) F13 by virtue of subsection 6 F14, of that section (exemptions for employees of certain passenger transport undertakings).U.K.

This paragraph applies only in the case of an employee whose earnings from the employment in question are less than £8,500, computed in accordance with the Taxes Act.

3.  A non-cash voucher which is not treated as an emolument from the employment for the purposes of section 141(1) of the Taxes Act by virtue of subsection (6A) of that section (exemption vouchers for car parking places provided at or near place of employment) F15.U.K.

Section 49(1) of the Finance Act 1999 F16 applies for the construction of the reference to section 141(6A) of the Taxes Act in this paragraph.

4.  A non-cash voucher in respect of which an employed earner is not chargeable to tax under section 141 of the Taxes Act by virtue of section 157(3)(b) of the Taxes Act (cars available for private use).U.K.

5.  A non-cash voucher which is not chargeable to tax under Schedule E by virtue of the following provisions of the Taxes Act—U.K.

(a)section 197 (leave travel facilities for members of the armed forces);

(b)section 197AA (works bus services) F17;

(c)section 197AC (cycles and safety equipment) F18; or

(d)section 197G (sporting and recreational facilities) F19.

6.  A non-cash voucher which is not charged to tax under Schedule E by virtue of any of the following Inland Revenue Extra-Statutory Concessions as published at 1st September 2000—U.K.

F20(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)A22 (long service awards);

(c)A57 (staff suggestion schemes);

(d)A58 (travelling and subsistence allowance when public transport disrupted);

(e)A59 (disabled persons’ home to work travel);

(f)A65 (workers on offshore oil and gas rigs or platforms; free transfers to or from mainland);

(g)A66 (employees’ journeys home: late night travel and breakdown in car sharing arrnagements);

(h)A70 (small gifts to employees by third parties and Christmas parties); and

(i)A74 (meals provided for employees).

[F21Meal vouchersU.K.

6A.  15 pence per working day up to a maximum of £1.05 per week of the value of one or more non-cash vouchers which can only be exchanged for meals.]

7.—(1) A non-cash voucher provided in connection with all or part of the costs of and expenses of child care (but not school fees) by an employed earner in connection with a child not exceeding the age of 16 for whom he has parental responsibility.U.K.

For the purposes of this paragraph child care includes—

(a)care provided in accordance with the provisions of Part X of the Children Act 1989 (child minding and day care for young children) F22;

(b)in the case of a child aged 8 or over, care provided by a child minder;

(c)in the case of a child under the age of 8, care provided by a child minder where that care does not exceed, in total, two hours a day;

(d)care provided by a nanny or a relative (within the meaning respectively of section 71(13) and 105(1) of the Children Act 1989);

(e)care provided during out-of-school hours or during school holidays; and

(f)full-time and part-time care.

(2) In the application of sub-paragraph (1) to Northern Ireland—

(a)paragraph (b) shall have effect with the subtitution for “aged 8 or over” of “ aged 12 or over ”; and

(b)paragraph (c) shall have effect with the substitution for “under the age of 8” of “ under the age of 12 ”.

8.  A non-cash voucher provided to or for the benefit of an employed earner in respect of employed earner’s employment by a person who is not the secondary contributor in respect of the provision of that voucher.U.K.

PART VIU.K. PENSIONS AND PENSION CONTRIBUTIONS

Pension payments and pension contributions to be disregardedU.K.

1.  A payment by way of a pension is disregarded in the calculation of an employed earner’s earnings, as are the payments mentioned in paragraphs 2 to 7.

Personal pension contributions by employersU.K.

2.  A payment by way of an employer’s contribution towards a personal pension which, by virtue of section 643(1) of the Taxes Act (employers’ contributions under personal pension arrangements) F23, is not to be regarded as an emolument of the employment chargeable to tax under Schedule E.

Approved schemes, relevant statutory schemes, pilots’ benefit funds and schemes established by overseas governmentsU.K.

3.  A payment—

(a)to which section 595 of the Taxes Act (charge to tax in respect of certain sums paid by an employer pursuant to a retirement benefit scheme) F24 does not apply by virtue of section 596(1) or (2)(b) of that Act F25;

(b)to a pilot’s benefit fund under section 607 of that Act F26;

(c)to which section 608 of that Act (superannuation funds approved before 6th April 1980) applies; or

(d)by way of any benefit pursuant to a scheme or fund falling within sub-paragraph (a), (b) or (c).

Funded unapproved retirement benefit schemes.U.K.

4.  A payment by way of relevant benefits pursuant to a retirement benefits scheme which has not been approved by the Board for the purposes of Chapter I of Part XIV of the Taxes Act and attributable to payments prior to 6th April 1998.

Here “relevant benefits” has the meaning given in section 612 of the Taxes Act.

Payments to pension previously taken into account in calculating earningsU.K.

5.  A payment by way of any benefit pursuant to a retirement benefits scheme which has not been approved by the Board for the purposes of Chapter I of Part XIV of the Taxes Act and attributable to payments on or after 6th April 1998 which have previously been included in a person’s earnings for the purpose of the assessment of his liability for earnings-related contributions.

Payments in good faith to scheme solely for providing approved benefits.U.K.

6.—(1) A payment made in respect of a scheme which is established in good faith for the sole purpose of providing relevant benefits where at the time of the payment the conditions specified in sub-paragraphs (2) to (4) are satisfied and, if appropriate, the additional conditions in sub-paragraph (5) and (6) are satisfied.

(2) The first condition is that an application has been made to the Board in accordance with section 604 of the Taxes Act F27 and has not been rejected.

(3) The second condition is that the payment represents contributions in respect of an employed earner’s earnings not in excess of the permitted maximum in force at the time when the payment is made.

(4) The third condition is that the terms of the scheme do not permit any pension payable under it, in whole or in part, to be surrendered, commuted or assigned except in so far as to allow an employed earner on his retirement to obtain, by commutation of his pension, a lump sum or sums not exceeding in all 3/80ths of his final remuneration for each year of service up to a maximum of 40.

(5) The first additional condition is that if the scheme is connected with another scheme or schemes each of which is an approved scheme, the amount payable by way of pension or commuted pension under the scheme will not, when aggregated with any amount payable by way of pension or commuted pension under the other scheme or schemes exceed the relevant amount.

(6) The second additional condition is that if the scheme is a small self-administered scheme—

(a)the requirements of regulation 9 of the Retirement Benefits Schemes (Restrictions on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991 (independent pensioner trustees) F28 have been satisfied; and

(b)regulation 3 of those Regulations (restriction on the Board’s discretion to approve) does not apply.

(7) In this paragraph—

(a)“permitted maximum” is the amount for the time being specified in an order made under section 590C(6) of the Taxes Act (earnings cap) F29;

(b)“relevant amount” shall be determined—

(i)in the case of a pension which is not a commuted pension, in accordance with the provisions of section 590B(3) and (7) to (11) of the Taxes Act (further supplementary provisions in respect of approval of retirement benefit schemes) F30; and

(ii)in the case of a pension which is a commuted pension, in accordance with the provisions of section 590B(4) and (7) to (11) of that Act;

(c)“relevant benefits” has the meaning given in section 612 of the Taxes Act;

(d)“small self-administered scheme” has the meaning given in regulation 2(1) of the Retirement Benefits Schemes (Restrictions on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991; and

(e)whether or not a scheme is connected with another shall be determined in accordance with section 590A(2) to (4) of the Taxes Act (supplementary provisions in respect of approval of retirement benefit schemes) F31.

Pensions exempt from UK taxation under double taxation agreementsU.K.

7.—(1) A payment to a pension scheme which is afforded relief from taxation by virtue of—

(a)Article 25(8) of the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income) (France) Order 1968 F32;

(b)Article 17A of the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Republic of Ireland) Order 1976 F33;

(c)Article 28(3) of the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income)(Denmark) Order 1980 F34.

(2) For the purposes of sub-paragraph (1)(b), Article 17A of the Order shall be read as if “or is being considered for approval” were omitted.

PART VIIU.K. PAYMENTS IN RESPECT OF TRAINING AND SIMILAR COURSES

Payments in respect of training and similar payment disregardedU.K.

1.  The training payments and vouchers mentioned in this Part are disregarded in the calculation of an employed earner’s earnings.

Paragraphs 5, 6 and 7 do not apply to Northern Ireland.

Work-related trainingU.K.

2.  A payment of, or contribution towards, expenditure incurred on providing work-related training which, by virtue of section 200B, 200C and 200D of the Taxes Act (work-related training) F35, is not to be taken as an emolument of the office or employment in connection with which it is provided.

Education and training funded by employersU.K.

3.  A payment in respect of expenditure which, by virtue of section 200E of the Taxes Act (exemption for education and training funded by employers) F36, is not to be taken as an emolument of the office or employment in connection with which it is provided.

New Deal 50plus: employment grant and training creditU.K.

4.  A payment to a person, as a participant in the scheme arranged under section 2(2) of the Employment and Training Act 1973 and known as New Deal 50plus, of an employment credit or a training grant under that scheme.

Retraining courses for recipients of jobseeker’s allowanceU.K.

5.  A payment to a person as a participant in a scheme of the kind mentioned in section 60(1) of the Welfare Reform and Pensions Act 1999 (special schemes for claimants for jobseeker’s allowances) F37.

Payments to Jobmatch participantsU.K.

6.  A payment made to a participant in a Jobmatch Scheme (including a pilot) arranged under section 2(1) of the Employment and Training Act 1973 F38 in his capacity as such.

Vouchers provided to Jobmatch participantsU.K.

7.  A payment by way of the discharge of any liability by the use of a voucher given to a participant in a Jobmatch Scheme (including a pilot), arranged under section 2(1) of the Employment and Training Act 1973, in his capacity as such.

PART VIIIU.K. TRAVELLING, RELOCATION AND OTHER EXPENSES AND ALLOWANCES OF THE EMPLOYMENT

Travelling, relocation and incidental expenses disregardedU.K.

1.  The travelling, relocation and other expenses and allowances mentioned in this Part are disregarded in the calculation of an employed earner’s earnings.

Relocation expensesU.K.

2.—(1) A payment of, or contribution towards, expenses reasonably incurred by a person in relation to a change of residence in connection with the commencement of, or an alteration in the duties of the person’s employment or the place where those duties are normally to be performed is disregarded if the conditions in sub-paragraphs (2) to (6) are met.

(2) The first condition is that—

(a)the payment or contribution—

(i)is not, by virtue of Schedule 11A to the Taxes Act (removal expenses and benefits) F39 regarded as an emolument of the employment for any purpose of Case I or Case II of Schedule E; or

(ii)would not have been so regarded, but is in fact disregarded for that purpose by virtue of another provision of the Taxes Act; or

(b)the person concerned commenced performance of the duties, or altered duties, of his employment at the place, or the altered place, of their performance before 6th April 1998.

(3) The second condition is that the change of residence must result from—

(a)the employee becoming employed by an employer;

(b)an alteration of the duties of the employee’s employment (where his employer remains the same); or

(c)an alteration of the place where the employee is normally to perform the duties of his employment (where both the employer and the duties which the employee is to perform remains the same).

(4) The third condition is that the change of residence must be made wholly or mainly to allow the employee to have his residence within a reasonable daily travelling distance of—

(a)the place where he performs, or is to perform, the duties of his employment (in a case falling within paragraph (3)(a);

(b)the place where he performs, or is to perform, the duties of his employment (in a case falling within paragraph (3)(b); or

(c)the new place where he performs, or is to perform, the duties of his employment (in a case falling within paragraph (3)(c).

References in this sub-paragraph and sub-paragraph (5) to the place where the employee performs, or is to perform, the duties of his employment are references to the place where he normally performs, or is normally to perform, the duties of the employment.

(5) The fourth condition is that the employee’s former residence must not be within a reasonable daily travelling distance of the place where the employee performs or is to perform the duties of the employment.

(6) In a case to which sub-paragraph (2)(b) applies, expenditure incurred in pursuance of a contract or agreement entered into before 6th April 1998 does not, in the case of a contract or agreement varied at any time on or after that date, include so much of the expenditure incurred under that contract or agreement which would not have been incurred, or exceeds the amount of expenditure that would have been reasonably incurred, if that contract or agreement had not been so varied.

(7) For the purposes of this paragraph, Schedule 11A to the Taxes Act shall be read as if paragraphs 3(3), 4(3), 6 and 24 were omitted.

Travelling expenses—generalU.K.

3.  A payment of, or a contribution towards, qualifying travelling expenses which the holder of an office or employment is obliged to incur and defray out of the emoluments of the office or employment.

For the purposes of this paragraph—

(a)“qualifying travelling expenses” means—

(i)amounts necessarily expended on travelling in the performance of the duties of the office or employment; or

(ii)other expenses of travelling which are attributable to the necessary attendance at any place of the holder of the office or employment in the performance of the duties of the office or employment and are not expenses of ordinary commuting or private travel (within the meaning of paragraph 2 of Schedule 12A to the Taxes Act F40;

(b)paragraphs 1(2) and 2 to 7 of that Schedule shall apply as they apply for the purposes of section 198(1A)(b) of that Act (relief for necessary expenses) F41;

(c)expenses of travel by the holder of an office or employment between two places at which he performs the duties of different offices or employments under or with companies in the same group are treated as necessarily expended in the performance of the duties which he is to perform at his destination; and

(d)for purpose of sub-paragraph (c) companies are to be taken to be members of the same group if and only if—

(i)one is a 51 per cent subsidiary of the other; or

(ii)both are 51 per cent subsidiaries of a third company

within the meaning of section 838(1)(a) of the Taxes Act (subsidiaries).

Travel and foreign travel expenses of overseas employeesU.K.

4.  A payment of, or a contribution towards, expenses which are deductible from the emoluments of the employment which are chargeable to tax under Schedule E under—

(a)section 193(3), (4) or (6) of the Taxes Act (travel expenses where duties of office or employment are performed wholly or partly outside the United Kingdom); or

(b)section 194(1) of that Act (foreign travel expenses where duties of office or employment are performed wholly or partly outside the United Kingdom.

or which would be so deductible if the emoluments of the employment were chargeable to tax under Schedule E.

Travel expenses of employees not domiciled in the United KingdomU.K.

5.  A payment of, or a contribution towards, expenses which are deductible from the emoluments of the employment which are chargeable to tax under Schedule E under section 195(7) of the Taxes Act (travel expenses of employees not domiciled in the United Kingdom) or, where the emoluments are not chargeable under Schedule E, would be so deductible if the emoluments, of the employment were so chargeable.

Travelling expenses of workers on offshore gas and oil rigsU.K.

6.  A payment of, or a contribution towards, expenses where that payment or contribution is disregarded for the purposes of calculating the emoluments of the employment which are charged to tax under Schedule E under Inland Revenue Extra-Statutory Concession A 65 (workers on offshore oil and gas rigs or platforms; free transfers to or from mainland).

Incidental expenses in connection with cars provided for private useU.K.

7.  A payment—

(a)by way of the discharge of any liability which by virtue of section 157(3)(a) of the Taxes Act (car available for private use); or

(b)of expenses, which by virtue of section 157(3)(c) of that Act;

is not treated as an emolument of the employment chargeable to income tax under Schedule E.

[F42Qualifying amounts of relevant motoring expenditureU.K.

7A.  To the extent that it would otherwise be earnings, the qualifying amount calculated in accordance with regulation 22A(4).

Qualifying amounts of mileage allowance payment in respect of cyclesU.K.

7B.—(1) To the extent that it would otherwise be earnings, the qualifying amount of a mileage allowance payment in respect of a cycle.

(2) The qualifying amount is that which would be produced by the formula in regulation 22A(4) if the value for R were the rate for the time being approved under paragraph 4(2) of Schedule 12AA to the Taxes Act in respect of a cycle.

(3) In this paragraph—

• “cycle” has the meaning given in section 192(1) of the Road Traffic Act 1988; and

• “mileage allowance payment” has the meaning given in section 197AD(2) of the Taxes Act.

Qualifying amounts of passenger paymentU.K.

7C.—(1) To the extent that it would otherwise be earnings, the qualifying amount of a passenger payment.

(2) The qualifying amount is that which would be produced by the formula in regulation 22A(4) if—

(a)references to business travel were to business travel for which the employee carries a qualifying passenger; and

(b)the value for R were the rate for the time being approved for a passenger payment under paragraph 5 of Schedule 12AA to the Taxes Act.

(3) In this paragraph—

• “passenger payment” has the meaning given in section 197AE(2) of the Taxes Act; and

• “qualifying passenger” has the same meaning as it has in paragraph 5(3) of Schedule 12AA to the Taxes Act.

Car fuelU.K.

7D.—(1) A payment by way of the provision of car fuel in circumstances where an amount is chargeable to income tax under Schedule E, in respect of its provision, under section 158 of the Taxes Act.

(2) Subsection (3) of section 158 of the Taxes Act applies for the construction of the reference to car fuel in sub-paragraph (1) as it applies for the construction of that section.]

Car parking facilitiesU.K.

8.  A payment of, or a contribution towards, the provision of car parking facilities at or near the earner’s place of employment which, by virtue of section 197A of the Taxes Act F43, is not regarded as an emolument of the earner’s employment.

Specific and distinct payments of, or towards, expenses actually incurredU.K.

9.— [F44(1)]  For the avoidance of doubt, these shall be disregarded any specific and distinct payment of, or contribution towards, expenses which an employed earner actually incurs in carrying out his employment.

[F45This is subject to the following qualification.]

[F46(2) Sub-paragraph (1) does not authorise the disregard of any amount by way of relevant motoring expenditure, within the meaning of paragraph (3) of regulation 22A, in excess of that permitted by the formula in paragraph (4) of that regulation.]

Council tax on accommodation provided for employee’s useU.K.

10.  A payment of, or a contribution towards meeting a person’s liability for council tax in respect of accommodation occupied by him and provided for him by reason of his employment if by virtue of section 145(4) of the Taxes Act (living accommodation), he is not liable to tax under Schedule E in respect of the provision of that accommodation.

This paragraph does not extend to Northern Ireland.

Rates on accommodation provided for employee’s useU.K.

11.  A payment of, or a contribution towards meeting, a person’s liability for rates in respect of accommodation occupied by him and provided for him by reason of his employment if by virtue of section 145(4) of the Taxes Act (living accommodation), he is not liable to income tax under Schedule E in respect of the provision of that accommodation.

This paragraph extends only to Northern Ireland.

Foreign service allowanceU.K.

12.  A payment by way of an allowance which is not regarded as income for any income tax purpose by virtue of section 319 of the Taxes Act (Crown servants: foreign service allowance).

Commonwealth War Graves Commission and British Council: extra cost of living allowanceU.K.

13.  A payment by way of an allowance to a person in the service of the Commonwealth War Graves Commission or the British Council paid with a view to compensating him for the extra cost of living outside the United Kingdom in order to perform the duties of his employment.

Overseas medical treatmentU.K.

14.  A payment of, or a contribution towards, expenses incurred in—

(a)providing an employee with medical treatment outside the United Kingdom (including providing for him to be an in-patient) in a case where the need for the treatment arises while the employee is outside the United Kingdom for the purposes of performing the duties of his employment; or

(b)providing insurance for the employee against the cost of such treatment in a case falling within sub-paragraph (a).

Here “medical treatment” includes all forms of treatment for, and all procedures for diagnosing, any physical or mental ailment, infirmity or defect.

PART IXU.K. SHARE INCENTIVES

Certain payments by way of shares, interests in shares and gains arising from them disregardedU.K.

1.—(1) Payments by way of—

(a)shares;

(b)conditional interests in shares; and

(c)other rights in or over shares;

respectively mentioned in this Part are disregarded in the calculation of an employed earner’s earnings.

(2) For the purposes of paragraphs 13, 15 and 16—

(a)“body corporate” includes—

(i)a body corporate constituted under the law of a country or territory outside the United Kingdom, and

(ii)an unincorporated association wherever constituted;

(b)“total discount” means the difference between the total value of the exercise price of the shares that are subject to the right in question and the total market value of that right;

(c)“total market value” means the price which the shares that are subject to the right in question might reasonably be able to fetch in the open market; and

(d)the total market value of the subsequent right is similar to the total market value of the first right if it is not substantially greater than the first right.

Shares in secondary contributor or associated bodyU.K.

2.—(1) A payment by way of shares where such shares—

(a)are not readily convertible assets; and

(b)form part of the ordinary share capital of—

(i)the secondary contributor,

(ii)a company which has control of the secondary contributor, or

(iii)a company which either is, or has control of, a body corporate which is a member of a consortium owning either that secondary contributor or a body corporate having control of that secondary contributor.

(2) In this paragraph—

(a)“body corporate” includes—

(i)a body corporate constituted under the law of a country or territory outside the United Kingdom, and

(ii)an unincorporated association, wherever constituted;

(b)a body corporate (“A”) is a member of a consortium owning another body corporate (“B”) if—

(i)A is one of a number of such bodies which between them beneficially own not less than¾ of B’s ordinary share capital; and

(ii)each of the bodies corporate owns not less than 1/20 of B’s ordinary share capital;

(c)“company” means a body corporate having a share capital;

(d)“control” in relation to a body corporate means the power of a person to secure—

(i)by means of the holding of the shares or the possession of voting power in, or in relation to, that or any other body corporate,

(ii)by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate,

that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person;

(e)“ordinary share capital” in relation to a company means all the company’s issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the profit of the company.

(3) In this paragraph and paragraph 3, “shares” includes stock.

Rights to acquire sharesU.K.

3.  A payment by way of a right to acquire shares where neither that right nor those shares are readily convertible assets.

[F47“Short” share options granted on or after 6th April 1999U.K.

3A.  A payment by way of the grant of a right to acquire shares obtained on, or after, 6th April 1999 which is not capable of being exercised more than ten years after it is obtained.]

Enterprise management incentivesU.K.

4.  A payment by way of the grant of a qualifying option within the meaning of Schedule 14 to the Finance Act 2000 F48 which is capable of being exercised more than 10 years after the grant.

Priority share allocationsU.K.

5.  A payment by way of any benefit which by virtue of section 68(1) of the Finance Act 1988 (priority share allocations for directors or employees) F49 is not treated as an emolument of the employment chargeable to tax under Schedule E.

Partnership share agreementsU.K.

6.  A payment that is deducted from the earnings of the employment under a partnership share agreement.

Here “partnership share agreement” has the meaning given in paragraph 34 of Schedule 8 to the Finance Act 2000.

Shares under employee share ownership planU.K.

7.  A payment by way of shares under an award of shares under an employee share ownership plan.

Here “employee share ownership plan” has the meaning given in paragraph 1(1) of Schedule 8 to the Finance Act 2000.

Shares under approved profit sharing schemesU.K.

8.  A payment by way of shares appropriated under a profit sharing scheme to which section 186 of the Taxes Act F50 applies.

Conditional interest in sharesU.K.

9.  A payment by way of the conferment of a conditional interest in shares in respect of which, by virtue of section 140A(3) of the Taxes Act (conditional acquisition of shares) F51, no tax is chargeable under Schedule E other than by virtue only of section 135 or section 162 of that Act F52.

Conditional interest in shares: gains from exercise etc. of share optionsU.K.

10.  A payment by way of a conditional interest in shares where, at the time of payment—

(a)the earner is treated under section 203FB(4) of the Taxes Act (PAYE: gains from share options etc) F53 as having been provided with a further interest;

(b)that further interest would not for the purpose of section 140A of that Act, be treated as only conditional; and

(c)the conditional interest together with the further interest are not readily convertible assets.

Convertible sharesU.K.

11.  A payment by way of convertible shares in respect of which tax is not chargeable under section 140D of the Taxes Act F54 by virtue of either subsection (8) or (10) of that section.

Convertible shares: gains from the exercise etc. of share optionsU.K.

12.  A payment by way of a beneficial interest in convertible shares where—

(a)the earner is treated under section 203FB of the Taxes Act as if the original provision of those shares included the shares into which they are converted; and

(b)neither those shares, nor the shares into which they are converted are readily convertible assets.

Share option gains by directors and employeesU.K.

13.  A payment by way of a gain realised by the exercise of a right to acquire shares in a body corporate where—

(a)that gain is chargeable to tax under Schedule E under section 135 of the Taxes Act; but

(b)neither that right, nor those shares, are readily convertible assets.

Shares acquired under options granted before 9th April 1998U.K.

14.  A payment by way of the acquisition of an interest in shares pursuant to a right to acquire such shares granted before 9th April 1998 where the acquisition of that interest would be treated as earnings under regulation 22(3).

Assignment or release of optionU.K.

15.—(1) A payment by way of a gain realised by the assignment or release of a right (“the first right”) to acquire shares in a body corporate (“the relevant body corporate”) chargeable to tax under Schedule E by virtue of section 135 of the Taxes Act if—

(a)sub-paragraph (2) is satisfied; and

(b)sub-paragraph (3) does not apply.

(2) This sub-paragraph is satisfied if a subsequent right forms all, or part, of the consideration given for the assignment or release of the first right.

(3) This paragraph applies if—

(a)the first right was acquired before 6th April 1999; and

(b)the total discount on the total market value of the subsequent right is substantially greater than the total discount on the total market value of the first right at the time of its assignment or release.

(4) In this paragraph “subsequent right” means a right—

(a)to acquire shares in the relevant body corporate or any other body corporate; and

(b)which is not treated as consideration for the assignment or release of the first right by virtue of section 136(1) of the Taxes Act.

Exercise, assignment or release of options acquired before 6th April 1999U.K.

16.—(1) A payment by way of a gain realised by the exercise, assignment or release of a right obtained before 6th April 1999 (“the relevant right”) to acquire shares in a body corporate (“the relevant body corporate”) where that gain is [F55chargeable to tax as employment income by virtue of section 476 or section 477 of the Income Tax (Earnings and Pensions) Act 2003.

A payment is not disregarded by virtue of this paragraph if—

(a)each of the conditions in sub-paragraphs (2) to (5) is met; or

(b)paragraph 17 applies to it.]

(2) The condition in this sub-paragraph is that the relevant right forms all or part of the consideration given for the assignment or release of a right to acquire shares in a body corporate (“the first right”).

(3) The condition in this sub-paragraph is that the relevant right is a right to acquire shares in the relevant body corporate or any other body corporate.

(4) The condition in this sub-paragraph is that the relevant right is not treated as consideration for the assignment or release of the first right by virtue of [F56section 485 of the Income Tax (Earnings and Pensions) Act 2003].

(5) The condition in this sub-paragraph is that, at the time of its acquisition, the total market value of the relevant right was not similar to the total market value of the first right immediately before its exercise, assignment or release.

[F57Payments resulting from exercise, assignment or release of options which are not disregarded by virtue of paragraph 16U.K.

17.—(1) This paragraph applies to a payment—

(a)made on or after 10th April 2003, and

(b)which would otherwise fall to be disregarded by virtue of paragraph 16 of this Part,

where the market value of the shares has been increased by more than 10% by things done, on or after 6th April 1999, otherwise than for genuine commercial purposes.

(2) For the purposes of sub-paragraph (1) “the shares” includes—

(a)the shares subject to the right currently being exercised; and

(b)where the right to acquire shares held on 6th April 1999 has been replaced by a subsequent right, includes the shares subject to the replacement right and any subsequent replacement right.

(3) The following are among the things that are, for the purposes of this paragraph, done otherwise than for genuine commercial purposes—

(a)anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or of contributions under the Act; and

(b)any transaction between companies which, at the time of the transaction, are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length.

(4) But sub-paragraph (3)(b) does not apply to a payment for group relief within the meaning given in section 402(6) of the Taxes Act.

(5) In sub-paragraph (3)(b) “group” means a body corporate and its 51% subsidiaries (within the meaning of section 838 of the Taxes Act), and other expressions used in this paragraph which are defined in, or for the purposes of, paragraph 16 have the same meaning here as they have in that paragraph.]

PART XU.K. MISCELLANEOUS AND SUPPLEMENTAL

Other miscellaneous payments to be disregardedU.K.

1.—(1) The payments listed in paragraphs 2 to [F5816] are disregarded in the calculation of earnings.

(2) Paragraph 4 contains additional rules about the way in which the components of a payment by way of expenses incidental to a qualifying absence from home are to be treated for the purpose of earnings-related contributions if the permitted maximum is exceeded.

Payments on account of sums already included in the computation of earningsU.K.

2.  A payment on account of a person’s earnings in respect of his employment as an employed earner which comprises, or represents and does not exceed sums which have previously been included in his earnings for the purpose of his assessment of earnings-related contributions.

Payments discharging liability for secondary Class 1 contributions following election under paragraph 3B of Schedule 1 to the Contributions and Benefits ActU.K.

3.  A payment by way of the discharge of any liability for secondary Class 1 contributions which has been transferred from the secondary contributor to the employed earner by election made jointly by them for the purposes of paragraph 3B(1) of Schedule 1 to the Contributions and Benefits Act (elections about contribution liability in respect of share option gains) F59.

Payments by way of incidental expensesU.K.

4.—(1) A payment by way of incidental expenses, in whatever form, which by virtue of section 200A of the Taxes Act F60 is not regarded as an emolument of the employment chargeable to tax under Schedule E.

(2) If a payment is made by way of incidental expenses in connection with a qualifying absence from home, but the amount of that payment (calculated in accordance with section 200A of the Taxes Act) exceeds the authorised maximum, sub-paragraphs (3) to (6) apply.

(3) So much of the payment as is made by way of cash shall be included in the calculation of earnings.

(4) The amount of cash for which a cash voucher can be exchanged shall be included in the calculation of earnings.

(5) The cost of provision of any non-cash voucher shall be included in the calculation of earnings and anything for which the voucher can be exchanged shall be disregarded in that calculation.

(6) Any payment by way of a benefit in kind shall be disregarded in the calculation of earnings.

(7) In this paragraph—

• “the authorised maximum” has the meaning given in section 200A(4) of the Taxes Act;

• “the cost of provision” in relation to a non-cash voucher is the cost incurred by the person at whose expense the non-cash voucher is provided; and

• “qualifying absence from home” has the meaning given in section 200A(3) of the Taxes Act.

Gratuities and offeringsU.K.

(2) The first condition is that the payment—

(a)is not made, directly or indirectly, by the secondary contributor; and

(b)does not comprise or represent sums previously paid to the secondary contributor.

(3) The alternative condition is that the secondary contributor does not allocate the payment, directly or indirectly, to the earner.

Redundancy paymentsU.K.

6.  For the avoidance of doubt, in calculating the earnings paid to or for the benefit of an earner in respect of an employed earner’s employment, any payment by way of a redundancy payment shall be disregarded.

Sickness payments attributable to contributions made by employed earnerU.K.

7.  If the funds for making a sickness payment under arrangements of the kind mentioned in section 4(1)(b) of the Contributions and Benefits Act are attributable in part to contributions to those funds made by the employed earner, for the purposes of section 4(1) of that Act the part of that payment which is attributable to those contributions shall be disregarded.

Expenses and other payments not charged to tax under Extra-Statutory ConcessionsU.K.

8.  A payment which is not charged to tax under Schedule E by virtue of the following Inland Revenue Extra-Statutory Concessions as published at 1st September 2000—

(a)A57 (staff suggestion schemes);

(b)A58 (travelling and subsistence allowance when public transport disrupted);

(c)A59 (disabled persons’ home to work travel);

(d)A66 (employees’ journeys home: late night travel and breakdown in car sharing arrangements).

VAT on the supply of goods and services by employed earnerU.K.

9.  If—

(a)goods or services are supplied by an earner in employed earner’s employment;

(b)earnings paid to or for the benefit of the earner in respect of that employment include the remuneration for the supply of those goods or services; and

(c)value added tax is chargeable on that supply;

an amount equal to the value added tax chargeable on that supply shall be excluded from the calculation of those earnings.

Employee’s indemnity insuranceU.K.

10.  A payment which by virtue of section 201AA of the Taxes Act (employee liabilities and indemnity insurance) F61 is deductible from the emoluments of the employment chargeable to tax under Schedule E.

Fees and subscriptions to professional bodies, learned societies etcU.K.

11.  A payment of, or a contribution towards any fee, contribution or annual subscription which, under section 201(1) of the Taxes Act (fees and subscriptions to professional bodies, learned societies etc) is deductible from the emoluments of any office or employment.

Holiday payU.K.

12.  A payment in respect of a period of holiday entitlement where—

(a)the sum paid is derived directly or indirectly from a fund—

(i)to which more than one secondary contributor contributes, and

(ii)the management and control of which are not vested in those secondary contributors; or

(b)the person making the payment is entitled to be reimbursed from such a fund.

Payments to ministers of religionU.K.

13.  A payment of a fee in respect of employment as a minister of religion which does not form part of the stipend or salary paid in respect of that employment.

Payments in lieu of coalU.K.

14.—(1) A payment in lieu of coal made to a miner, which he is entitled to receive by virtue of his employment as such.

Here “miner” means any person employed in or about a colliery, whether on the surface or below ground, except a person employed—

(a)in a clerical, technical or administrative capacity; or

(b)at a coke oven, brick works or other activity not ancillary to coal mining.

(2) This paragraph does not apply to Northern Ireland.

[F62Rewards for assistance with lost or stolen cardsU.K.

15.—(1) A payment made by an issuer of charge cards, cheque guarantee cards, credit cards or debit cards, as a reward to an individual who assists in identifying or recovering lost or stolen cards in the course of his or her employment as an employed earner (other than employment by the issuer), together with any income tax paid by the issuer for the purpose of discharging any liability of the individual to income tax on the payment.

(2) In this paragraph—

“charge card” means a credit card, the terms of which include the obligations to settle the account in full at the end of a specified period;

“cheque guarantee card” means a card issued by a bank or building society for the purpose of guaranteeing a payment or supporting the encashment of a cheque up to a specified value;

“credit card” means a card which—

“debit card” means a card linked to a bank or building society current account, used to pay for goods or services by debiting the holder’s account.]

[F63Student loansU.K.

16.—(1) A payment made in accordance with Regulations made under section 186 of the Education Act 2002 in respect of the repayment, reduction or extinguishing of the amounts payable in respect of a loan.

(2) A payment for the purpose of discharging any liability of the earner to income tax for any tax year where the income tax in question is tax chargeable in respect of—

(a)the payment referred to in paragraph (1), or

(b)the payment made for the purpose of discharging the income tax liability itself.]