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PART 3 continued CHAPTER 7 continued
Where in any tax year the cash equivalent of the benefit of the same taxable cheap loan is to be treated as earnings of two or more employees—
(a) the cash equivalent of the benefit of the loan (determined in accordance with the provisions of this Chapter) is to be apportioned between them in a just and reasonable manner, and
(b) the portion allocated to each employee is to be treated as the cash equivalent of the benefit of the loan so far as that employee is concerned.
(1) This section applies where an employment-related loan (“the original loan”) is replaced, directly or indirectly, by—
(a) a further employment-related loan, or
(b) a loan which is not an employment-related loan but which in turn is, in the same tax year or within 40 days after the end of the tax year, replaced, directly or indirectly, by a further employment-related loan.
(2) In such a case, for the purposes of calculating the cash equivalent of the benefit of the original loan under section 175(3), section 182 (normal method of calculating interest at the official rate) applies as if the replacement loan, or each of the replacement loans, were the same loan as the original loan.
(3) Where section 182 is applied as modified by subsection (2) then for the purposes of section 175(3)(b) the amount of interest actually paid on the loan for the tax year in question is the total of—
(a) the amount of interest actually paid on the original loan for that year, and
(b) the amount of interest actually paid on the replacement loan or on each of the replacement loans for that year.
(4) In this section a “further employment-related loan” means a loan which is an employment-related loan made in relation to—
(a) the same or other employment with the person who is the employer in relation to the original loan, or
(b) employment with a person who is connected with that employer.
(1) This section applies where, in relation to any tax year, there are employment-related loans between the same lender and borrower which are aggregable with each other.
(2) The lender may elect for aggregation to apply for that tax year in the case of the borrower.
(3) The effect of the election is that all the aggregable loans are to be treated as a single loan for the purposes of—
section 175 (benefit of taxable cheap loan treated as earnings),
the provisions of this Chapter relating to the calculation of the cash equivalent of the benefit of a taxable cheap loan, and
section 184 (interest treated as paid).
(4) For this purpose loans are aggregable for any tax year if they are made in the same currency and all the following conditions are met in relation to each of them—
(a) there is a time in the tax year when—
(i) the loan is outstanding,
(ii) the lender is a close company, and
(iii) the borrower is a director of that company;
(b) at all times in the tax year the rate of interest on the loan is less than the official rate applying at that time;
(c) the loan is not a qualifying loan within the meaning of section 180 (see section 180(5)).
(5) An election under this section must be made by the lender in a notice given—
(a) to the Inland Revenue, and
(b) before 7th July after the end of the tax year to which the election relates.
(1) If—
(a) the whole or part of an employment-related loan is released or written off in a tax year, and
(b) at the time when it is released or written off the employee holds the employment in relation to which the loan is an employment-related loan (“employment E”),
the amount released or written off is to be treated as earnings from the employment for that year.
(2) But if the employment has terminated or become an excluded employment and there was a time when—
(a) the whole or part of the loan was outstanding,
(b) the employee held the employment, and
(c) it was not an excluded employment,
subsection (1) applies as if the employment had not terminated or become an excluded employment.
(3) Where subsection (2) applies, any loan which replaces directly or indirectly the employment-related loan is to be treated as an employment-related loan in relation to employment E if—
(a) it would, if employment E had not terminated or become excluded employment, have been an employment-related loan in relation to employment E, and
(b) it is not an employment-related loan in relation to other employment.
(4) This section is subject to section 189 (exception where double charge).
(1) Section 188 (loan released or written off: amount treated as earnings) does not apply if, by virtue of any other provision of the Income Tax Acts, the amount released or written off—
(a) is employment income of the employee, or
(b) is or is treated as income of the employee (or of the employee as a borrower) which is not employment income and upon which that person is liable to pay income tax.
This is subject to subsections (2) and (3).
(2) If, as a result of subsection (1), Chapter 3 of Part 6 (payments and benefits on termination of employment etc.) would be the only provision by virtue of which the amount released or written off would be income of the employee—
(a) section 188 does apply, and
(b) accordingly Chapter 3 of Part 6 does not apply.
(3) If—
(a) an amount is treated as the employee’s income under section 677 of ICTA (sums paid to settlor otherwise than as income) in respect of a capital sum paid in relation to the release or writing-off of the loan, and
(b) the amount released or written off exceeds the amount so treated as income,
section 188 does apply but only the amount of the excess is to be treated as earnings from the employment for the tax year in question under that section.
(1) On the employee’s death a taxable cheap loan is to be treated—
(a) for the purposes of this Chapter as ceasing to be outstanding, and
(b) for the purposes of section 182 (normal method of calculating interest at the official rate) as being discharged on the date of death.
(2) Section 188 (loan released or written off: amount treated as earnings) does not apply in relation to a release or writing off which takes effect on or after the death of the employee.
(1) A claim may be made for relief in the following cases.
(2) The first case is where—
(a) the tax payable by an employee for a tax year in respect of a loan has been decided on the basis that, for the purposes of section 175 (benefit of taxable cheap loan treated as earnings), the whole or part of the interest payable on the loan for that year was not paid, and
(b) it is subsequently paid.
(3) The second case is where—
(a) the tax payable by an employee for a tax year in respect of a loan has been decided on that basis that, for the purposes of section 188 (loan released or written off: amount treated as earnings), the loan has been released or written off in that year, and
(b) the whole or part of the loan is subsequently repaid.
(4) The third case is where—
(a) the tax payable by an employee for a tax year in respect of a loan has been decided on the basis that—
(i) section 288 (limited exemption of certain bridging loans connected with employment moves), and
(ii) section 289 (relief for certain bridging loans not qualifying for exemption under section 288),
will not apply because the condition in section 288(1)(b) (which requires that the limit on the exemption under section 287(1) has not been reached) will not be met, and
(b) that condition is met.
(5) Where a claim is made under this section the tax payable is to be adjusted accordingly.
(1) This Chapter applies where—
(a) shares in a company are, or an interest in shares in a company is, acquired by an employee or a person connected with an employee, and
(b) the right or opportunity to acquire the shares or interest in shares was available by reason of the employment.
(2) The shares may be in the employer, or in another company.
(3) A right or opportunity to acquire shares or an interest in shares which is made available by the employer is to be regarded as made available by reason of the employment unless—
(a) the employer is an individual, and
(b) the right or opportunity is made available in the normal course of the employer’s domestic, family or personal relationships.
(4) In this Chapter—
“the acquisition” means the acquisition of shares or an interest in shares mentioned in subsection (1), and
“the employment-related shares” means the shares or interest in shares acquired.
(1) This section applies if—
(a) no payment is made for the employment-related shares at or before the time of the acquisition, or
(b) the payment made at or before that time is less than—
(i) the market value at that time of fully paid up shares of their class, or
(ii) if the employment-related shares consist of an interest in shares, the proportion of the market value at that time of fully paid up shares of the same class as those in which the interest subsists that corresponds to the size of the interest.
(2) For the purposes of subsection (1), any obligation to make payment or further payment at some later time is to be disregarded.
(3) The provisions listed in subsection (4) apply as if a loan (“the notional loan”) had been made to the employee by the employer at the time of the acquisition which—
(a) is an employment-related loan as defined in section 174, and
(b) is interest-free.
(4) The provisions are—
section 175 (benefit of taxable cheap loan treated as earnings),
section 178 (exception for loans where interest qualifies for tax relief),
section 180 (threshold for benefit of loan to be treated as earnings),
section 182 (normal method of calculation: averaging),
section 183 (alternative method of calculation),
section 184 (interest treated as paid),
section 185 (apportionment of cash equivalent in case of joint loan etc.), and
section 187 (aggregation of loans by close company to director).
(5) This section is subject to—
section 491 (approved SIPs: no charge on award of shares as taxable benefit),
section 519 (approved SAYE option schemes: no charge in respect of exercise of option),
section 524 (approved CSOP schemes: no charge in respect of exercise of option),
section 540 (enterprise management incentives: no charge on acquisition of shares as taxable benefit),
section 542 (exemption: offer made to public and employees), and
section 544 (exemption: different offers made to public and employees).
(1) The amount of the notional loan initially outstanding is—
MV - DA
where—
MV is—
(a) the market value of fully paid up shares of the same class as the employment-related shares, or
(b) if the employment-related shares consist of an interest in shares, the proportion of the market value of fully paid up shares of the same class as those in which the interest subsists that corresponds to the size of the interest, and
DA is the total of any deductible amounts.
(2) For the purposes of subsection (1) each of the following is a “deductible amount”—
(a) any payment made for the employment-related shares at or before the time of the acquisition;
(b) any amount that constitutes earnings from the employee’s employment under Chapter 1 of this Part (earnings) in respect of the acquisition;
(c) if the acquisition results from the exercise of a share option—
(i) any amount that constitutes earnings from the employment under Chapter 1 of this Part (earnings) in respect of the receipt of the share option,
(ii) any amount that is treated as earnings from the employment under Chapter 10 of this Part (taxable benefits: residual liability to charge) in respect of its receipt, and
(iii) any amount that counts as employment income of the employee under section 476 or 477 (charge on employee on exercise etc. of option by employee or another person) in respect of the exercise; and
(d) if the acquisition results from the exercise of a share option and an amount counts as employment income of the employee under section 526 (approved CSOP schemes: charge where option granted at a discount) in respect of the share option, so much of that amount as is attributable to the employment-related shares.
(3) The amount of the notional loan outstanding at any subsequent time is the difference between—
(a) the amount initially outstanding, and
(b) the amount of any payments or further payments made for the employment-related shares after the acquisition but before that time.
(1) The notional loan is to be treated as discharged when the following occurs—
(a) payments or further payments for the employment-related shares equal to the amount initially outstanding have been made,
(b) if the employment-related shares were not fully paid up at the time of the acquisition, any outstanding or contingent obligation to pay for them ceases to bind the employee or any person connected with the employee,
(c) the employment-related shares are disposed of so that neither the employee nor any person connected with the employee any longer has a beneficial interest in them, or
(d) the employee dies.
(2) If—
(a) a notional loan is discharged as a result of an event specified in subsection (1)(b) or (c), and
(b) at the time of that event the employee holds the employment by reason of which the right or opportunity to make the acquisition was available,
the amount of the notional loan outstanding immediately before the occurrence of the event is to be treated as earnings from the employment for the tax year in which the event occurs.
(3) But if the employment has terminated or become an excluded employment before that event and there was a time when—
(a) the whole or part of the notional loan was outstanding,
(b) the employee held the employment, and
(c) it was not an excluded employment,
subsection (2) applies as if the employment had not terminated or become an excluded employment.
Nothing in this Chapter affects any liability to income tax arising in respect of the acquisition by virtue of—
(a) Chapter 1 of this Part (earnings), or
(b) section 476 or 477 (charge on employee on exercise etc. of option by employee or another person).
(1) In this Chapter—
“employee” includes a prospective employee;
“interest in shares” means an interest in shares less than full beneficial ownership and includes an interest in the proceeds of sale of part of the shares, but not a right to acquire shares;
“market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act;
“shares” includes—
stock, and
any securities as defined in section 254(1) of ICTA.
(2) In this Chapter references to the acquisition of shares or an interest in shares include receipt by way of allotment or assignment or in any other way.
(3) In this Chapter references to payment for the employment-related shares include giving any consideration in money or money’s worth or making any subscription, whether in pursuance of a legal liability or not.
(4) In this Chapter—
“the acquisition”, and
“the employment-related shares”,
have the meaning indicated in section 192(4).
(1) This Chapter applies to shares in a company which have, or an interest in shares in a company which has, been acquired by an employee or a person connected with an employee, if the right or opportunity to acquire the shares or interest in shares was available by reason of the employment.
(2) In this Chapter, “employment-related shares” means shares, or an interest in shares, acquired as mentioned in subsection (1).
(3) The shares may be in the employer, or in another company.
(4) A right or opportunity to acquire shares or an interest in shares which is made available by the employer is to be regarded as made available by reason of the employment unless—
(a) the employer is an individual, and
(b) the right or opportunity is made available in the normal course of the employer’s domestic, family or personal relationships.
(1) This section applies if—
(a) employment-related shares are disposed of so that neither the employee nor any person connected with the employee any longer has a beneficial interest in them, and
(b) the disposal is for a consideration which exceeds the market value of the employment-related shares at the time of the disposal.
(2) But this section does not apply if the disposal occurs after the death of the employee.
(3) The amount given by the following formula is to be treated as earnings from the employee’s employment for the tax year in which the disposal occurs—
CD - MV
where—
CD is the amount or value of the consideration for the disposal, and
MV is the market value of the employment-related shares at the time of the disposal.
(4) But if—
(a) the employment has terminated or become an excluded employment before the disposal, and
(b) at the time of the acquisition of the employment-related shares the employee held, or was about to hold, the employment and it was not an excluded employment,
this section applies as if the employment had not terminated or become an excluded employment.
(5) If the employment-related shares consist of an interest in shares, the references in this section to the market value of the employment-related shares are to the proportion corresponding to the size of the interest of the market value of the shares in which the interest subsists.
(1) In this Chapter—
“employee” includes a prospective employee;
“interest in shares” means an interest in shares less than full beneficial ownership and includes an interest in the proceeds of sale of part of the shares, but not a right to acquire shares;
“market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act;
“shares” includes—
stock, and
any securities as defined in section 254(1) of ICTA.
(2) In this Chapter references to the acquisition of shares or an interest in shares include receipt by way of allotment or assignment or in any other way.
(3) In this Chapter “employment-related shares” has the meaning indicated in section 198(2).
(1) This Chapter applies to employment-related benefits.
(2) In this Chapter—
“benefit” means a benefit or facility of any kind;
“employment-related benefit” means a benefit, other than an excluded benefit, which is provided in a tax year—
for an employee, or
for a member of an employee’s family or household,
by reason of the employment.
For the definition of “excluded benefit” see section 202.
(3) A benefit provided by an employer is to be regarded as provided by reason of the employment unless—
(a) the employer is an individual, and
(b) the provision is made in the normal course of the employer’s domestic, family or personal relationships.
(4) For the purposes of this Chapter it does not matter whether the employment is held at the time when the benefit is provided so long as it is held at some point in the tax year in which the benefit is provided.
(5) References in this Chapter to an employee accordingly include a prospective or former employee.
(1) A benefit is an “excluded benefit” for the purposes of this Chapter if—
(a) any of Chapters 3 to 9 of the benefits code applies to the benefit,
(b) any of those Chapters would apply to the benefit but for an exception, or
(c) the benefit consists in the right to receive, or the prospect of receiving, sums treated as earnings under section 221 (payments where employee absent because of sickness or disability).
(2) In this section “exception”, in relation to the application of a Chapter of the benefits code to a benefit, means any enactment in the Chapter which provides that the Chapter does not apply to the benefit.
But for this purpose section 86 (transport vouchers under pre-26th March 1982 arrangements) is not an exception.
(1) The cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.
(2) The cash equivalent of an employment-related benefit is the cost of the benefit less any part of that cost made good by the employee to the persons providing the benefit.
(3) The cost of an employment-related benefit is determined in accordance with section 204 unless—
(a) section 205 provides that the cost is to be determined in accordance with that section, or
(b) section 206 provides that the cost is to be determined in accordance with that section.
The cost of an employment-related benefit is the expense incurred in or in connection with provision of the benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters).
(1) The cost of an employment-related benefit (“the taxable benefit”) is determined in accordance with this section if—
(a) the benefit consists in—
(i) an asset being placed at the disposal of the employee, or at the disposal of a member of the employee’s family or household, for the employee’s or member’s use, or
(ii) an asset being used wholly or partly for the purposes of the employee or a member of the employee’s family or household, and
(b) there is no transfer of the property in the asset.
(2) The cost of the taxable benefit is the higher of—
(a) the annual value of the use of the asset, and
(b) the annual amount of the sums, if any, paid by those providing the benefit by way of rent or hire charge for the asset,
together with the amount of any additional expense.
(3) For the purposes of subsection (2), the annual value of the use of an asset is—
(a) in the case of land, its annual rental value;
(b) in any other case, 20% of the market value of the asset at the time when those providing the taxable benefit first applied the asset in the provision of an employment-related benefit (whether or not the person provided with that benefit is also the person provided with the taxable benefit).
If those providing the taxable benefit first applied the asset in the provision of an employment-related benefit before 6th April 1980, paragraph (b) is to be read as if the reference to 20% were a reference to 10%.
(4) In this section “additional expense” means the expense incurred in or in connection with provision of the taxable benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters), other than—
(a) the expense of acquiring or producing the asset incurred by the person to whom the asset belongs, and
(b) any rent or hire charge payable for the asset by those providing the asset.
(1) The cost of an employment-related benefit is determined in accordance with this section if—
(a) the benefit consists in the transfer of an asset, and
(b) the asset has been used, or has depreciated, since the person transferring the asset (“the transferor”) acquired or produced it.
(2) The cost of the benefit is the market value of the asset at the time of the transfer.
(3) But the cost of the benefit (“the current benefit”) is the higher of the market value of the asset at the time of the transfer and the amount calculated in accordance with subsection (5) if—
(a) the asset is not a car (within the meaning of Chapter 6),
(b) the asset has previously been applied in the provision of a relevant employment-related benefit (whether or not the person provided with that benefit is also the transferee), and
(c) the transferor first applied the asset in the provision of an employment-related benefit after 5th April 1980.
(4) In this section “relevant employment-related benefit” means an employment-related benefit the cost of which was to be determined in accordance with section 205.
(5) The amount referred to in subsection (3) is calculated in accordance with the following steps—
Step 1
Determine the tax years in which the asset was applied in the provision of a relevant employment-related benefit (including, if appropriate, the current tax year).
Step 2
Determine the cost of the benefit for each of those tax years in accordance with section 205.
Step 3
Calculate the total of the amounts determined under step 2.
Step 4
Calculate the market value of the asset at the time when the transferor first applied it in the provision of an employment-related benefit.
Step 5
Deduct the total calculated under step 3 from the market value calculated under step 4.
The result is the amount referred to in subsection (3).
Income Tax (Earnings and Pensions) Act 2003