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Income Tax (Earnings and Pensions) Act 2003

Chapter 3: Operation of tax charge
Section 9: Amount of employment income charged to tax

49.This is a new section that explains what amounts are charged to tax for each stream of employment income. Subsection (2) sets out that for earnings, the amount charged to tax is “net taxable earnings” – this is another new label. It describes the amount of income from the employment that has been allocated to a particular tax year by reference to the timing rules as determined by the Cases of Schedule E in section 19(1) of ICTA (now contained in Chapters 4 and 5 of this Part), less any available deductions.

50.Subsection (3) explains where to find the mechanics of how to calculate net taxable earnings in the following provisions of Part 2.

51.Subsection (4) sets out that, for specific employment income, the amount charged to tax is “net taxable specific income” – this is another new label. It is the amount allocated to that year by the relevant provisions less any available deductions.

52.Subsection (5) explains where to find the mechanics of how to calculate net taxable specific income in the following provisions of this Chapter.

53.Subsection (6) makes it clear that tax may only be charged under this Chapter for a particular year on taxable earnings and taxable specific income. Paragraph (a)derives from the closing words of paragraph 1 of section 19(1) of ICTA. Paragraph (b) is new.

Section 10: Meaning of “taxable earnings” and “taxable specific income”

54.“Taxable earnings” and “taxable specific income” are two more new labels to help identify income at the various stages from when it arises to when it becomes chargeable to tax in a particular tax year. This section explains each of those terms, setting out where to find the other provisions that set out particular rules for arriving at either “taxable earnings” or “taxable specific income”.

Section 11: Calculation of “net taxable earnings”

55.Subsection (1) sets out how to calculate “net taxable earnings” in a tax year.

56.This explicit explanation of the calculation is new. See Note 4 in Annex 2.

57.The definition of “DE” is a pointer to the comprehensive list of all deductions available from earnings which appears in the opening Chapter of the Part dealing with deductions.

58.Subsection (3) is a signpost to what happens in the exceptional case that loss relief is available.

59.Subsection (4) gives effect to the general proposition that deductions may only be made from the earnings of the employment to which they relate. For example, section 198(1) says:

(1)

If the holder of an office or employment is obliged to incur and defray out of the emoluments of the office or employment

(a)

qualifying travelling expenses, or

(b)

any amount (other than qualifying travelling expenses) expended wholly, exclusively and necessarily in the performance of the duties of the employment,

(c)

there may be deducted from the emoluments to be assessed the amount so incurred and defrayed.

60.It is clear from such wording that in order to arrive at “net taxable earnings” where there is more than one employment, there must be a separate calculation for each employment.

Section 12: Calculation of “net taxable specific income”

61.This section performs a similar function to section 11 but in respect of specific employment income, and so uses different letters of the alphabet to designate the two elements of the calculation. Like section 11, it is new. See Note 4 in Annex 2.

Section 13: Person liable for tax

62.This section identifies the person liable for tax on the various kinds of employment income, and the various circumstances in which that tax charge arises. Subsections (1) to (3) are new. See Note 5 in Annex 2.

63.Although the idea of identifying the person liable for tax on employment income is new, it does not change the current position where the employer has the primary liability to deduct tax under the PAYE provisions. Under ICTA employees are liable for the tax, but are entitled to pay only the net amount after taking off payments on account and deductions at source (see section 59B of TMA 1970).

64.Subsections (4) and (5) set out who is liable for tax on earnings received or remitted to the United Kingdom after the employee’s death. They derive from section 202A(3) of ICTA.

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