Overview
253.Before 1948 there was no legislation specific to benefits. Benefits were only chargeable to tax if they fell within the definition of emoluments, that is if they were “perquisites and profits whatsoever”.
254.It was established by case law in Tennant v Smith (1892) 3 TC 158 that a non-cash benefit given by an employer to an employee because of the employment would only be a chargeable emolument if it was “money’s worth”.
255.Finance Act 1948 brought in the first charge based on the cost of provision of benefits. Over the years that followed many additional provisions were introduced dealing with specific benefits, plus a number of ESCs and statements of practice. Many of the benefits provisions apply only to those with annual earnings of £8,500 or more.
256.The benefits code, set out in Chapters 2 to 11 of this Part, provides a coherent structure for all those provisions. There is now only a minority of employees earning less than £8,500. Accordingly, it seems more logical to apply the rules to everyone and then to exclude the “lower-paid”.
Chapter 2 provides the introduction to the benefits code
Chapters 3 to 9 contain the provisions that identify a specific type of benefit and explain how to calculate the appropriate taxable amount.
Chapter 10 is a “sweep-up” provision, bringing in anything not in Chapters 3 to 9.
Chapter 11 identifies employees who count as “lower-paid” and explains which chapters do not apply to them.
257.The introduction of a coherent benefits code, applying to all except the “lower-paid” is new.
258.The sections of ICTA which treat amounts as emoluments and from which Chapters 3 – 10 and sections 222 and 223 of this Act derive make no mention of the year “for” which they are so treated other than in section 162(5) and section 162(6). Instead a variety of terms are used. In Chapter 2 of Part 5 of ICTA the term is “treated as an emolument and accordingly chargeable to income tax under Schedule E”. In those sections which are not in Chapter 2 of Part 5 the terms used are “treated as having received an emolument” – sections 141 and 142, “assessable to income tax under Schedule E” – section 144A and “treated for the purposes of Schedule E as being in receipt of an emolument” – sections 145 and 146.
259.All of these terms provide the route into the Cases of Schedule E, so that either the receipts or remittance basis applies to the emoluments. The structure of Chapter 3 of Part 2 of this Act requires identification of what are general earnings for a tax year so that the provisions of Chapter 4 or 5 of Part 2 can be used to find the tax year in which the earnings are received or remitted.
260.What is implicit in the relevant sections of ICTA has been made explicit in this Act by stating for which year the amounts are treated as earnings in the following provisions:-
Section 72 (Sums in respect of expenses treated as earnings)
Section 81 (Benefit of cash voucher treated as earnings)
Section 87 (Benefit of non-cash voucher treated as earnings)
Section 94 (Benefit of credit-token treated as earnings)
Section 102 (Benefit of living accommodation treated as earnings)
Section 120 (Benefit of car treated as earnings)
Section 149 (Benefit of car fuel treated as earnings)
Section 154 (Benefit of van treated as earnings)
Section 175 (Benefit of taxable cheap loan treated as earnings)
Section 188 (Release or writing off of loan treated as earnings)
Section 193 (Application of section 175 to notional loan)
Section 203 (Cash equivalent of benefit treated as earnings)
Section 222 (Payments by employer on account of tax)
Section 223 (Payments on account of director’s tax)
261.This change in approach is described more fully in Note 7 in Annex 2.
Section 63: The benefits code
262.This section explains which chapters of this Part come together to form the benefits code. It is new.
Section 64: Relationship between earnings and benefits code
263.This section provides a rule for the case where two amounts would otherwise be treated as earnings in respect of the same benefit, one under section 62 (earnings) of this Act and the other under the benefits code.
264.Subsections (1) and (2) derive from Inland Revenue practice, as set out in SE 21640. See Change 15 in Annex 1.
265.Subsections (3) to (5) deal with the exceptions to the rule in subsections (1) and (2), giving the provisions which apply within the relevant chapters of the benefits code.
Section 65: Dispensations relating to benefits within provisions not applicable to lower-paid employment
266.This section, in defined circumstances and subject to certain conditions being met, disapplies the provisions of the benefits code for specified payments, benefits or facilities provided for employees. That reduces the administrative burden on the person responsible for dealing with the payroll aspects of the employee’s employment and on the Inland Revenue. It also means that less information needs to be included in the employee’s self-assessment return. This section derives from section 166 of ICTA.
267.This section is in Chapter 2 of Part 3, which is headed “Taxable benefits: the benefits code”. That is an appropriate location because a dispensation is closely linked with the benefits code and is only applicable to an employee who is not lower-paid.
268.In subsection (1) the reference to “the inspector” in the source legislation has been replaced by the reference to “the Inland Revenue”. See Change 158 in Annex 1.
269.Subsection (1)(a) has the words “to or” inserted before “for”, in relation to payments made to employees. That reflects how the Inland Revenue apply the source legislation, even though it is not quite so worded.
270.Subsection (4) uses the term “dispensation” for the notice that the Inland Revenue gives to the person who has sought it, to authorise the application of this section to the specified payments, benefits or facilities. The section also characterises the dispensation as a notice, which, by virtue of the definition of that word in section 832(1) of ICTA, means that it must be in writing. Taken together these two changes formalise the common name for the authorisation given and confirm the current practice that it must be in writing. See Change 16 in Annex 1.
271.Subsection (6) has a minor change to the process for the revocation of a dispensation that has been given. Instead of requiring notice of the change to be “served” on the person to whom the dispensation was given the provision now requires it to be “given”. See Change 16 in Annex 1.
Section 66: Meaning of “employment” and related expressions
272.This section sets out the meaning of “employment” and related expressions for the purposes of the benefits code. It derives from section 168(2) of ICTA.
Section 67: Meaning of “director” and “full-time working director”
273.This section provides definitions of “director” and “full-time working director” for the purposes of the benefits code. It derives from section 168(8) to (10) of ICTA.
Section 68: Meaning of “material interest” in a company
274.This section provides the definition of “material interest” in a company for the purposes of the benefits code. It derives from section 168(11) of ICTA.
Section 69: Extended meaning of “control”
275.This section provides the definition of “control” for the purposes of the benefits code. It derives from section 168(12) of ICTA.