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Income Tax (Earnings and Pensions) Act 2003

The scope of PAYE

2730.The scope of PAYE was extended by subsequent Acts to all income assessable under Schedule E; and the scope of Schedule E was itself also extended. Highlights were:

  • section 27 of FA 1946 and section 24 of FA 1949 taxed as emoluments chargeable under Schedule E various National Insurance benefits;

  • section 30(3) of FA 1946 extended PAYE to the armed forces for 1947-8 and subsequent years;

  • section 38 of FA 1948 treated certain payments of expenses and benefits in kind as emoluments assessable under Schedule E and so brought them within the scope of PAYE;

  • section 10 of FA 1956 moved foreign employments from Case V of Schedule D to Schedule E;

  • sections 37 and 38 of and Schedule 4 to FA 1960 charged under Schedule E (and so brought within PAYE) some termination payments – the pre-cursor of section 148 of ICTA;

  • Schedule 4 to the Income Tax Management Act 1964 amended sections 157 and 158 of ITA 1952 (as the PAYE provisions had become on consolidation) to include in the meaning of emoluments all income assessable to tax under Schedule E. This brought non-approved retirement benefits within PAYE and removed doubts about the treatment of certain pensions;

  • section 25 of FA 1966 charged under Schedule E any gain on the exercise of a share option obtained as an employee when the option is exercised (see now section 135 of ICTA);

  • further charges were introduced in sections 79 to 89 of FA 1972 on shares acquired as a result of rights employees get by reason of their employment (some of which were then removed or replaced by sections 77–80 of FA 1988);

  • section 38 of F(No. 2)A 1975 brought agency workers within Schedule E in 1975 – mainly so as to apply PAYE to their pay;

  • section 30 of FA 1981 (see now section 149 of ICTA) made taxable under Schedule E any sick pay paid by reason of the employment as a result of arrangements entered into by the employer if it would not already be taxable;

  • other reliefs and exemptions from time to time to encourage share ownership and/or employee participation also give rise to charges and may require the trustees of the scheme to operate PAYE: see for example Schedule 8 to FA 2000;

  • section 27 of FA 1981 made unemployment benefit taxable as Schedule E income;

  • section 29 of and Schedule 3 to FA 1987 (see now section 151 of ICTA) taxed some payments of income support as Schedule E income;

  • section 139(1) and (3) of FA 1994 made incapacity benefit taxable under Schedule E (with important exceptions); and

  • the Jobseekers Act 1995 inserted section 151A of ICTA which made jobseeker’s allowance (broadly the successor to unemployment benefit) Schedule E income.

2731.The point of this selective list is two-fold:

  • PAYE extends to much more than “ordinary” wages and salaries; but

  • PAYE copes with all this (and more) because something either is or is not income assessable under Schedule E; and either is or is not a payment of such income.

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