Explanatory Notes

Income Tax (Earnings and Pensions) Act 2003

2003 CHAPTER 1

6th March 2003

Commentary on Sections

Omitted material

Schedule 6: Consequential Amendments


Part 2: Other enactments
Paragraph 126

3618.This paragraph amends section 15 of TMA 1970. The amendments are straightforward and replace terms used in ICTA with those used in this Act.

Paragraph 127

3619.This paragraph substitutes a new section 16A of TMA 1970. This section applies section 15 of TMA 1970, the return of employees’ earnings, to agency workers. The new wording accords with the language in this Act and there are signposts to Chapter 7 of Part 2, sections 44 to 47. The change in structure reflects the increased focus on the agency contract in these sections.

Paragraph 137

3620.This paragraph makes certain amendments to the table at the end of section 98 of TMA 1970 (penalties: special returns). Most are self-explanatory.

3621.Sub-paragraph (4)(e) deletes a reference to section 313(5) of ICTA from the second column of that table. Section 73 of FA 1988 replaced what were subsections (1) to (5) of section 313 of ICTA with subsections (1) to (4). As a result there was no longer any subsection (5). The consequential amendment to the table in section 98 of TMA 1970 was missed. This amendment, while not arising from the rewrite of section 313(5), corrects that oversight.

Paragraph 147

3622.This paragraph amends section 24 FA 1974, which extends the Inland Revenue’s right to call for a return of the emoluments derived from duties performed in the United Kingdom.

3623.A return issued under section 24 FA 1974 can call for particulars of emoluments “whether or not tax is chargeable on them”. This could be read as requiring the taxpayer to include details of emoluments that would be exempt, even in the case of a UK resident taxpayer working on UK duties for a UK employer. This paragraph removes any uncertainty about the meaning of “whether or not tax is chargeable on them” to make it clear the provision concerns the employee’s “general earnings” (whether or not chargeable to tax) and that the return does not have to include income that is exempt.

Paragraphs 157 and 158

3624.These paragraphs amend sections 43 and 44 of FA 1989.

3625.Sections 43 and 44 were introduced as part of the changes made to put the assessment of employment income on a receipts basis. Broadly, they prevent a deduction for employees’ pay unless it is paid during the period of account or within nine months after its end. As such, they align more closely the timing of the trading or investment company deduction with that of the charge to tax on the employee.

3626.Both sections contain numerous references to “emoluments”.

3627.Rather than making a whole series of consequential amendments replacing the term “emoluments” wherever it occurs in sections 43 and 44 FA 1989 these paragraphs replace each of these two sections with a complete rewrite.

Paragraphs 169 to 185

3628.These paragraphs make amendments to the Social Security Contributions and Benefits Act 1992 (“SSCBA”). Most of the amendments change the ICTA references to Schedule E to the terms used in this Act for employment income and are straightforward.

3629.The term “emoluments” is used in many of the provisions and has been replaced with “general earnings”.

3630.The replacement of section 10(7) of SSCBA 1992 with subsections (7), (7A) and (7B) provides the equivalent provision through this Act which ensures that Class 1A NICs are applied only to those benefits which remain chargeable to income tax.

3631.The definitions of all the terms have been placed in section 122 of SSCBA 1992.

Paragraphs 190 to 204

3632.These paragraphs make amendments to the Social Security Contributions and Benefits (Northern Ireland) Act 1992 corresponding to those made to the Social Security Contributions and Benefits Act 1992 by paragraphs 169 to 185 of this Schedule.

Paragraph 210

3633.This paragraph amends section 120 of TCGA 1992 which treats certain amounts chargeable to income tax in relation to shares as additional consideration for the acquisition of those shares under section 38 of TCGA 1992. The amendments mainly reflect the new language and update references.

3634.Sub-paragraph (2) expands and rearranges section 120(1) to clarify how it operates and brings in material from FA 1988 so that the second paragraph of section 120(1) can be omitted. The words after the semi-colon in the first paragraph of section 120(1) are thought to be there in order that the relief given by the opening words of section 120(1) works in cases within section 83(1) of FA 1988 (where the shares are acquired by a person connected with the employee). This is made clear in the rewritten provision. The view is taken that no modification of the relief is required in cases to which section 83(2) of FA 1988 applies. See Note 72 in Annex 2.

3635.Sub-paragraph (7) provides for the omission of section 120(6) of TCGA 1992. That provision effectively duplicated section 185(7) of ICTA. It also set out the transitional provisions. The effect of both subsections together with the transitionals now appears in new Schedule 7D to TCGA 1992.

Paragraph 212

3636.This paragraph derives from section 68(4) of FA 1988. It inserts a new section 149C into TCGA 1992 relating to the capital gains treatment of priority share allocations. The income tax provisions are rewritten in Chapter 10 of Part 7 of this Act.

Paragraph 216

3637.This paragraph inserts a new section 238A (approved share schemes and share incentives) into TCGA 1992. The purpose of the new section is to introduce Schedule 7D to TCGA 1992; and the contents of that new Schedule are set out in paragraph 221 of this Schedule.

Paragraph 217

3638.This paragraph inserts a new section 263ZA (former employees: employment-related liabilities) into TCGA 1992. It derives from section 92(6) to (8) of FA 1995.

3639.Subsections (1) to (3) of the new section 263ZA provide that if a former employee is entitled to deduct an amount under section 555 of the Act (former employee entitled to deduction from total income) but has insufficient total income to absorb the amount deductible, then the excess may be treated as an allowable loss for the purposes of capital gains tax.

3640.Subsections (4) and (5) set a limit to the amount that can be so deducted.

3641.Subsection (6) introduces a small administrative change. It enables a single claim to cover relief against both total income and capital gains. See Change 182 in Annex 1.

Paragraph 221

3642.This paragraph inserts a new Schedule 7D into TCGA 1992; and the new Schedule deals with the capital gains tax aspects of approved share schemes and share incentives.

3643.Part 1 of the new Schedule deals with the capital gains tax aspects of approved SIPs. This Part forms part of the SIP code and derives from paragraphs 74, 97 to 102 and 104 of Schedule 8 to FA 2000. In this Part of this Schedule, paragraphs 2(4) and 4(6) derive from provisions inserted by the Employee Share Schemes Act 2002 with effect from 6 April 2003.

3644.Part 2 of the new Schedule deals with the capital gains tax aspects of approved SAYE option schemes. This Part forms part of the SAYE code and derives from provisions in section 185 of ICTA.

3645.Part 3 of the new Schedule deals with the capital gains tax aspects of approved CSOP schemes. This Part forms part of the CSOP code and derives from provisions in section 185 of ICTA. It may be noted that section 185(7) of ICTA has been rewritten here together with the transitional provisions in section 120(6) of TCGA 1992. Section 120(6) of TCGA 1992 is now being repealed.

3646.Part 4 of the new Schedule deals with the capital gains tax aspects of enterprise management initiatives. This Part forms part of the EMI code and derives from paragraphs 56 to 58 of Schedule 14 to FA 2000.

Paragraph 241

3647.This paragraph amends paragraph 10(1) of Schedule 2 to the Tax Credits Act 1999. That amended section 71(8) of the Social Security Administration Act 1992 and section 69(8) of the Social Security Administration (Northern Ireland) Act 1992 in order to allow overpayments of tax credits to be collected through PAYE. This amendment replaces the reference to the legislation for PAYE in ICTA with a reference to “PAYE regulations” (defined in section 674(8) of this Act). It includes a minor change: see Change 183 in Annex 1.

Paragraph 257

3648.This paragraph substitutes a new section 95 of FA 2001. This section provides for exemptions from stamp duty and stamp duty reserve tax in relation to approved SIPs; and the new section is accordingly part of the SIP code. Section 95 of FA 2001 originally operated by inserting a new paragraph 116A in Schedule 8 to FA 2000; but in this substituted version the exemptions have been removed from that Schedule and made free standing.

Paragraphs 268 and 269

3649.These paragraphs set out the consequential amendments that may be needed to some future Northern Ireland legislation. The amendments to the legislation that applies in Great Britain are set out earlier in the Schedule. Paragraphs 183 and 184 apply to legislation introduced by the Employment Act 2002. The enactment of the Northern Ireland provision corresponding to that legislation has been affected by the suspension of the Northern Ireland Assembly.