M1(1)[F1The whole] of any profit-related pay to which this section applies shall be exempt from income tax.
(2)This section applies to any profit-related pay paid to an employee by reference to a profit period and in accordance with a registered scheme, but only so far as it does not exceed the lower of the two limits specified in the following provisions of this section.
(3)The first of the limits referred to in subsection (2) above is one fifth of the aggregate of—
(a)the pay (but not any profit-related pay) paid to the employee in the profit period in respect of his employment in the employment unit concerned (or, if the employee is eligible to receive profit-related pay by reference to part only of the period, so much of his pay, but not any profit-related pay, as is paid in that part); and
(b)the profit-related pay paid to him by reference to that period in respect of that employment.
(4)The second of the limits referred to in subsection (2) above is [F2£4,000] (or, if the profit period is less than 12 months, or the employee is eligible to receive profit-related pay by reference to part only of the profit period, a proportionately reduced amount).
Textual Amendments
F1Words in s. 171(1) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 37(1)(2)
F21989 s.61and Sch.4 para 2in relation to profit periods beginning on or after 1April 1989.Previously
“£3,000”.
Marginal Citations
M1Source—1987 (No.2) s.3
M2(1)Profit-related pay shall not be exempt from income tax by virtue of section 171 if—
(a)it is paid to an employee in respect of his employment in an employment unit during a time when he also has another employment; and
(b)he receives in respect of that other employment during that time profit-related pay which is exempt from income tax by virtue of that section.
(2)Subject to subsection (3) below, profit-related pay in respect of which no secondary Class 1 contributions under Part I of the M3Social Security Act 1975 or Part I of the M4Social Security (Northern Ireland) Act 1975 are payable shall not be exempt from income tax by virtue of section 171.
(3)Subsection (2) above shall not apply to profit-related pay in respect of which no Class 1 contributions are payable only because the employee’s earnings are below the lower earnings limit for such contributions.