Income and Corporation Taxes Act 1988

Charge to tax in certain cases U.K.

595 Charge to tax in respect of certain sums paid by employer etc. U.K.

F1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Ss. 595, 596 repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 74, Sch. 8 Pt. 1 (with Sch. 7)

596 Exceptions from section 595. U.K.

F2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F2 Ss. 595, 596 repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 74, Sch. 8 Pt. 1 (with Sch. 7)

[F3 596A Charge to tax: benefits under non-approved schemes. U.K.

F4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F3 Ss. 596A, 596B inserted (with effect in accordance with Sch. 6 para. 18(7) of the amending Act) by Finance Act 1989 (c. 26), Sch. 6 para. 9

F4 Ss. 596A-596C repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 75, Sch. 8 Pt. 1 (with Sch. 7)

[F5 596B Section 596A: supplementary provisions. U.K.

F6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F5 Ss. 596A, 596B inserted (with effect in accordance with Sch. 6 para. 18(7) of the amending Act) by Finance Act 1989 (c. 26), Sch. 6 para. 9

F6 Ss. 596A-596C repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 75, Sch. 8 Pt. 1 (with Sch. 7)

[F7 596C Notional interest treated as paid if amount charged in respect of beneficial loan. U.K.

F8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F7 S. 596C inserted (with effect in accordance with s. 93(4) of the amending Act) by Finance Act 1998 (c. 36), s. 93(3)

F8 Ss. 596A-596C repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 75, Sch. 8 Pt. 1 (with Sch. 7)

597 Charge to tax: pensions. U.K.

F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F9 S. 597 repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 76, Sch. 8 Pt. 1 (with Sch. 7)

598 Charge to tax: repayment of employee’s contributions. U.K.

M1 (1) Subject to the provisions of this section, tax shall be charged under this section on any repayment to an employee during his lifetime of any contributions (including interest on contributions, if any) if the payment is made under—

(a) a scheme which is or has at any time been an exempt approved scheme, or

(b) a [F10 relevant] statutory scheme established under a public general Act.

(2) Where any payment is chargeable to tax under this section, the administrator of the scheme shall be charged to income tax under Case VI of Schedule D and, subject to subsection (3) below, the rate of tax shall be 10 per cent.

(3) The Treasury may by order from time to time increase or decrease the rate of tax under subsection (2) above.

(4) The tax shall be charged on the amount paid or, if the rules permit the administrator to deduct the tax before payment, on the amount before deduction of tax, and the amount so charged to tax shall not be treated as income for any other purpose of the Tax Acts.

(5) Subsection (1)(a) above shall not apply in relation to a contribution made after the scheme ceases to be an exempt approved scheme (unless it again becomes an exempt approved scheme).

(6) This section shall not apply where the employee’s employment was carried on outside the United Kingdom.

(7) In relation to a statutory scheme, “employee” in this section includes any officer.

Textual Amendments

F10 1989 s.75and Sch.6 paras.10and 18(1)on and after 14March 1989.

Modifications etc. (not altering text)

C1 20per cent. on and after 6April 1988—see S.I. 1988 No.504in Part III Vol.5

Marginal Citations

M1 Source-1970(F) Sch.5 Part II 2, 3; 1971 Sch.3 7; 1987 (No.2) Sch.3 9

599 Charge to tax: commutation of entire pension in special circumstances. U.K.

M2 (1) [F11 Subject to subsection (1A) below,] where a scheme to which this section applies contains a rule allowing, in special circumstances, a payment in commutation of an employee’s entire pension, and any pension is commuted, whether wholly or not, under the rule, tax shall be charged on the amount by which the sum receivable exceeds—

(a) the largest sum which would have been receivable in commutation of any part of the pension if the scheme had secured that the aggregate value of the relevant benefits payable to an employee on or after retirement, excluding any pension which was not commutable, could not exceed three-eightieths of his final remuneration (disregarding any excess of that remuneration over the permitted maximum) for each year of service up to a maximum of 40; or

(b) the largest sum which would have been receivable in commutation of any part of the pension under any rule of the scheme authorising the commutation of part (but not the whole) of the pension, or which would have been so receivable but for those special circumstances;

whichever gives the lesser amount chargeable to tax.

[F12 (1A) Subsection (1) above shall have effect in relation to the commutation of the whole or any part of a pension the amount of which has been affected by the making of any pension sharing order or provision as if paragraph (a) and the words after paragraph (b) were omitted.

(1B) Where—

(a) a scheme to which this section applies contains a rule allowing, in special circumstances, a payment in commutation of the entire pension provided under the scheme for an ex-spouse, and

(b) any pension is commuted, whether wholly or not, under the rule,

tax shall be charged on the amount by which the sum receivable exceeds the largest sum which would have been receivable in commutation of any part of the pension under any rule of the scheme authorising the commutation of a part (but not the whole) of the pension.

(1C) A pension provided for an ex-spouse shall be disregarded when applying subsection (1) above in relation to the commutation of any pension provided for an employee.

(1D) A pension provided for an employee shall be disregarded when applying subsection (1B) above in relation to the commutation of any pension provided for an ex-spouse.

(1E) Subsections (4B) and (4C) of section 590 apply for the purposes of subsections (1C) and (1D) above as they apply for the purposes of that section.]

(2) This section applies to—

(a) a scheme which is or has at any time been an approved scheme, or

(b) a [F13 relevant] statutory scheme established under a public general Act.

(3) Where any amount is chargeable to tax under this section the administrator of the scheme shall be charged to income tax under Case VI of Schedule D on that amount, and section 598(2), (3) and (4) shall apply as they apply to tax chargeable under that section.

(4) This section shall not apply where the employee’s employment was carried on outside the United Kingdom.

(5) In relation to a statutory scheme, “employee” in this section includes any officer.

(6) In applying paragraph (a) or (b) of subsection (1) above [F14 , or in applying subsection (1B) above]—

(a) the same considerations shall be taken into account, including the provisions of any other relevant scheme, as would have been taken into account by the Board in applying section 590; and

(b) where the scheme has ceased to be an approved scheme, account shall only be taken of the rules in force when the scheme was last an approved scheme.

(7) Where the pension has been secured by means of an annuity contract with an insurance company and the sum receivable is payable under that contract by the insurance company, the references to the administrator of the scheme in subsection (3) above and in section 598(2) and (4) as applied by that subsection are to be read as references to the insurance company.

[F15 (8) In subsection (7) above “insurance company” has the meaning given by section 659B.]

(9) In relation to payments made under schemes approved or established before 17th March 1987 to employees who became members before that date, subsection (1)(a) above shall have effect with the omission of the words “(disregarding any excess of that remuneration over the permitted maximum)”.

[F16 (10) In subsection (1)(a) above “the permitted maximum” means, as regards a charge to tax arising under this section in a particular year of assessment, the figure found for that year by virtue of subsections (11) and (12) below.

(11) For the years 1988-89 and 1989-90 the figure is £60,000.

(12) For any subsequent year of assessment the figure is the figure found for that year, for the purposes of section 590C, by virtue of section 590C(4) [F17 to (5A)].]

Textual Amendments

F11 Words in s. 599(1) inserted (27.7.1999) by Finance Act 1999 (c. 16), Sch. 10 para. 7(1)

F12 S. 599(1A)-(1E) inserted (27.7.1999) by Finance Act 1999 (c. 16), Sch. 10 para. 7(1)

F13 1989 s.75and Sch.6 paras.11(2)and 18(1)on and after 14March 1989.

F14 Words in s. 599(6) inserted (27.7.1999) by Finance Act 1999 (c. 16), Sch. 10 para. 7(2)

F15 S. 599(8) substituted (with application in accordance with s. 60(2) of the amending Act) by Finance Act 1995 (c. 4), s. 59(3)

F16 1989 s.75and Sch.6 paras.11(3)and 18(8)where the charge to tax under s.559arises on or after 14March 1989except where the scheme came into being before that date and the employee became a member before 1June 1989.

F17 Words in s. 599(12) substituted (27.7.1993 with effect for the year 1994-95 and subsequent years of assessment) by 1993 c. 34, s. 107(6)(8)

Modifications etc. (not altering text)

C2 S. 599 applied (1.4.1998) by The Local Government Pension Scheme (Scotland) Regulations 1998 (S.I. 1998/366), regs. 1, 48(8), 49(3)

Marginal Citations

M2 Source-1970(F) Sch.5 Part II 2, 3; 1971 Sch.3 7; 197 (No.2) Sch.3 9

[F18 599A Charge to tax: payments out of surplus funds. U.K.

(1) This subsection applies to any payment which is made to or for the benefit of an employee or to his personal representatives out of funds which are or have been held for the purposes of—

(a) a scheme which is or has at any time been an exempt approved scheme, or

(b) a relevant statutory scheme established under a public general Act,

and which is made in pursuance of a duty to return surplus funds.

(2) On the making of a payment to which subsection (1) above applies, the administrator of the scheme shall be charged to income tax under Case VI of Schedule D at the relevant rate on such amount as, after deduction of tax at that rate, would equal the amount of the payment.

(3) Subject to subsection (4) below, the relevant rate shall be 35 per cent.

(4) The Treasury may by order from time to time increase or decrease the relevant rate.

(5) F19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) F19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) F20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) F19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) Any payment chargeable to tax under this section shall not be chargeable to tax under section 598, 599 or 600 or under the Regulations mentioned in paragraph 8 of Schedule 3 to the Finance Act 1971.

(10) In this section—

• “employee”, in relation to a relevant statutory scheme, includes any officer;

• references to any payment include references to any transfer of assets or other transfer of money’s worth.]

Textual Amendments

F18 1989 s.75and Sch.6 paras.12and 18(9)in relation to payments made on or after 27July 1989.

F19 S. 599A(5)(6)(8) repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 77, Sch. 8 Pt. 1 (with Sch. 7)

F20 S. 599A(7) repealed (with effect in accordance with s. 121(8) of the repealing Act) by Finance Act 1996 (c. 8), s. 122(7)(c), Sch. 41 Pt. 5(6), Note 3

Modifications etc. (not altering text)

C3 S. 599A(2) modified (6.4.2000) by The Income Tax (Charge to Tax) (Payments out of Surplus Funds) (Relevant Rate) Order 2000 (S.I. 2000/600), art. 2

600 Charge to tax: unauthorised payments to or for employees. U.K.

F21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F21 S. 600 repealed (6.4.2003 with effect in accordance with s. 723(1) of the repealing Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 78, Sch. 8 Pt. 1 (with Sch. 7)

601 Charge to tax: payments to employers. U.K.

M3 (1) Subsection (2) below applies where a payment is made to an employer out of funds which are or have been held for the purposes of a scheme which is or has at any time been an exempt approved scheme and whether or not the payment is made in pursuance of Schedule 22.

(2) An amount equal to [F22 the relevant percentage of the payment] shall be recoverable by the Board from the employer.

[F23 (2A) The relevant percentage is 35% or such other percentage (whether higher or lower) as may be prescribed.]

(3) Subsection (2) above does not apply to any payment—

(a) to the extent that, if this section had not been enacted, the employer would have been exempt, or entitled to claim exemption, from income tax or corporation tax in respect of the payment; or

(b) made before the scheme became an exempt approved scheme; or

(c) of any prescribed description; or

(d) made in pursuance of the winding-up of the scheme where the winding-up commenced on or before 18th March 1986; or

(e) made in pursuance of an application which—

(i) was made to the Board on or before that date and was not withdrawn before the making of the payment, and

(ii) sought the Board’s assurance that the payment would not lead to a withdrawal of approval under section 19(3) of the Finance Act 1970;

(4) Subsection (2) above does not apply where the employer is a charity (within the meaning of section 506).

(5) Where any payment is made or becomes due to an employer out of funds which are or have been held for the purposes of a scheme which is or has at any time been an exempt approved scheme then—

(a) if the scheme relates to a trade, profession or vocation carried on by the employer, the payment shall be treated for the purposes of the Tax Acts as a receipt of that trade, profession or vocation receivable when the payment falls due or on the last day on which the trade, profession or vocation is carried on by the employer, whichever is the earlier;

(b) if the scheme does not relate to such a trade, profession or vocation, the employer shall be charged to tax on the amount of the payment under Case VI of Schedule D.

This subsection shall not apply to a payment which fell due before the scheme became an exempt approved scheme or to a payment to which subsection (2) above applies or would apply but for subsection (3)(a) or (4) above.

(6) In this section—

(a) references to any payment include references to any transfer of assets or other transfer of money’s worth; and

(b) “prescribed” means prescribed by regulations made by the Treasury.

Textual Amendments

F22 Words in s. 601(2) substituted (with application in accordance with s. 74(4) of the amending Act) by Finance Act 2001 (c. 9), s. 74(2)

F23 S. 601(2A) inserted (with application in accordance with s. 74(4) of the amending Act) by Finance Act 2001 (c. 9), s. 74(3)

Marginal Citations

M3 Source-1986 Sch.12 1; 1970(F) Sch.5 Part II 4; 1971 Sch.3 12(5)

602 Regulations relating to pension fund surpluses. U.K.

M4 (1) In relation to an amount recoverable as mentioned in section 601(2), the Treasury may by regulations make any of the provisions mentioned in subsection (2) below; and for this purpose the amount shall be treated as if it were—

(a) an amount of income tax chargeable on the employer under Case VI of Schedule D for the year of assessment in which the payment is made; or

(b) where the employer is a company, an amount of corporation tax chargeable on the company for the accounting period in which the payment is made.

(2) The provisions are—

(a) provision requiring the administrator of the scheme or the employer (or both) to furnish to the Board, in respect of the amount recoverable and of the payment concerned, information of a prescribed kind;

(b) provision enabling the Board to serve a notice or notices requiring the administrator or employer (or both) to furnish to the Board, in respect of the amount and payment, particulars of a prescribed kind;

(c) provision requiring the administrator to deduct out of the payment the amount recoverable and to account to the Board for it;

(d) provision as to circumstances in which the employer may be assessed in respect of the amount recoverable;

(e) provision that, in a case where the employer has been assessed in respect of an amount recoverable but has not paid it (or part of it) within a prescribed period, the administrator may be assessed and charged (in the employer’s name) in respect of the amount (or part unpaid);

(f) provision that, in a case where the amount recoverable (or part of it) has been recovered from the administrator by virtue of an assessment in the employer’s name, the administrator is entitled to recover from the employer a sum equal to the amount (or part);

(g) provision enabling the employer or administrator (as the case may be) to appeal against an assessment made on him in respect of the amount recoverable;

(h) provision as to when any sum in respect of the amount recoverable is payable to the Board by the administrator or employer and provision requiring interest to be paid on any sum so payable;

(j) provision that an amount paid to the Board by the administrator shall be treated as paid on account of the employer’s liability under section 601(2).

(3) For the purpose of giving effect to any provision mentioned in subsection (2)(c) to (j) above, regulations under this section may include provision applying (with or without modifications) provisions of the enactments relating to income tax and corporation tax.

(4) Subject to any provision of regulations under this section—

(a) a payment to which section 601(2) applies shall not be treated as a profit or gain brought into charge to income tax or corporation tax and shall not be treated as part of the employer’s income for any purpose of this Act; and

(b) the amount recoverable shall not be subject to any exemption or reduction (by way of relief, set-off or otherwise) or be available for set-off against other tax.

(5) If the employer is a company and a payment to which section 601(1) and (2) applies is made at a time not otherwise within an accounting period of the company, an accounting period of the company shall for the purposes of subsection (1)(b) above be treated as beginning immediately before the payment is made.

Modifications etc. (not altering text)

C4 For regulations see Part III Vol.5 (under

“Pension Schemes Surpluses: administration”).

Marginal Citations

M4 Source-1986 Sch.12 2(1), (i), (2), (4)-(6)

603 Reduction of surpluses. U.K.

Schedule 22 (which provides for the reduction of certain pension fund surpluses) shall have effect.