Finance Act 2008

Employment income U.K.

2 U.K. ITEPA 2003 is amended as follows.

3 (1) Section 6 (nature of charge to tax on employment income) is amended as follows. U.K.

(2) In subsection (3), omit the “and” at the end of paragraph (a), and after that paragraph insert—

“(aa) whether section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to an employee for a tax year, and”.

(3) After that subsection insert—

“(3A) The rules in Chapter 5A, which are concerned with the matters mentioned in subsection (3)(a) to (b), apply for the purposes of the charge to tax on certain specific employment income arising under Part 7 (securities etc).”

4 (1) Section 10 (meaning of “taxable earnings” etc) is amended as follows. U.K.

(2) In subsection (2), for the words after “with” substitute “ Chapters 4 and 5 of this Part ”.

(3) After subsection (3) insert—

“(4) Subsection (3) is subject to Chapter 5A of this Part (certain specific employment income under Part 7: individuals to whom to remittance basis applies).”

5 (1) Section 13 (person liable to tax) is amended as follows. U.K.

(2) After subsection (4) insert—

“(4A) If the tax is on specific employment income received, or remitted to the United Kingdom, after the death of the person in relation to whom the income is, by virtue of Part 7, to count as employment income, the person's personal representatives are liable for the tax.”

(3) In subsection (5), for “In that event” substitute “ If subsection (4) or (4A) applies, ”.

6 U.K. For the heading of Chapter 4 of Part 2 substitute “ Taxable earnings: UK resident employees ”.

7 U.K. In section 14(1) (taxable earnings under Chapter 4: introduction), for “resident, ordinarily resident and domiciled in UK” substitute “ UK resident ”.

8 U.K. For the heading before section 15 substitute “ UK resident employees ”.

9 (1) Section 15 (earnings for year when employee resident, ordinarily resident and domiciled in UK) is amended as follows. U.K.

(2) In subsection (1), for the words from “resident”, in the first place, to the end substitute “ UK resident. ”

(3) For subsection (3) substitute—

“(3) Subsection (2) applies whether or not the employment is held when the earnings are received.”

(4) Accordingly, in the heading, for “resident, ordinarily resident and domiciled in UK” substitute “ UK resident ”.

10 U.K. For the title to Chapter 5 of Part 2 substitute “ Taxable earnings: remittance basis rules and rules for non-uk resident employees ”.

11 (1) Section 20 (taxable earnings under Chapter 5: introduction) is amended as follows. U.K.

(2) For subsection (1) substitute—

“(1) This Chapter—

(a) contains provision for calculating what are taxable earnings from certain kinds of employment in a tax year for which section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the employee, and

(b) sets out what are taxable earnings from an employment in a tax year in which the employee is non-UK resident.”

(3) In subsection (2), omit paragraphs (b) and (c).

(4) In subsection (3), for “the sections listed in subsection (1)” substitute “ sections 22, 26 and 27 ”.

12 U.K. For the heading before section 21 substitute “ Remittance basis rules for UK ordinarily resident employees ”.

13 U.K. Omit section 21 (earnings for year when employee resident and ordinarily resident, but not domiciled, in UK, except chargeable overseas earnings).

14 (1) Section 22 (chargeable overseas earnings for year when employee resident and ordinarily resident, but not domiciled, in UK) is amended as follows. U.K.

(2) In subsection (1), for the words from “in which” to the end substitute “, to the extent that they are chargeable overseas earnings for that year, if—

(a) section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the employee for that year, and

(b) the employee is ordinarily UK resident in that year.”

(3) For subsection (3) substitute—

“(3) Subsection (2) applies whether or not the employment is held when the earnings are remitted.”

(4) In subsection (4), omit the words after “year”.

(5) In subsection (5)(b), for “section 21” substitute “ section 15 ”.

(6) After subsection (5) insert—

“(6) See Chapter A1 of Part 14 of ITA 2007 for the meaning of “remitted to the United Kingdom” etc.

(7) General earnings for the employee for the tax year fall within section 15(1) to the extent that they do not fall within subsection (1).”

(7) Accordingly, in the heading, for the words from “employee” to the end substitute “ remittance basis applies and employee ordinarily UK resident ”.

15 (1) Section 23 (calculation of chargeable overseas earnings) is amended as follows. U.K.

(2) In subsection (1), for “sections 21 and” substitute “ section ”.

(3) In subsection (2), for paragraph (a) substitute—

“(a) section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the employee for that year,

(aa) the employee is ordinarily UK resident in that year,”.

16 U.K. In section 24(7) (limit on chargeable overseas earnings where duties of associated employment performed in UK), for “section 21(1)” substitute “ section 15(1) ”.

17 U.K. For the heading before section 25 substitute “ Remittance basis rules: employees not UK ordinarily resident ”.

18 U.K. Omit section 25 (UK-based earnings for year when employee resident, but not ordinarily resident, in UK).

19 (1) Section 26 (foreign earnings for year when employee resident, but not ordinarily resident, in UK) is amended as follows. U.K.

(2) In subsection (1), for the words from “in which” to “they” substitute “ where section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the employee for that year and the employee is not ordinarily UK resident in that year, if the general earnings ”.

(3) For subsection (3) substitute—

“(3) Subsection (2) applies whether or not the employment is held when the earnings are remitted.”

(4) After subsection (4) insert—

“(5) See Chapter A1 of Part 14 of ITA 2007 for the meaning of “remitted to the United Kingdom” etc.

(6) General earnings for the employee for the tax year fall within section 15(1) if they do not fall within subsection (1).”

(5) Accordingly, in the heading, for the words from “employee” to the end substitute “ remittance basis applies and employee not ordinarily UK resident ”.

20 (1) Section 27 (UK-based earnings for year when employee non-UK resident) is amended as follows. U.K.

(2) For subsection (3) substitute—

“(3) Subsection (2) applies whether or not the employment is held when the earnings are received.”

(3) After subsection (4) insert—

“(5) Sections 18 and 19 (time when earnings are received) apply for the purposes of this section.”

21 U.K. Omit sections 31 to 37 (and the heading before section 31).

22 U.K. After section 41 insert—

“Chapter 5A U.K. Taxable specific income: effect of remittance basis

41A Taxable specific income from employment-related securities: effect of remittance basis

(1) This section applies if—

(a) an amount within subsection (2) counts as employment income of an individual for a tax year in respect of an employment (“the securities income”), and

(b) any part of the relevant period (see section 41B) is within a tax year for which section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the individual.

(2) An amount is within this subsection if it counts as employment income under any provision of any of Chapters 2, 3 and 3C to 5 of Part 7 (employment-related securities etc) except section 446UA.

(3) The reference in subsection (2) to an amount that counts as employment income under any of the provisions mentioned there does not include an amount which counts as employment income by virtue of any provision of Chapter 3A or 3B of Part 7.

(4) An amount equal to—

is an amount of “taxable specific income” from the employment for the tax year mentioned in subsection (1)(a).

(5) In subsection (4)—

(a) SI is the amount of the securities income, and

(b) FSI is the amount of the securities income that is “foreign” (see sections 41C to 41E).

(6) The full amount of any of the foreign securities income which is remitted to the United Kingdom in a tax year is an amount of “taxable specific income” from the employment for that year.

(7) Subsection (6) applies whether or not the employment is held when the foreign securities income is remitted.

(8) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance basis), treat the relevant securities or securities option as deriving from the foreign securities income.

(9) But where—

(a) the chargeable event is the disposal of the relevant securities or the assignment or release of the relevant securities option, and

(b) the individual receives consideration for the disposal, assignment or release of an amount equal to or exceeding the market value of the relevant securities or securities option,

for the purposes of that Chapter treat the consideration (and not the relevant securities or securities option) as deriving from the foreign securities income.

(10) In this section and section 41B—

• “the chargeable event” means the event giving rise to the securities income, and

• “the relevant securities” or “the relevant securities option” means the employment-related securities or employment-related securities option by virtue of which the amount mentioned in subsection (1)(a) counts as employment income.

(11) See Chapter A1 of Part 14 of ITA 2007 for the meaning of “remitted to the United Kingdom” etc.

41B Section 41A: the relevant period

(1) “The relevant period” is to be determined as follows.

(2) In the case of an amount that counts as employment income by virtue of Chapter 2 (restricted securities) or Chapter 3 (convertible securities), the relevant period—

(a) begins with the day of the acquisition, and

(b) ends with the day of the chargeable event.

(3) In the case of an amount that counts as employment income by virtue of section 446U (securities acquired for less than market value: discharge of notional loan)—

(a) if the relevant securities were acquired by virtue of the exercise of a securities option (“the option”), the relevant period—

(i) begins with the day of the acquisition of the option, and

(ii) ends with the day the option vests, and

(b) otherwise, the relevant period is—

(i) the tax year in which the notional loan (within the meaning of Chapter 3C) is treated as made, or

(ii) if the chargeable event occurs in that year, the period beginning at the beginning of that year and ending with the day of that event.

(4) In the case of an amount that counts as employment income by virtue of—

(a) Chapter 3D (securities disposed of for more than market value), or

(b) Chapter 4 (post-acquisition benefits from securities),

the relevant period is the tax year in which the chargeable event occurs.

(5) In the case of an amount that counts as employment income by virtue of Chapter 5 (employment-related securities options), the relevant period—

(a) begins with the day of the acquisition, and

(b) ends with the day of the chargeable event or, if earlier, the day the relevant securities option vests.

(6) In this section “the acquisition” has the same meaning as in Chapters 2 to 4 or Chapter 5 (see section 421B or 471).

(7) For the purposes of this section an option “vests” when it is first capable of being exercised.

(8) References in this section to a Chapter are to a Chapter of Part 7.

41C Section 41A: foreign securities income

(1) The extent to which the securities income is “foreign” is to be determined as follows.

(2) Treat an equal amount of the securities income as accruing on each day of the relevant period.

(3) If any part of the relevant period is within a tax year to which subsection (4) applies, the securities income treated as accruing in that part of the relevant period is “foreign”.

This is subject to section 41D (limit where duties of associated employment performed in UK).

(4) This subsection applies to a tax year if—

(a) section 809B, 809D or 809E of ITA 2007 applies to the individual for the year,

(b) the individual is ordinarily UK resident in the year,

(c) the employment is with a foreign employer, and

(d) the duties of the employment are performed wholly outside the United Kingdom.

(5) If any part of the relevant period is within a tax year to which subsection (6) applies—

(a) if the duties of the employment are performed wholly outside the United Kingdom, the securities income treated as accruing in that part of the relevant period is “foreign”, and

(b) if some but not all of those duties are performed outside the United Kingdom—

(i) the securities income mentioned in paragraph (a) is to be apportioned (on a just and reasonable basis) between duties performed in the United Kingdom and duties performed outside the United Kingdom, and

(ii) the income apportioned in respect of duties performed outside the United Kingdom is “foreign”.

(6) This subsection applies to a tax year if—

(a) section 809B, 809D or 809E of ITA 2007 applies to the individual for the year,

(b) the individual is not ordinarily UK resident in the year, and

(c) some or all of the duties of the employment are performed outside the United Kingdom.

(7) If the individual is not resident in the United Kingdom in a tax year, for the purposes of this section treat section 809B of ITA 2007 as applying to the individual for that year.

(8) This section is subject to section 41E (foreign securities income: just and reasonable apportionment).

41D Limit on foreign securities income where duties of associated employment performed in UK

(1) This section imposes a limit on the extent to which section 41C(3) applies in relation to a period when—

(a) the individual holds associated employments as well as the employment in relation to which section 41C(4) applies, and

(b) the duties of the associated employments are not performed wholly outside the United Kingdom.

(2) The amount of the securities income for the period that is to be regarded as “foreign” is limited to such amount as is just and reasonable, having regard to—

(a) the employment income for the period from all the employments mentioned in subsection (1)(a),

(b) the proportion of that income that is general earnings to which section 22 applies (chargeable overseas earnings),

(c) the nature of and time devoted to the duties performed outside the United Kingdom, and those performed in the United Kingdom, in the period, and

(d) all other relevant circumstances.

(3) In this section “associated employments” means employments with the same employer or with associated employers.

(4) Section 24(5) and (6) (meaning of “associated employer”) apply for the purposes of this section.

41E Foreign securities income: just and reasonable apportionment

(1) This section applies if the proportion of the securities income that would otherwise be regarded as “foreign” is not, having regard to all the circumstances, one that is just and reasonable.

(2) The amount of the securities income that is “foreign” is such amount as is just and reasonable (rather than the amount calculated in accordance with section 41C).”

23 U.K. Omit Chapter 6 of Part 2 (disputes as to domicile or ordinary residence).

24 U.K. In section 225 (payments for restrictive undertakings), for subsections (6) and (7) substitute—

“(6) This section applies only if—

(a) section 15 applies to any general earnings from the employment, and would apply even if the individual made a claim under section 809B of ITA 2007 (claim for remittance basis) for the tax year mentioned in subsection (3), or

(b) section 27 (UK-based earnings of non-UK resident employee) applies to any general earnings from the employment.”

25 U.K. In section 271(2) (limited exemption of removal benefits and expenses: general)—

(a) in paragraph (a), for the words from “employee” to “UK” substitute “ remittance basis applies and employee ordinarily UK resident ”, and

(b) in paragraph (b), for the words from “employee” to “UK” substitute “ remittance basis applies and employee not ordinarily UK resident ”.

26 U.K. In section 335(4) (application of deductions provisions), omit “, 21, 25”.

27 (1) Section 370 (travel costs and expenses where duties performed abroad) is amended as follows. U.K.

(2) In subsection (1), for the words from “taxable” to “UK)” substitute “ relevant taxable earnings ”.

(3) After subsection (5) insert—

“(6) In this section “relevant taxable earnings” means general earnings for a tax year in which the employee is ordinarily UK resident that—

(a) are taxable earnings under section 15, and

(b) would be taxable earnings under section 15 even if the employee made a claim under section 809B of ITA 2007 (claim for remittance basis) for that year.”

28 (1) Section 371 (travel costs and expenses where duties performed abroad: spouse's travel etc) is amended as follows. U.K.

(2) In subsection (1), for the words from “taxable” to “UK)” substitute “ relevant taxable earnings ”.

(3) After subsection (7) insert—

“(8) In this section “relevant taxable earnings” has the meaning given by section 370(6).”

29 (1) Section 378 (deduction from seafarer's earnings: eligibility) is amended as follows. U.K.

(2) In subsection (1)(a), for the words from “taxable” to the end substitute “ relevant taxable earnings, ”.

(3) After subsection (4) insert—

“(5) In this section “relevant taxable earnings” means general earnings for a tax year in which the employee is ordinarily UK resident that—

(a) are taxable earnings under section 15, and

(b) would be taxable earnings under section 15 even if the employee made a claim under section 809B of ITA 2007 (claim for remittance basis) for that year.”

30 (1) Section 413 (exception in certain cases of foreign service) is amended as follows. U.K.

(2) In subsection (3), for paragraph (a) substitute—

“(a) any earnings from the employment would not be relevant earnings, or”

(3) After that subsection insert—

“(3A) In subsection (3)(a) “relevant earnings” means—

(a) for service in or after the tax year 2008-09, earnings—

(i) which are for a tax year in which the employee is ordinarily UK resident,

(ii) to which section 15 applies, and

(iii) to which that section would apply, even if the employee made a claim under section 809B of ITA 2007 (claim for remittance basis) for that year, and

(b) for service before the tax year 2008-09, general earnings to which section 15 or 21 as originally enacted applies.”

31 U.K. In section 421E(1) (income relating to securities: exclusions), for the words from “or 21” to the end substitute “ , 22 or 26 applies (earnings for year when employee UK resident). ”.

32 U.K. In section 446N (securities subject to restriction during relevant period), after subsection (6) insert—

“(7) If any of the employment income arising under section 426 by virtue of the chargeable event is foreign securities income within the meaning of section 41C, reduce the taxable amount mentioned in subsection (5) by the amount of the foreign securities income.

(8) If any of the employment income that would have arisen (if the non-commercial interests mentioned in subsection (6) had been disregarded) under section 426 by virtue of the chargeable event would have been foreign securities income (within that meaning), reduce the taxable amount mentioned in subsection (6) by the amount of the foreign securities income.”

33 U.K. In section 474(1) (securities options: exclusions), for the words from “or 21” to the end substitute “ , 22 or 26 applies (earnings for year when employee UK resident). ”

34 U.K. In section 540(2) (EMI: taxable benefits), for the words from “or 21” to the end substitute “ applies (earnings for year when employee UK resident).& ”

35 U.K. In section 690 (PAYE: employee non-UK resident etc), after subsection (2) insert—

“(2A) For the purposes of subsection (2) as it applies in relation to an employee who is UK resident but not ordinarily UK resident in a tax year, the officer may treat section 809B of ITA 2007 (remittance basis) as applying to the employee for that year, even if no claim under that section has been made.”

36 U.K. In section 698 (PAYE: special charges on employment-related securities), after subsection (7) insert—

“(8) This section is subject to section 700A (employment-related securities etc: remittance basis).”

37 U.K. In section 700 (PAYE: gains from securities options), after subsection (6) insert—

“(7) This section is subject to section 700A (employment-related securities etc: remittance basis).”

38 U.K. After that section insert—

“700A Employment-related securities etc: remittance basis

(1) This section applies if—

(a) section 698 or 700 applies, and

(b) part or all of the amount that counts as employment income is foreign securities income or is likely to be foreign securities income.

(2) The amount of the payment treated under section 696 as made is limited to—

(a) the amount that, on the basis of the best estimate that can reasonably be made, is likely to count as employment income, minus

(b) the amount that, on the basis of such an estimate, is likely to be foreign securities income.

(3) References in this section to “foreign securities income” are to income that is foreign securities income for the purposes of section 41A.”

39 U.K. In section 721(1) (other definitions), for the definition of “foreign employer” substitute—

““foreign employer” means an individual, partnership or body of persons resident outside, and not resident in, the United Kingdom,”.

40 U.K. In Schedule 1 (index of defined expressions), omit the entries relating to—

(a) receipt of money earnings (in Chapter 5 of Part 2), and

(b) receipt of non-money earnings (in Chapter 5 of Part 2).

41 U.K. In paragraph 8 of Schedule 2 (approved share incentive plans: all-employee nature of plan), for sub-paragraph (2) substitute—

“(2) An employee is a UK resident taxpayer if—

(a) the employee's earnings from the employment by reference to which the employee meets the employment requirement are (or would be if there were any) general earnings to which section 15 applies (earnings for year when employee UK resident), and

(b) those general earnings are (or would be if there were any) earnings for a tax year in which the employee is ordinarily resident in the United Kingdom.”

42 U.K. In paragraph 6(2) of Schedule 3 (approved SAYE option schemes: all-employee nature of scheme), for paragraph (c) substitute—

“(c) E's earnings from the office or employment within paragraph (a) are (or would be if there were any) general earnings to which section 15 applies (earnings for year when employee UK resident),

(ca) those general earnings are (or would be if there were any) earnings for a tax year in which E is ordinarily resident in the United Kingdom, and”.

43 U.K. In paragraph 27(2) of Schedule 5 (enterprise management incentives: meaning of “working time”)—

(a) in paragraph (a), for the words from “or 21” to “Kingdom)” substitute “ applies (earnings for year when employee UK resident) ”, and

(b) in paragraph (b), for the words from “resident and” to the end substitute “ UK resident (and none of sections 809B, 809D and 809E of ITA 2007 (remittance basis) applied to the employee). ”

44 U.K. In Schedule 7 (transitionals and savings), omit paragraphs 9 to 12.