The Enactment of Extra-Statutory Concessions Order 2018

EXPLANATORY NOTE

(This note is not part of the Order)

This Order is made under section 160 of the Finance Act 2008 (c. 9) and enacts three existing HMRC extra-statutory concessions (“ESCs”). It comes into force on 1st April 2018.

Articles 2 and 3 enact ESC EIM01120.

Article 2 inserts section 299A of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). New section 299A creates a new income tax exemption for payments of financial loss allowance (“FLA”) to holders of an unpaid office with certain public bodies (defined in section 299A as “relevant authorities”) to compensate them for lost employment income as a result of performing the duties of the office. The exemption applies only if the office-holder is not entitled to, has not received and does not expect to receive any remuneration for performing the duties of the office, and provided that the payment does not exceed the net amount of employment income that the office-holder would otherwise have received. The definition of a “relevant authority” is broad and includes central or local government bodies, bodies established by or under a statutory provision, Local Medical Committees, trade unions and companies that carry out the functions of a relevant authority.

Article 3 inserts new sections 16A and 782C into the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”).

New section 16A ITTOIA disapplies the priority rules in Part 1 ITTOIA in their application to FLA payments to holders of an unpaid office with a relevant authority to compensate them for lost income from a trade, profession or vocation as a result of performing the duties of that office. Where it applies, it requires the FLA to be treated as income arising to the office-holder from the trade, profession or vocation, instead of as income arising from the office.

New section 782C ITTOIA creates a new income tax exemption for payments of FLA to an individuals who perform unpaid services for a relevant authority to compensate them for lost employment income as a result of doing so. The exemption is subject to near-identical conditions to section 299A ITEPA.

Articles 4, 5 and 6 enact ESCs A37 and EIM03002.

Article 4 amends section 6(5) of ITEPA. The effect of this amendment is that employment income is not charged to income tax under Part 2 of ITEPA if it is within the charge to tax under Part 2 of ITTOIA by virtue of new sections 16B and 16C of ITTOIA or under Part 3 of the Corporation Tax Act 2009 (“CTA”) (c. 4) by virtue of new sections 40A and 40B of the CTA.

Article 5 inserts new sections 16B and 16C into ITTOIA.

In particular new section 16B of ITTOIA enables certain payments received by directors of companies or partnerships to be treated as trading income rather than employment income for income tax purposes provided that the conditions specified in new section 16B(3) and (4) of ITTOIA are met.

New section 16C of ITTOIA enables certain payments received by professional practitioners by way of incidental income from an office or employment to be treated as trading income rather than employment income for income tax purposes provided that the conditions specified in section 16C(3) and (4) of ITTOIA are met.

Article 6 inserts new sections 40A and 40B into CTA.

In particular new section 40A of CTA enables certain payments received by directors of companies or partnerships to be treated as trading income rather than employment income for corporation tax purposes provided that the conditions specified in new section 40A(3) and (4) of CTA are met.

New section 40B of CTA enables certain payments received by professional practitioners in partnership by way of incidental income from an office or employment to be treated as trading income rather than employment income for corporation tax purposes provided that the conditions specified in section 40B(3) of CTA are met.

A Tax Information and Impact Note has not been prepared for this Instrument as it contains no substantive changes to tax policy.