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Part 3U.K.Employment income: earnings and benefits etc. treated as earnings

Chapter 12U.K. [F1Other amounts] treated as earnings

Textual Amendments

F1Words in Pt. 3 Ch. 12 heading substituted (1.9.2013) by Finance Act 2013 (c. 29), Sch. 23 paras. 4(a), 38; S.I. 2013/1755, art. 2

[F2Payments] U.K.

Textual Amendments

F2S. 221 cross-heading inserted (1.9.2013) by Finance Act 2013 (c. 29), Sch. 23 paras. 4(b), 38; S.I. 2013/1755, art. 2

221Payments where employee absent because of sickness or disabilityU.K.

(1)This section applies if—

(a)an employee is absent from work because of sickness or disability, and

(b)a qualifying sickness payment is made in respect of the employee’s absence from work.

(2)But this section does not apply if the qualifying sickness payment constitutes earnings from the employment by virtue of any other provision.

(3)The qualifying sickness payment is to be treated as earnings from the employment in respect of the period of absence.

(4)If the qualifying sickness payment is made from funds to which the employer and the employer’s employees have made contributions, only the amount of the payment which it is just and reasonable to attribute to the employer’s contributions is treated as earnings under this section.

(5)In this section “qualifying sickness payment” means a payment which meets conditions A and B.

(6)Condition A is that the payment is made—

(a)to the employee or to a member of the employee’s family,

(b)to the order of such a person, or

(c)to the benefit of such a person.

(7)Condition B is that the payment is made—

(a)by reason of the employment, and

(b)as a result of arrangements entered into by the employer.

222Payments by employer on account of tax where deduction not possibleU.K.

(1)This section applies if—

(a)an employer is treated by virtue of sections 687, [F3687A,] 689 [F4, 689A] and 693 to 700 as having made a payment of income of an employee (“the notional payment”),

(b)the employer is required by virtue of section 710(4) to account to [F5an officer of Revenue and Customs] for an amount of income tax (“the due amount”) in respect of the notional payment, and

(c)the employee does not, before the end of the period of [F690 days] [F7after the end of the tax year in which the relevant date falls], make good the due amount to the employer.

(2)The due amount is to be treated as earnings from the employment for the tax year in which the [F8relevant date] falls.

(3)In this section “employer”, in relation to any provision of sections 687, [F9687A,] 689, 693 to 700 or 710, means the person taken to be the employer for the purposes of that provision.

It also includes a person who is treated as making a payment of PAYE income by virtue of section 689(2) (payments by person for whom employee works but who is not the employer) [F10or section 689A(3) (deemed payments of PAYE income of continental shelf workers by person other than employer)] .

[F11(4)In this section “the relevant date” means—

(a)if the employer is treated by virtue of any Act as making the notional payment before the date on which the Act is passed, that date, and

(b)in any other case, the date on which the employer is treated as making the notional payment.]

Textual Amendments

F3Word in s. 222(1)(a) inserted (with effect in accordance with Sch. 2 paras. 52-59 of the amending Act) by Finance Act 2011 (c. 11), Sch. 2 para. 10

F4Word in s. 222(1)(a) inserted (6.4.2014) by Finance Act 2014 (c. 26), s. 21(2)(a)(10)

F6Words in s. 222(1)(c) substituted (with effect in accordance with s. 144(2) of the amending Act) by Finance Act 2003 (c. 14), s. 144(1)

F7Words in s. 222(1)(c) substituted (with effect in accordance with s. 19(2) of the amending Act) by Finance Act 2014 (c. 26), s. 19(1)

F8Words in s. 222(2) substituted (with effect in accordance with s. 94(5) of the amending Act) by Finance Act 2006 (c. 25), s. 94(2)(b); S.I. 2007/1081, art. 2

F9Word in s. 222(3) inserted (with effect in accordance with Sch. 2 paras. 52-59 of the amending Act) by Finance Act 2011 (c. 11), Sch. 2 para. 10

F10Words in s. 222(3) inserted (6.4.2014) by Finance Act 2014 (c. 26), s. 21(2)(b)(10)

F11S. 222(4) inserted (with effect in accordance with s. 94(5) of the amending Act) by Finance Act 2006 (c. 25), s. 94(2)(c); S.I. 2007/1081, art. 2

Modifications etc. (not altering text)

223Payments on account of director’s tax other than by the directorU.K.

(1)This section applies if in a tax year—

(a)a person (“P”) makes a payment to another person who is employed as the director of a company,

(b)the payment is of, or on account of, earnings from the director’s employment,

(c)PAYE regulations require P to deduct an amount of income tax (“the deductible tax”),

(d)P deducts none, or only some, of the deductible tax, and

(e)either or both of the following occur—

(i)P accounts to [F12the Commissioners for Her Majesty’s Revenue and Customs] for some or all of the deductible tax (whether or not P has actually deducted the amount accounted for);

(ii)one or more persons other than P (apart from the director) account to [F12the Commissioners for Her Majesty’s Revenue and Customs] for some or all of the deductible tax.

(2)For the purposes of this section it does not matter whether the director’s employment is held at the time when P makes the payment mentioned in subsection (1)(a) so long as it is held at some point in the tax year in which the payment is made.

(3)References in this section to employment as a director accordingly include prospective or past employment as a director.

(4)The deductible tax accounted for to [F12the Commissioners for Her Majesty’s Revenue and Customs] is to be treated as earnings of the director from the director’s employment for the tax year in which it is accounted for.

(5)But if—

(a)the deductible tax is accounted for after the director’s employment has ceased, and

(b)the employment ceased in a tax year before the one in which the deductible tax is accounted for,

the deductible tax is treated as earnings for the tax year in which the director’s employment ceased.

(6)The following rules apply to the calculation of the amount to be treated as earnings under this section—

(a)any amount accounted for after the death of the director is to be disregarded;

(b)if P deducts some of the deductible tax, the amount treated as earnings is reduced by the amount deducted;

(c)if the director makes good to P or to another person some or all of the deductible tax which P or the other person accounts for, the amount treated as earnings is reduced by the amount made good.

(7)This section does not apply if the director has no material interest in the company and either—

(a)the director is employed as a full-time working director of the company, or

(b)the company is—

(i)non-profit-making, or

(ii)[F13a charitable company] .

(8)In this section—

Textual Amendments

F13Words in s. 223(7)(b)(ii) substituted (coming into force for the tax year 2012-13 and subsequent tax years) by Finance Act 2010 (c. 13), Sch. 6 paras. 17(4), 34(2); S.I. 2012/736, art. 13

F14224Payments to non-approved personal pension arrangementsU.K.

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Textual Amendments

F14S. 224 repealed (6.4.2006) by Finance Act 2004 (c. 12), Sch. 42 Pt. 3 (with Sch. 36)

225Payments for restrictive undertakingsU.K.

(1)This section applies where—

(a)an individual gives a restrictive undertaking in connection with the individual’s current, future or past employment, and

(b)a payment is made in respect of—

(i)the giving of the undertaking, or

(ii)the total or partial fulfilment of the undertaking.

(2)It does not matter to whom the payment is made.

(3)The payment is to be treated as earnings from the employment for the tax year in which it is made.

(4)Subsection (3) does not apply if the payment constitutes earnings from the employment by virtue of any other provision.

(5)A payment made after the death of the individual who gave the undertaking is treated for the purposes of this section as having been made immediately before the death.

[F15(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.]

(8)In this section “restrictive undertaking” means an undertaking which restricts the individual’s conduct or activities.

For this purpose it does not matter whether or not the undertaking is legally enforceable or is qualified.

Textual Amendments

F15S. 225(6) substituted for s. 225(6)(7) (with effect in accordance with Sch. 7 para. 81 of the amending Act) by Finance Act 2008 (c. 9), Sch. 7 para. 24

226Valuable consideration given for restrictive undertakingsU.K.

(1)In a case where—

(a)an individual gives a restrictive undertaking in connection with the individual’s current, future or past employment, and

(b)valuable consideration that is not in the form of money is provided in respect of—

(i)the giving of the undertaking, or

(ii)the total or partial fulfilment of the undertaking,

section 225 applies as it would if a payment of an amount equal to the value of the consideration had been made instead.

(2)For this purpose—

(a)merely assuming an obligation to make over or provide valuable property, rights or advantages is not valuable consideration, but

(b)wholly or partially discharging such an obligation is.

[F16Shares of employee shareholdersU.K.

Textual Amendments

F16Ss. 226A-226D and cross-heading inserted (1.9.2013) by Finance Act 2013 (c. 29), Sch. 23 paras. 3, 38; S.I. 2013/1755, art. 2

226AAmount treated as earningsU.K.

(1)This section applies if shares having a market value of no less than £2000 are acquired by an employee in consideration of an employee shareholder agreement.

(2)An amount [F17equal to the market value of the shares] is to be treated as earnings from the employment, in respect of the acquisition of the shares, for the tax year in which they are acquired.

But this is subject to subsection (4).

F18(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)If the shares are acquired pursuant to an employment-related securities option, subsection (2) does not apply.

(5)If subsection (2) applies, nothing else constitutes earnings under this Part from the employment in respect of the acquisition of the shares.

(6)For the purposes of this section F19...—

(7)For the purposes of subsection (1) [F20(but not subsection (2))] , the market value of the shares is to be determined ignoring—

(a)any election under section 431 (election for market value of restricted shares to be calculated as if not restricted), and

(b)section 437 (market value of convertible securities to be determined as if not convertible).]

Textual Amendments

F17Words in s. 226A(2) substituted (with effect in accordance with s. 12(5)-(7) of the amending Act) by Finance Act 2017 (c. 10), s. 12(1)(a)

F18S. 226A(3) omitted (with effect in accordance with s. 12(5)-(7) of the amending Act) by virtue of Finance Act 2017 (c. 10), s. 12(1)(b)

F19Words in s. 226A(6) omitted (with effect in accordance with s. 12(5)-(7) of the amending Act) by virtue of Finance Act 2017 (c. 10), s. 12(1)(c)

F20Words in s. 226A(7) inserted (with effect in accordance with s. 12(5)-(7) of the amending Act) by Finance Act 2017 (c. 10), s. 12(1)(d)

F21226BDeemed payment for employee shareholder sharesU.K.

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Textual Amendments

F21Ss. 226B-226D omitted (with effect in accordance with s. 12(5)-(7) of the amending Act) by virtue of Finance Act 2017 (c. 10), s. 12(2)

F21226COnly one payment deemed to be made under associated agreementsU.K.

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Textual Amendments

F21Ss. 226B-226D omitted (with effect in accordance with s. 12(5)-(7) of the amending Act) by virtue of Finance Act 2017 (c. 10), s. 12(2)

F21226DShareholder or connected person having material interest in companyU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F21Ss. 226B-226D omitted (with effect in accordance with s. 12(5)-(7) of the amending Act) by virtue of Finance Act 2017 (c. 10), s. 12(2)

[F22Sporting testimonial paymentsU.K.

Textual Amendments

F22S. 226E and cross-heading inserted (with effect in accordance with Sch. 2 para. 4(1) of the amending Act) by Finance Act 2016 (c. 24), Sch. 2 para. 1

226ESporting testimonial paymentsU.K.

(1)This section applies in relation to an individual who is or has been employed as a professional sportsperson (“S”).

(2)In this section “sporting testimonial” means—

(a)a series of relevant events or activities which each have the same controller, or

(b)a single relevant event or activity not forming part of such a series.

(3)An event or activity is (subject to subsection (4)(b)) a relevant event or activity if—

(a)its purpose (or one of its purposes) is to raise money for or for the benefit of S, and

(b)the only or main reason for doing that is to recognise S's service as a professional sportsperson who is or has been employed as such.

(4)An activity that meets the conditions in subsection (3)(a) and (b) and consists solely of inviting and collecting donations for or for the benefit of S—

(a)is a relevant activity if it is one of a series of relevant events or activities for the purposes of subsection (2)(a), but

(b)is not a relevant activity for the purposes of subsection (2)(b) so long as both conditions in subsection (5) are met while the activity takes place.

(5)The conditions are—

(a)that any person who is responsible (alone or with others) for collecting the donations or who is the controller (or a member of a committee which is the controller) of the activity is not—

(i)S,

(ii)a person who is (or has been) the controller of any other relevant event or activity for or for the benefit of S,

(iii)a person connected with S or a person mentioned in sub-paragraph (ii),

(iv)a person acting for or on behalf of a person mentioned in sub-paragraphs (i) to (iii), and

(b)that the donations collected do not include any sums paid (directly or indirectly) out of money raised by any other relevant event or activity.

(6)A “sporting testimonial payment” is a payment made by (or on behalf of) the controller of a sporting testimonial out of money raised for or for the benefit of S which—

(a)is made to S, to a member of S's family or household, to a prescribed person, to S's order or otherwise for S's benefit, and

(b)does not (apart from this section) constitute earnings from an employment.

(7)A sporting testimonial payment is to be treated as earnings of S from the employment or former employment to which the sporting testimonial is most closely linked.

(8)For the purposes of this section if at any material time S is dead—

(a)anything done for or for the benefit of S's estate is to be regarded as done for or for the benefit of S; and

(b)a payment made to S's personal representatives or to their order is to be treated as a payment to S or to S's order.

(9)In this section—

(10)Section 993 of ITA 2007 (meaning of “connected” persons) has effect for the purposes of this section.]