Income Tax (Earnings and Pensions) Act 2003

Part 6 U.K. Employment income: income which is not earnings or share-related

Chapter 1 U.K. Payments to non-approved pension schemes

386 Charge on payments to non-approved retirement benefits schemes U.K.

(1) A sum paid by an employer—

(a) in accordance with a non-approved retirement benefits scheme, and

(b) with a view to the provision of relevant benefits for or in respect of an employee of the employer,

counts as employment income of the employee for the relevant tax year.

(2) The “relevant tax year” is the tax year in which the sum is paid.

(3) Subsection (1) does not apply if or to the extent that the sum is chargeable to income tax as the employee’s income apart from this section.

(4) But if, apart from this section, the payment of the sum would be a payment to which Chapter 3 of this Part (payments and benefits on termination of employment etc.) would apply, subsection (1) applies to the sum (and accordingly that Chapter does not apply to it).

(5) In this Chapter—

(a) “employee” includes a person who is to be or has been an employee,

(b) section 5(1) (application to offices) does not apply, but “employee”, in relation to a company, includes any officer or director of the company and any other person taking part in the management of the affairs of the company,

(c) “employer” and “employment” have meanings corresponding to the meaning of “employee” given by paragraphs (a) and (b),

(d) “director” has the meaning given by section 612(1) of ICTA, and

(e) “relevant benefits” has the meaning given by that section, and section 612(2) of ICTA applies to references in this Chapter to the provision of relevant benefits as it applies to such references in Chapter 1 of Part 14 of ICTA.

(6) For the purposes of this Chapter benefits are provided in respect of an employee if they are provided for the employee’s spouse, widow or widower, children, dependants or personal representatives.

(7) Any liability to tax arising by virtue of this section is subject to the reliefs given under—

(a) section 392 (relief where no benefits are paid or payable), and

(b) section 266A of ICTA (life assurance premiums paid by employer).

387 Meaning of “non-approved retirement benefits scheme” U.K.

(1) In this Chapter “retirement benefits scheme” has the meaning given by section 611 of ICTA.

(2) For the purposes of this Chapter, a retirement benefits scheme is “non-approved” unless it is—

(a) an approved scheme,

(b) a relevant statutory scheme, or

(c) a scheme set up by a government outside the United Kingdom for the benefit of its employees or primarily for their benefit.

(3) In this section—

• “approved scheme” has the meaning given by section 612(1) of ICTA, and

• “relevant statutory scheme” has the meaning given by section 611A of ICTA.

388 Apportionment of payments in respect of more than one employee U.K.

(1) If a sum within section 386 is paid for or in respect of two or more employees, part of it is treated as paid in respect of each of them.

(2) The amount treated as paid in respect of each employee is—

where—

A is the sum paid,

B is the amount which would have had to be paid to secure the benefits to be provided in respect of the employee in question, and

C is the total amount which would have had to be paid to secure the benefits to be provided in respect of all the employees if separate payments had been made in the case of each of them.

Modifications etc. (not altering text)

C1 S. 388 applied by 1988 c. 1, s. 266A(5) (as inserted (6.4.2003 with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), s. 723, Sch. 6 para. 36 (with Sch. 7))

[F1 389 Exception: employments where earnings charged on remittance U.K.

Section 386 does not apply if in the tax year in which the sum is paid the earnings from the employment are not (or would not have been if there were any) general earnings to which any of the following provisions applies—

(a) section 15 (employee resident, ordinarily resident and domiciled in UK),

(b) section 21 (employee resident and ordinarily resident, but not domiciled in UK),

(c) section 25 (employee resident but not ordinarily resident in UK),

(d) section 27 (UK-based earnings for year when employee not resident in UK).]

Textual Amendments

F1 S. 389 substituted (with effect in accordance with Sch. 17 para. 2(2) of the amending Act) by Finance Act 2004 (c. 12), Sch. 17 para. 2(1)

390 Exception: non-domiciled employees with foreign employers U.K.

Section 386 does not apply if—

(a) the employee is not domiciled in the United Kingdom in the tax year in which the sum is paid,

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

(c) on a claim made by the employee the Board of Inland Revenue are satisfied that the scheme corresponds to a scheme within section 387(2)(a), (b) or (c).

391 Exception: seafarers with overseas earnings U.K.

Section 386 does not apply if—

(a) the sum is paid in a period that is an eligible period in relation to the employee’s employment for the purposes of Chapter 6 of Part 5 (deductions from seafarers' earnings) (see section 378(2)), and

(b) a deduction is allowed under section 378 from the employee’s earnings that are attributable to that period.

392 Relief where no benefits are paid or payable U.K.

(1) An application for relief may be made to the Inland Revenue if—

(a) a sum is charged to tax by virtue of section 386 in respect of the provision of any benefits,

(b) no payment in respect of, or in substitution for, the benefits has been made, and

(c) an event occurs by reason of which no such payment will be made.

(2) The application must be made within 6 years from the time when the event occurs.

(3) The application must be made by the employee or, if the employee has died, the employee’s personal representatives.

(4) If the Inland Revenue are satisfied that the conditions in subsection (1) are met in relation to the whole sum, they must give relief in respect of tax on it by repayment or otherwise as appropriate, unless subsection (6) applies.

(5) If the Inland Revenue are satisfied that the conditions in subsection (1) are met in relation to part of the sum, they may give such relief in respect of tax on it as is just and reasonable, unless subsection (6) applies.

(6) This subsection applies if—

(a) the reason why no payment has been made in respect of, or in substitution for, the benefits, or

(b) the event by reason of which there will be no such payment,

is a reduction or cancellation of the employee’s rights in respect of the benefits, or part of the benefits, as a consequence of a pension sharing order or provision.

(7) In subsection (6) “pension sharing order or provision” means any such order or provision as is mentioned in—

(a) section 28(1) of WRPA 1999 (rights under pension sharing arrangements), or

(b) Article 25(1) of WRP(NI)O 1999 (provision for Northern Ireland corresponding to section 28(1) of WRPA 1999).

Chapter 2 U.K. Benefits from non-approved pension schemes

Benefits treated as employment income U.K.

393 Application of this Chapter U.K.

(1) This Chapter applies to any benefit provided under a non-approved retirement benefits scheme.

(2) But this Chapter does not apply to a benefit which is charged to tax under Part 9 (pension income).

394 Charge on benefit to which this Chapter applies U.K.

(1) If a benefit to which this Chapter applies is received by an individual, the amount of the benefit counts as employment income of the individual for the relevant tax year.

(2) If a benefit to which this Chapter applies is received by a person who is not an individual, the administrator of the scheme under which the benefit is provided is chargeable [F2 to income tax] on the amount of the benefit for the relevant tax year.

(3) In subsections (1) and (2) the “relevant tax year” is the tax year in which the benefit is received.

(4) For the purposes of subsection (2), the rate of tax is 40% or such other rate as may for the time being be specified by the Treasury by order.

(5) No liability to income tax arises by virtue of any other provision of this Act in respect of a benefit to which this Chapter applies.

Textual Amendments

F2 Words in s. 394(2) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 595 (with Sch. 2)

Modifications etc. (not altering text)

C2 S. 394 restricted (22.7.2004) by Finance Act 2004 (c. 12), Sch. 36 paras. 54(2)(3)(a), 55(2) (with s. 283(5), Sch. 36)

395 Application of sections 396 and 397: general rules U.K.

(1) Section 394 is subject to—

(a) section 396 (which provides that certain lump sums are not taxed by virtue of section 394), and

(b) section 397 (which provides for the calculation of the amount taxed by virtue of section 394 in relation to certain lump sums).

(2) Section 396 applies in relation to a lump sum only if the condition in subsection (4) below is met.

(3) Section 397 applies in relation to a lump sum only if—

(a) the condition in subsection (4) below is met, or

(b) an employee has paid any sum or sums with a view to the provision of any relevant benefits under the scheme under which the lump sum is provided.

(4) The condition mentioned in subsections (2) and (3)(a) is that—

(a) an employer has paid any sum or sums with a view to the provision of any relevant benefits under the scheme under which the lump sum is provided, and

(b) an employee has been assessed to tax in respect of the sum or sums so paid—

(i) by virtue of section 595(1) of ICTA, or

(ii) by virtue of the sum or sums counting as employment income of the employee under section 386(1) of this Act.

(5) For the purposes of this section it must be assumed that, unless the contrary is shown—

(a) no sums have been paid with a view to the provision of relevant benefits, and

(b) an employee has not been assessed in respect of a sum or sums as mentioned in subsection (4)(b).

Modifications etc. (not altering text)

C3 S. 395 modified (22.7.2004) by Finance Act 2004 (c. 12), Sch. 36 paras. 54(3)(b), 55(3) (with s. 283(5), Sch. 36)

396 Certain lump sums not taxed by virtue of section 394 U.K.

(1) Section 394 does not apply to a lump sum if—

(a) all of the income and gains accruing to the scheme under which the lump sum is provided are brought into charge to tax, and

(b) the lump sum is provided to—

(i) the employee mentioned in section 395(4)(b),

(ii) a relative of that employee,

(iii) the personal representatives of that employee,

(iv) an ex-spouse of that employee, or

(v) any other individual designated by that employee.

(2) For the purposes of this section it must be assumed that, unless the contrary is shown, the income and gains accruing to the scheme are not brought into charge to tax.

397 Certain lump sums: calculation of amount taxed by virtue of section 394 U.K.

(1) In a case where—

(a) section 394 applies to a lump sum, and

(b) any of the income or gains accruing to the scheme under which the lump sum is provided is not brought into charge to tax,

the amount which by virtue of that section counts as employment income, or is chargeable to tax under [F3 subsection (2) of that section] , is determined in accordance with this section.

(2) That amount is the amount of the lump sum reduced by the deduction applicable under subsection (3) or (4).

(3) Subject to subsection (4), the deduction applicable is the aggregate of—

(a) the sum or sums mentioned in section 395(3)(b) (if any), and

(b) the sum or sums mentioned in section 395(4)(b) (if any),

which in either case were paid by way of contribution to the provision of the lump sum.

(4) The deduction applicable is calculated in accordance with the formula in subsection (6) if—

(a) the lump sum is provided under the scheme on the disposal of a part of any asset or the surrender of any part of or share in any rights in any asset, and

(b) a person falling within subsection (5) has a right to receive, or any expectation of receiving, a further lump sum or further lump sums under the scheme on a further disposal of any part of the asset or a further surrender of any part of or share in any rights in the asset.

(5) The persons referred to in subsection (4)(b) are—

(a) the employee,

(b) a relative of that employee,

(c) the personal representatives of that employee, or

(d) any person connected with that employee.

(6) The formula referred to in subsection (4) is—

where—

D is the deduction applicable;

S is the aggregate amount of any sum or sums of a description mentioned in paragraphs (a) and (b) of subsection (3);

LS is the amount of the lump sum received in relation to which the deduction applicable falls to be determined;

MVA is the market value of the asset in relation to which the disposal or surrender occurred, on the assumption that the valuation is made immediately before the disposal or surrender.

(7) An individual may not claim that a deduction is applicable in relation to a lump sum more than once.

(8) For the purposes of this section it must be assumed that, unless the contrary is shown—

(a) the income and gains accruing to the scheme are not brought into charge to tax, and

(b) no deduction is applicable under subsection (3) or (4).

(9) For the purposes of this section income and gains accruing to the scheme are not to be regarded as brought into charge to tax merely because tax is charged in relation to the scheme in accordance with section 591C of ICTA.

(10) In this section “market value” is to be construed in accordance with sections 272 and 273 of TCGA 1992.

Textual Amendments

F3 Words in s. 397(1) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 596 (with Sch. 2)

Valuation of benefits etc. U.K.

398 Valuation of benefits U.K.

(1) In the case of a cash benefit, for the purposes of this Chapter the amount of a benefit is taken to be the amount received.

(2) In the case of a non-cash benefit, for the purposes of this Chapter the amount of a benefit is taken to be the greater of—

(a) the amount of earnings (as defined in Chapter 1 of Part 3) that the benefit would give rise to if it were received for performance of the duties of an employment (money’s worth), and

(b) the cash equivalent of the benefit under the benefits code if it were so received and the code applied to it.

(3) For the purposes of subsection (2) the benefits code has effect with the modifications in subsections (4) to (6).

(4) References in the benefits code to the employee are to be taken as references to the person by whom the benefit is received.

(5) References in the benefits code to the employer are to be taken as including references to the former employer.

(6) Where—

(a) section 106 (cash equivalent: cost of accommodation over £75,000) applies, and

(b) the amount referred to in section 105(2)(b) (the sum made good) exceeds the amount referred to in section 105(2)(a) (the rental value),

the amount to be subtracted under paragraph (b) of step 4 of the calculation in section 106(2) is that excess (and not only the excess rent referred to there).

399 Employment-related loans: interest treated as paid U.K.

(1) This section applies if—

(a) an amount consisting of, or including, an amount representing the benefit of a loan (“a taxable amount”) counts as employment income of an individual in a tax year under section 394(1), or

(b) the administrator of a scheme is charged to tax on a taxable amount F4 ... under section 394(2).

(2) The individual or the administrator is to be treated for all purposes of the Tax Acts (other than this Chapter) as having paid interest on the loan in the tax year equal to the amount representing the cash equivalent of the loan.

(3) The interest is to be treated—

(a) as accruing during the period in the tax year during which the loan is outstanding, and

(b) as paid at the end of the period.

(4) The interest is not to be treated—

(a) as income of the person making the loan, or

(b) as relevant loan interest to which section 369 of ICTA applies (mortgage interest payable under deduction of tax).

Textual Amendments

F4 Words in s. 399(1)(b) repealed (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 597, Sch. 3 (with Sch. 2)

Interpretation U.K.

400 Interpretation U.K.

(1) In this Chapter—

• “administrator”, in relation to a scheme, has the same meaning as in section 611AA of ICTA;

• “employee” has the same meaning as in Chapter 1 of Part 14 of ICTA (see section 612(1) of ICTA);

• “ex-spouse” means a party to a marriage that has been dissolved or annulled and, in relation to any person, means the other party to a marriage with that person that has been dissolved or annulled;

• “non-approved retirement benefits scheme” has the same meaning as in Chapter 1 of this Part (see section 387);

• “relative”, in relation to an individual, means—

  (a)

  the wife or husband of the individual,

  (b)

  the widow or widower of the individual,

  (c)

  a child of the individual, and

  (d)

  a dependant of the individual;

• “relevant benefits” has the same meaning as in section 612(1) of ICTA.

(2) Section 612(2) of ICTA applies to the references in this Chapter to the provision of relevant benefits as it applies to such references in Chapter 1 of Part 14 of ICTA.

Chapter 3 U.K. Payments and benefits on termination of employment etc.

Preliminary U.K.

401 Application of this Chapter U.K.

(1) This Chapter applies to payments and other benefits which are received directly or indirectly in consideration or in consequence of, or otherwise in connection with—

(a) the termination of a person’s employment,

(b) a change in the duties of a person’s employment, or

(c) a change in the earnings from a person’s employment,

by the person, or the person’s spouse, blood relative, dependant or personal representatives.

(2) Subsection (1) is subject to subsection (3) and sections 405 to 413 (exceptions for certain payments and benefits).

(3) This Chapter does not apply to any payment or other benefit chargeable to income tax apart from this Chapter.

(4) For the purposes of this Chapter—

(a) a payment or other benefit which is provided on behalf of, or to the order of, the employee or former employee is treated as received by the employee or former employee, and

(b) in relation to a payment or other benefit—

(i) any reference to the employee or former employee is to the person mentioned in subsection (1), and

(ii) any reference to the employer or former employer is to be read accordingly.

402 Meaning of “benefit” U.K.

(1) In this Chapter “benefit” includes anything in respect of which, were it received for performance of the duties of the employment, an amount—

(a) would be taxable earnings from the employment, or

(b) would be such earnings apart from an earnings-only exemption.

This is subject to subsections (2) to (4).

(2) In this Chapter “benefit” does not include a benefit received in connection with the termination of a person’s employment that is a benefit which, were it received for performance of the duties of the employment, would fall within—

(a) section 239(4) (exemption of benefits connected with taxable cars and vans and exempt heavy goods vehicles), so far as that section applies to a benefit connected with a car or van,

(b) section 269 (exemption where benefits or money obtained in connection with taxable car or van or exempt heavy goods vehicle),

(c) section 319 (mobile telephones), or

(d) section 320 (limited exemption for computer equipment).

(3) In this Chapter “benefit” does not include a benefit received in connection with any change in the duties of, or earnings from, a person’s employment to the extent that it is a benefit which, were it received for performance of the duties of the employment, would fall within section 271(1) (limited exemption of removal benefits and expenses).

(4) The right to receive a payment or benefit is not itself a benefit for the purposes of this Chapter.

Payments and benefits treated as employment income U.K.

403 Charge on payment or other benefit U.K.

(1) The amount of a payment or benefit to which this Chapter applies counts as employment income of the employee or former employee for the relevant tax year if and to the extent that it exceeds the £30,000 threshold.

(2) In this section “the relevant tax year” means the tax year in which the payment or other benefit is received.

(3) For the purposes of this Chapter—

(a) a cash benefit is treated as received—

(i) when it is paid or a payment is made on account of it, or

(ii) when the recipient becomes entitled to require payment of or on account of it, and

(b) a non-cash benefit is treated as received when it is used or enjoyed.

(4) For the purposes of this Chapter the amount of a payment or benefit in respect of an employee or former employee exceeds the £30,000 threshold if and to the extent that, when it is aggregated with other such payments or benefits to which this Chapter applies, it exceeds £30,000 according to the rules in section 404 (how the £30,000 threshold applies).

(5) If it is received after the death of the employee or former employee—

(a) the amount of a payment or benefit to which this Chapter applies counts as the employment income of the personal representatives for the relevant year if or to the extent that it exceeds £30,000 according to the rules in section 404, and

(b) the tax is accordingly to be assessed and charged on them and is a debt due from and payable out of the estate.

(6) In this Chapter references to the taxable person are to the person in relation to whom subsection (1) or (5) provides for an amount to count as employment income.

404 How the £30,000 threshold applies U.K.

(1) For the purpose of the £30,000 threshold in section 403(4) and (5), the payments and other benefits provided in respect of an employee or former employee which are to be aggregated are those provided—

(a) in respect of the same employment,

(b) in respect of different employments with the same employer, and

(c) in respect of employments with employers who are associated.

(2) For this purpose employers are “associated” if on a termination or change date—

(a) one of them is under the control of the other, or

(b) one of them is under the control of a third person who on that termination or change date or another such date controls or is under the control of the other.

(3) In subsection (2)—

(a) references to an employer, or to a person controlling or controlled by an employer, include the successors of the employer or person, and

(b) “termination or change date” means a date on which a termination or change occurs in connection with which a payment or other benefit to which this Chapter applies is received in respect of the employee or former employee.

(4) If payments and other benefits are received in different tax years, the £30,000 is set against the amount of payments and other benefits received in earlier years before those received in later years.

(5) If more than one payment or other benefit is received in a tax year in which the threshold is exceeded—

(a) the £30,000 (or the balance of it) is set against the amounts of cash benefits as they are received, and

(b) any balance at the end of the year is set against the aggregate amount of non-cash benefits received in the year.

Exceptions and reductions U.K.

405 Exception for certain payments exempted when received as earnings U.K.

(1) This Chapter does not apply to any payment received in connection with the termination of a person’s employment which, were it received for the performance of the duties of the employment, would fall within section 308 (exemption of contributions to approved personal pension arrangements).

(2) This Chapter does not apply to any payment received in connection with any change in the duties of, or earnings from, a person’s employment to the extent that, were it received for the performance of the duties of the employment, it would fall within section 271(1) (limited exemption of removal benefits and expenses).

406 Exception for death or disability payments and benefits U.K.

This Chapter does not apply to a payment or other benefit provided—

(a) in connection with the termination of employment by the death of an employee, or

(b) on account of injury to, or disability of, an employee.

407 Exception for payments and benefits under tax-exempt pension schemes U.K.

(1) This Chapter does not apply to a payment or other benefit provided under a tax-exempt pension scheme if—

(a) the payment or other benefit is by way of compensation—

(i) for loss of employment, or

(ii) for loss or diminution of earnings, and

the loss or diminution is due to ill-health, or

(b) the payment or other benefit is properly regarded as earned by past service.

(2) For this purpose “tax-exempt pension scheme” means—

(a) a retirement benefits scheme which is—

(i) an approved scheme,

(ii) a relevant statutory scheme, or

(iii) a scheme set up by a government outside the United Kingdom for the benefit of its employees or primarily for their benefit, or

(b) any such scheme or fund as was described in section 221(1) and (2) of ICTA 1970 (schemes to which payments could be made without charge to tax under section 220 of ICTA 1970).

(3) In this section—

• “approved scheme” has the meaning given by section 612(1) of ICTA,

• “relevant statutory scheme” has the meaning given by section 611A of ICTA, and

• “retirement benefits scheme” has the meaning given by section 611 of ICTA.

408 Exception for contributions to tax-exempt pension schemes U.K.

(1) This Chapter does not apply to a contribution to a tax-exempt pension scheme or approved personal pension arrangements if the contribution is made—

(a) as part of an arrangement relating to the termination of a person’s employment, and

(b) in order to provide benefits for the person in accordance with the terms of the scheme or approved personal pension arrangements.

(2) For this purpose—

• “tax-exempt pension scheme” has the same meaning as in section 407(2), and

• “approved” and “personal pension arrangements” have the meaning given by section 630(1) of ICTA.

409 Exception for payments and benefits in respect of employee liabilities and indemnity insurance U.K.

(1) This Chapter does not apply to a payment or other benefit received by an individual if or to the extent that—

(a) in the case of a cash benefit, it is provided for meeting the cost of a deductible amount, or

(b) in the case of a non-cash benefit, it is or represents a benefit equivalent to the cost of paying a deductible amount.

(2) For the purposes of this section “deductible amount” means an amount which meets conditions A to C.

(3) Condition A is that the amount is paid by the individual.

(4) Condition B is that a deduction for the amount would have been allowed under section 346 from earnings from the relevant employment, if the individual still held the employment when the amount was paid.

(5) Condition C is that the amount is paid at a time which falls within the run-off period.

(6) In this section and section 410—

• “relevant employment” means the employment mentioned in section 401(1);

• “run-off period” means the period which—

  (a)

  starts with the day on which the relevant employment terminated, and

  (b)

  ends with the last day of the sixth tax year following the tax year in which the period started.

410 Exception for payments and benefits in respect of employee liabilities and indemnity insurance: individual deceased U.K.

(1) This Chapter does not apply to a payment or other benefit received by an individual’s personal representatives if or to the extent that—

(a) in the case of a cash benefit, it is provided for meeting the cost of a deductible amount, or

(b) in the case of a non-cash benefit, it is or represents a benefit equivalent to the cost of paying a deductible amount.

(2) For the purposes of this section “deductible amount” means an amount which meets conditions A to C.

(3) Condition A is that the amount is paid by the individual’s personal representatives.

(4) Condition B is that a deduction for the amount would have been allowed under section 346 from earnings from the relevant employment, if—

(a) the individual had not died,

(b) the amount had been paid by the individual, and

(c) the individual still held the employment when the amount was paid.

(5) Condition C is that the amount is paid at a time which falls within the run-off period.

411 Exception for payments and benefits for forces U.K.

This Chapter does not apply to a payment or other benefit provided—

(a) under a Royal Warrant, Queen’s Order or Order in Council relating to members of Her Majesty’s forces, or

(b) by way of payment in commutation of annual or other periodical payments authorised by any such Warrant or Order.

412 Exception for payments and benefits provided by foreign governments etc. U.K.

(1) This Chapter does not apply to—

(a) a benefit provided under a pension scheme administered by the government of an overseas territory within the Commonwealth, or

(b) a payment of compensation for loss of career, interruption of service or disturbance made—

(i) in connection with any change in the constitution of any such overseas territory, and

(ii) to a person who was employed in the public service of the territory before the change.

(2) References in subsection (1) to—

(a) an overseas territory,

(b) the government of such a territory, and

(c) employment in the public service of such a territory,

have the meanings given in section 615 of ICTA.

413 Exception in certain cases of foreign service U.K.

(1) This Chapter does not apply if the service of the employee or former employee in the employment in respect of which the payment or other benefit is received included foreign service comprising—

(a) three-quarters or more of the whole period of service ending with the date of the termination or change in question, or

(b) if the period of service ending with that date exceeded 10 years, the whole of the last 10 years, or

(c) if the period of service ending with that date exceeded 20 years, one-half or more of that period, including any 10 of the last 20 years.

(2) In subsection (1) “foreign service” means service to which subsection (3), (4) or (6) applies.

(3) This subsection applies to service in or after the tax year 2003-04 such that—

(a) the earnings from the employment were not general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in UK), or would not have been had there been any, or

(b) a deduction equal to the whole amount of the earnings from the employment was or would have been allowable under Chapter 6 of Part 5 (deductions from seafarers' earnings).

(4) This subsection applies to service before the tax year 2003-04 and after the tax year 1973-74 such that—

(a) the emoluments from the employment were not chargeable under Case I of Schedule E, or would not have been so chargeable had there been any, or

(b) a deduction equal to the whole amount of the emoluments from the employment was or would have been allowable under a foreign earnings deduction provision.

(5) In subsection (4) “foreign earnings deduction provision” means—

(a) paragraph 1 of Schedule 2 to FA 1974,

(b) paragraph 1 of Schedule 7 to FA 1977, or

(c) section 192A or 193(1) of ICTA.

(6) This subsection applies to service before the tax year 1974-75 such that tax was not chargeable in respect of the emoluments of the employment—

(a) in the tax year 1956-57 or later, under Case I of Schedule E, or

(b) in earlier tax years, under Schedule E,

or it would not have been so chargeable had there been any such emoluments.

414 Reduction in other cases of foreign service U.K.

(1) This section applies if—

(a) the service of the employee or former employee in the employment in respect of which the payment or other benefit is received includes foreign service, and

(b) section 413 (exception in certain cases of foreign service) does not apply.

(2) The taxable person may claim relief in the form of a proportionate reduction of the amount that would otherwise count as employment income under this Chapter.

(3) The proportion is that which the length of the foreign service bears to the whole length of service in the employment before the date of the termination or change in question.

(4) A person’s entitlement to relief under this section is limited as mentioned in subsection (5) if the person is entitled—

(a) to deduct, retain or satisfy income tax out of a payment which the person is liable to make, or

(b) to charge any income tax against another person.

(5) The relief must not reduce the amount of income tax for which the person is liable below the amount the person is entitled so to deduct, retain, satisfy or charge.

(6) In this section “foreign service” has the same meaning as in section 413(2).

General and supplementary provisions U.K.

415 Valuation of benefits U.K.

(1) In the case of a cash benefit, for the purposes of this Chapter the amount of a payment or other benefit is taken to be the amount received.

(2) In the case of a non-cash benefit, for the purposes of this Chapter the amount of a payment or other benefit is taken to be the greater of—

(a) the amount of earnings (as defined in Chapter 1 of Part 3) that the benefit would give rise to if it were received by an employee within section 15 for performance of the duties of an employment (money’s worth), and

(b) the cash equivalent of the benefit under the benefits code if it were so received and the code applied to it.

(3) For the purposes of subsection (2), the benefits code has effect with the modifications in subsections (4), (6) and (7).

(4) References in the benefits code to the employee are to be taken as references to the taxable person and any other person by whom the benefit is received.

(5) For the purposes of subsection (4), section 401(4)(a) is to be disregarded.

(6) References in the benefits code to the employer are to be taken as including references to the former employer.

(7) Where—

(a) section 106 (cash equivalent: cost of accommodation over £75,000) applies, and

(b) the sum referred to in section 105(2)(b) (the sum made good) exceeds the amount referred to in section 105(2)(a) (the rental value),

the amount to be subtracted under paragraph (b) of step 4 of the calculation in section 106(2) is that excess (and not only the excess rent referred to there).

416 Notional interest treated as paid if amount charged for beneficial loan U.K.

(1) This section applies if an amount (“the taxable amount”) consisting of, or including, an amount representing the benefit of a loan counts as a person’s employment income in a tax year under section 403.

(2) That person is to be treated for the purposes of the Tax Acts (other than this Chapter) as having paid interest on the loan in the tax year equal to the lesser of—

(a) the amount representing the cash equivalent of the loan, and

(b) the taxable amount.

(3) The interest is to be treated—

(a) as accruing during the period in the tax year during which the loan is outstanding, and

(b) as paid at the end of the period.

(4) The interest is not to be treated—

(a) as income of the person making the loan, or

(b) as relevant loan interest to which section 369 of ICTA applies (mortgage interest payable under deduction of tax).