Finance Act 2015

Finance Act 2015

2015 CHAPTER 11

Introduction

Section 13 and Schedule 1: Extension of Benefits Code Except in Relation to Certain Ministers of Religion

Summary

1. This section and Schedule repeals Chapter 11 of Part 3 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 so that employees (other than a lower paid minister of religion) earning at a rate of less than £8,500 a year will, from 6 April 2016, pay income tax on their benefits in kind (BiKs) in the same way as other employees earning at a rate of £8,500 or more.

Details of the Section

2. Subsection (1) repeals the whole of Chapter 11 of Part 3 of ITEPA (taxable benefits: exclusion of lower-paid employments from parts of the benefits code).

3. Subsection (2) inserts new sections 290C to 290G inclusive relating to lower paid minsters of religion into Chapter 8 of part 4 of ITEPA.

4. New Section 290C (1) applies the section to lower paid employment as a minister of religion for a tax year. ‘Employment’ will include those ministers of religion who are ‘office’ holders.

5. New Section 290C (2) sets out that lower paid ministers of religion have no liability to income tax on employer provided expenses payments, cars, vans and related benefits (such as fuel), loans and any other residual benefits taxable under Chapter 10 of the benefits code.

6. New Section 290C (3) sets out that references to an employee in Chapters 3, 6, 7 & 10 whose employment falls within subsection (2) does not include someone in lower paid employment as a minister of religion if the Chapter normally applies in preference to subsection (2) above.

7. New Section 290C (4) sets out that whether someone is treated as a lower paid minister of religion or not, is subject to income from related employments as set out in new Section 290G, and loans being written off that are treated as earnings under Section 188 ITEPA.

8. New Section 290D (1) sets out that for the exclusion to the benefits code to apply the person must be directly employed as a minister of a religious denomination and must be earning at a rate of less than £8,500 in the tax year.

9. New Section 290D (2) sets out that direct employment means that the minister of religion cannot be engaged through an employment intermediary, a managed service company nor be paid through a third party.

10. New Section 290D (3) provides that the meaning of lower paid employment as a minister of religion is subject to the rules for related employments set out in new Section 290G.

11. New Section 290E (1) to (4) contains a method statement that sets out how to calculate whether the minister of religion is earning at a rate of less than £8,500 in the tax year. In doing so, you have to assume that the employment is not lower paid employment as a minister of religion so that the cash equivalent of any BiKs specified in new section 290C are included in the calculation, as well as any BiKs relating to accommodation outgoings that would have been exempt from income tax under Sections 290A and 290B.

12. The calculation requires all earnings from the employment to be added (including amounts treated as earnings), and also BiKs that would be exempt if the minister of religion is in lower paid employment. A deduction from total income is then made for earnings which are specifically excluded (except for accommodation outgoings of ministers of religion), any extra amount to be added in connection with a car set out in new Section 290F, and finally authorised deductions (as set out in new subsection 290E(4) are subtracted). The total number of days in the year is then divided by the total number of days the minister of religion has worked in the year and this is multiplied by total income (after deductions and exclusions); and this then provides the earnings rate for a minister of religion.

13. New Section 290F (1) to (5) sets out the special rules for the method statement at new Section 290E of how to calculate the cash equivalent paid to a minister of religion in respect of cars, vans and related benefits to determine whether a minister of religion is in lower paid employment .

14. New Section 290G (1) to (4) sets out that where a ministers of religion has two or more related employments they must be added together when calculating whether a person is a lower paid minister of religion because they are earning at a rate of less £8,500 per year. If the total earnings from all of the related employments are more than £8,500 then the minister of religion will not benefit from the exemption for BiKs for lower paid ministers of religion. This section also provides that two or more employments are related if both employments are with the same employer or are controlled by the same person, with the extended meaning of ‘control’ in Section 69 ITEPA 2003 applying for the purposes of this section.

15. Subsection (3) introduces the Schedule.

16. Subsection (4) provides for the changes to take effect from the 2016-17 tax year onwards.

Details of the Schedule

Part 1

17. Part 1 makes amendments to ITEPA 2003 including those that are consequential to the repeal of Chapter 11.

18. Paragraph 1 introduces the changes.

19. Paragraphs 2 to 4 makes changes to Sections 7, 17 and 30 of ITEPA 2003 to remove references to Chapter 11 which is repealed and replaces them instead with references to Chapter 10.

20. Paragraph 5 makes changes to Section 63 ITEPA 2003 to remove references to Chapter 11 terms that are no longer relevant and subsections that are no longer relevant following the repeal of Chapter 11.

21. Paragraph 6 inserts a new definition to Section 66 ITEPA 2003 (meaning of ‘employment’ and related expressions) at subsection (5) saying that the meaning of ‘lower paid employment as a minister of religion’ has the same meaning as in new Section 290D.

22. Paragraphs 7 & 8 makes changes to Sections 148 and 157 ITEPA 2003 so that where a car, or a van is shared between two employees and one is in lower paid employment as a minister of religion, and one is not, the van will be treated in the same way as if it were shared between two employees, neither of whom are lower paid ministers of religion.

23. Paragraphs 9 & 10 makes changes to Section 169 and 169A ITEPA 2003 to change references from excluded employment to lower paid ministers of religion and removes the qualifying provisions where the car or van is shared with a family member who is a lower paid minister of religion.

24. Paragraph 11 makes changes to Section 184 ITEPA 2003 to remove the reference to Chapter 11 and substitutes instead the individual Chapters 3, 6 & 10 to which this section applies.

25. Paragraphs 12 to 18 make changes to Sections 188, 239, 266, 267 and 290 ITEPA 2003 to remove references to Chapter 11 and excluded employment, terms that are no longer relevant and substitutes ‘lower paid employment as a minister of religion’ so these exemptions will continue to apply in the same way to lower paid ministers of religion.

26. Paragraph 13 makes changes to Section 228 ITEPA 2003 and inserts references to Sections 290C to 290G (provisions of the benefits code not applicable to lower-paid ministers of religion).

27. Paragraph 14 subparagraph (3) makes changes to Section 239(9) ITEPA 2003 to remove references to Chapter 11 terms, and replaces the current text with references to ‘In this part ‘lower paid employment as a minister of religion’ has the meaning given by Section 290D’.

28. Paragraphs 19 & 20 make changes to Section 290A and 290B ITEPA 2003 replacing the words ‘religious denomination’ with ‘religion’, removing the definition of ‘lower paid employment’ from Section 290A(3), changing the wording in Section 290B(3) so that it now reads as ‘accommodation outgoings’ has the same meaning as in Section 290A’, and inserting ‘lower paid’ before ministers of religion in the title of both sections.

29. Paragraph 21 makes changes to Part 2 of Schedule 1 ITEPA 2003 to remove references to lower paid employment and excluded employment, consequential to the repeal of Chapter 11 and introduces references to ‘lower paid ministers of religion (in the benefits code)’ and ‘lower paid ministers of religion in Part 4’ in the appropriate places in the Schedule.

30. Paragraph 22 makes changes to paragraph 17 of Schedule 7 ITEPA 2003 to change references from lower paid employments to Chapter 3, 6, 7 and 10 of the benefits code such that the transitional arrangements are maintained and omits subparagraph 4 referring to Chapter 11 of Part 3. It also makes changes to paragraph 27(3) of Schedule 7 ITEPA 2003 replacing the words ‘not an excluded employment’ with ‘not lower paid employment as a minster of religion’, and ‘excluded employment’ with ‘lower paid employment as a minster of religion’.

31. Paragraph 23 subparagraph (1) introduces the amendments to the Social Security Contributions and Benefits Act 1992 (SSCBA 1992).

32. Paragraph 23 subparagraph (2) removes the reference to employees in an excluded employment at subsection 10(1)(b)(ii) of the SSCBA 1992 and substitutes ‘lower paid employment as a minister of religion’. Section 10 SSCBA 1992 determines whether Class 1A National Insurance contributions (NICs) are payable in respect of a BiK. This amendment ensures that no Class 1A NICs liability arises in respect of lower paid ministers of religion.

33. Paragraph 23 subparagraph (3) similarly amends section 10ZB of the SSCBA 1992

34. Paragraph 23 subparagraph (4) amends section 122 of the SSCBA 1992 to remove references to chapter 11 terms that are no longer relevant, and inserts an interpretation of ‘lower paid employment as a minister of religion’, stating that it has the meaning given by Section 290D of ITEPA.

35. Paragraph 24 subparagraph (1) introduces the amendments to the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (SSCBA (NI) 1992).

36. Paragraph 24 subparagraph (2) removes the reference to employees in an excluded employment at subsection 10(1)(b)(ii) of the SSCBA (NI) 1992 and substitutes ‘lower paid employment as a minister of religion’. Section 10 SSCBA (NI) 1992 determines whether a Class 1A contribution is payable in respect of a BiK. This amendment ensures that no class 1A liability arises in respect of lower paid ministers of religion.

37. Paragraph 24 subparagraph (3) similarly amends section 10ZB of the SSCBA (NI) 1992

38. Paragraph 24 subparagraph (4) amends section 121 of the SSCBA (NI) 1992 to remove references to chapter 11 terms that are no longer relevant, and inserts an interpretation of ‘lower paid employment as a minister of religion’ stating that it has the meaning given by Section 290D of ITEPA.

39. Paragraph 25 makes changes to section 173 of the Finance Act 2004. It removes references to ‘excluded employments’, a term which, following the repeal of Chapter 11 is no longer relevant in determining whether a registered pension scheme has made an unauthorised payment, if an asset held for the purposes of the pension scheme is used to provide a benefit. Instead these references are replaced with ‘lower paid employment as a minister of religion’, and in subsection 10 replaces the definition of ‘excluded employment’ with ‘lower paid employment as a minister of religion’ further providing that the meaning of ‘lower paid employment as a minister of religion’ is that within given by section 290D ITEPA 2003. This means that the position with regard to registered pension schemes remains the same for lower paid ministers of religion.

40. Paragraph 26 amends Section 1065 of the Corporation Tax Act 2010 by removing the reference to section 216 ITEPA 2003 and ‘lower paid employment’ and substitutes ‘in section 290C of that Act (provisions not applicable to lower paid ministers of religion).

Background Note

41. At Budget 2014 the Chancellor announced a number of measures aimed at simplifying the administration of employee BiKs and expenses. This followed the Office of Tax Simplification’s (OTS) review of employee BiKs and expenses.

42. The package of four measures consisted of the following:

• Abolishing the threshold for the taxation of BiKs for employees who earn at a rate of less than £8,500 a year (‘lower paid’ employments), with action to mitigate the effects on vulnerable groups disadvantaged by the reforms;

• Introducing a statutory exemption for trivial BiKs;

• Introducing a system of collecting income tax in real time through ‘payrolling’ of BiKs; and

• Replacing the expenses dispensation regime with an exemption for paid and reimbursed expenses.

43. Abolition of the £8,500 threshold is achieved by the removal of Chapter 11 ITEPA 2003. Chapter 11 sets the rules for employees in lower paid employment providing how they are taxed under the benefits code on their BiKs and expenses.

44. The change to abolish the £8,500 threshold has been introduced to simplify administration for employers so they no longer need to monitor if employees are earning at a rate of less than £8,500, or £8,500 or more a year, including their BiKs.

45. All BiKs will be liable to income tax and National Insurance contributions, whatever the level of the employee’s earnings and BiKs. Employers will no longer have two separate reporting requirements on either the P9D, or P11D dependent on the employee’s level of earnings.

46. As a result of the abolition of the £8,500 threshold, new exemptions are introduced for employed carers on board and / or lodging being provided in the home of the person that they are caring for. This exemption is covered in a separate section.

47. Another exemption will protect ministers of religion in a lower paid employment from the effects of the changes where the minister is earning at a rate of less than £8,500 a year. This exemption will mean that ministers of religion will see no change in the treatment of their benefits in kind for tax and NICs purposes, following the abolition of the £8,500 threshold.

48. These changes will be introduced for the 2016-17 and subsequent tax years.