Section 722
1 The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.
2 (1) Amend section 1 (the charge to income tax) as follows.
(2) For subsection (1) substitute—
“(1) Income tax is charged in accordance with the Income Tax Acts on—
(a) all amounts which, under those Acts, are charged to tax under any of Schedules A, D and F (set out in sections 15, 18 and 20),
(b) all amounts which are charged to tax under any of the following provisions of ITEPA 2003—
(i) Part 2 (employment income),
(ii) Part 9 (pension income), and
(iii) Part 10 (social security income), and
(c) any other amounts which, under the Income Tax Acts, are charged to income tax.”
(3) In subsection (5A) for “section 203” substitute “PAYE regulations”.
3 In section 4(1) (construction of references in Income Tax Acts to deduction of tax) for “in pursuance of section 203” substitute “under PAYE regulations”.
4 In section 9(3) (computation of income for corporation tax: application of income tax principles)—
(a) for “the like Schedules and Cases as apply for purposes of income tax” substitute—
“(a) Schedules A, D and F, and the Cases of those Schedules, as they apply for purposes of income tax, and
(b) the following provisions of ITEPA 2003 (which impose charges to income tax)—
(i) Part 2 (employment income),
(ii) Part 9 (pension income), and
(iii) Part 10 (social security income),” and
(b) after “those Schedules and Cases” insert “and those Parts”.
5 (1) Amend section 18 (Schedule D) as follows.
(2) In subsection (1), in paragraph (b) of Schedule D, for “or E” substitute “or under ITEPA 2003 as employment income, pension income or social security income”.
(3) In subsection (3)—
(a) in Case V for “income consisting of emoluments of any office or employment” substitute “employment income, pension income or social security income on which tax is charged under ITEPA 2003”;
(b) in Case VI for “or E” substitute “or by virtue of ITEPA 2003 as employment income, pension income or social security income”.
6 Omit section 19 (Schedule E).
7 In section 21A(2) (computation of amount chargeable)—
(a) for “sections 588 and 589” substitute “section 588”;
(b) for “sections 589A and 589B” substitute “section 589A”;
(c) for “1989 (deductions in respect of certain emoluments)” substitute “1989 (Schedule D: computation)”.
8 Omit section 58 (foreign pensions).
9 In section 65(2) (Cases IV and V assessments: general) omit “Subject to section 330,”.
10 After section 68 insert—
(1) Section 68B applies for income tax purposes in connection with shares awarded under an approved share incentive plan.
(2) But that section does not apply to an individual if, at the time of the award of shares in question—
(a) the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 apply, or
(b) in the case of an award made before 6th April 2003, he was not chargeable to tax under Schedule E in respect of the employment by reference to which he met the requirement of paragraph 14 of Schedule 8 to the Finance Act 2000 (employee share ownership plans: the employment requirement) in relation to the plan.
(3) For the purposes of subsection (2)(a)—
(a) “the eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan, and
(b) the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in the employment income Parts of that Act (see sections 14(3) and 20(3) of that Act).
(1) Where a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested), the participant is chargeable to tax on the amount paid over, to the extent that it represents a foreign cash dividend, under Case V of Schedule D for the year of assessment in which the dividend is paid over to the participant.
(2) If dividend shares cease to be subject to the plan before the end of the period of three years beginning with the date on which the shares were acquired on the participant’s behalf, the participant is chargeable to tax on the amount of the relevant dividend, to the extent that it represents a foreign cash dividend, under Case V of Schedule D for the year of assessment in which the shares cease to be subject to the plan.
For this purpose “the relevant dividend” is the cash dividend applied to acquire those shares on the participant’s behalf.
(3) Where the participant is charged to tax under subsection (2) the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts under section 501 of ITEPA 2003 in respect of those shares.
(4) Subsection (2) has effect subject to section 498 of that Act (no charge on shares ceasing to be subject to plan in certain circumstances).
(1) Sections 68A and 68B and this section form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).
(2) Accordingly, expressions used in those sections and contained in the index at the end of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.
(3) In section 68B, “foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom.”
11 (1) Amend section 84A (costs of establishing share option or profit sharing schemes: relief from corporation tax) as follows.
(2) After subsection (3) insert—
“(3A) In this section, “share option scheme” means—
(a) an SAYE option scheme within the meaning of the SAYE code (see section 516(4) of ITEPA 2003 (approved SAYE option schemes)), or
(b) a CSOP scheme within the meaning of the CSOP code (see section 521(4) of that Act (approved CSOP schemes)).”
(3) In subsection (4), at the end add “to this Act or under Schedule 3 or 4 to ITEPA 2003 (approved SAYE option schemes and approved CSOP schemes)”.
12 After section 85A insert—
Schedule 4AA (which provides for deductions relating to approved share incentive plans) shall have effect.”
13 (1) Amend section 86A (charitable donations: contributions to agent’s expenses) as follows.
(2) In subsection (1)(a) for “by virtue of section 203 and regulations under that section” substitute “under PAYE regulations”.
(3) In subsection (1)(b) for the words from “a scheme” to the end of the paragraph substitute “an approved scheme and pays the sums to an approved agent”.
(4) After subsection (1) insert—
“(1A) In subsection (1)(b) “approved scheme” and “approved agent” have the same meaning as in section 714 of ITEPA 2003.”
14 Omit sections 131 to 134 (miscellaneous provisions relating to the Schedule E charge).
15 Omit sections 135 to 137 (provisions relating to gains by directors and employees from share options).
16 (1) Amend section 138 (share acquisitions by directors and employees) as follows.
(2) In subsection (1)(b) for “Schedule E” substitute “the employment income Parts of ITEPA 2003”.
(3) In subsection (4)(b) for “Case I of Schedule E” substitute “section 15 or 21 of ITEPA 2003 (earnings of employee resident and ordinarily resident in the UK)”.
17 Omit section 140 (further interpretation of sections 135 to 139).
18 Omit sections 140A to 140H (further provisions relating to share acquisitions by directors and employees).
19 Omit sections 141 to 144 (vouchers and credit-tokens).
20 Omit section 144A (payments received free of tax).
21 Omit sections 145 to 147 (living accommodation).
22 Omit sections 148 to 151A (payments on retirement, sick pay and certain social security benefits).
23 For the sidenote to section 152 (notification of amount taxable under section 151) substitute “Notification of taxable amount of certain benefits”.
24 Omit sections 153 to 159AC and sections 160 to 168G (employees earning £8,500 or more and directors: expenses and benefits in kind).
25 Omit section 185 (approved share option schemes).
26 (1) Amend section 186 (approved profit sharing schemes) as follows.
(2) In subsection (3)—
(a) omit “the participant shall be chargeable to income tax under Schedule E for the year of assessment in which the entitlement arises on”, and
(b) at the end add “counts as employment income of the participant for the year of assessment in which the entitlement arises”.
(3) In subsection (4)—
(a) omit “the participant shall be chargeable to income tax under Schedule E for the year of assessment in which the disposal takes place on”, and
(b) at the end add “counts as employment income of the participant for the year of assessment in which the disposal takes place”.
(4) In subsection (5)(a), for the words from “chargeable to income tax” to “those shares” substitute “entitled to a capital receipt (within the meaning of subsection (3) above) which is referable to those shares and—
(i) an amount calculated by reference to that capital receipt counts as his employment income by virtue of subsection (3) above, or
(ii) if the entitlement to the capital receipt arose before 6th April 2003, he was chargeable to income tax by virtue of that subsection (as it had effect before that date) in respect of that capital receipt,”.
27 In section 187 (interpretation of sections 185 and 186 and Schedules 9 and 10) omit subsections (1) to (4), (6) and (7), except so far as relating to profit sharing schemes.
28 Omit the following provisions (which give relief from income tax on various kinds of income)—
(a) section 187A;
(b) sections 189 to 198;
(c) sections 199 to 202.
29 Omit sections 202A and 202B (assessment on receipts basis).
30 Omit sections 203 to 204 (pay as you earn).
31 Omit sections 205 and 206 (assessments).
32 Omit section 206A (PAYE settlement agreements).
33 Omit section 207 (disputes as to domicile or ordinary residence).
34 After section 251 insert—
(1) Sections 251B and 251C apply for income tax purposes in connection with shares awarded under an approved share incentive plan.
(2) But those sections do not apply to an individual if, at the time of the award of shares in question—
(a) the earnings from the eligible employment are not (or would not be if there were any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 apply, or
(b) in the case of an award made before 6th April 2003, he was not chargeable to tax under Schedule E in respect of the employment by reference to which he met the requirement of paragraph 14 of Schedule 8 to the Finance Act 2000 (employee share ownership plans: the employment requirement) in relation to the plan.
(3) For the purposes of subsection (2)—
(a) “the eligible employment” means the employment which results in the individual meeting the employment requirement in relation to the plan, and
(b) the reference to any of the charging provisions of Chapter 4 or 5 of Part 2 of ITEPA 2003 has the same meaning as it has in the employment income Parts of that Act (see sections 14(3) and 20(3) of that Act).
(1) Where a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested), the participant is chargeable to tax on the appropriate amount under Schedule F for the year of assessment in which the dividend is paid over.
(2) In subsection (1), the “appropriate amount” means the amount of the dividend paid over (except to the extent that it represents a foreign cash dividend).
(3) For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231, the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force when the dividend is paid over to the participant.
(1) If dividend shares cease to be subject to the plan before the end of the period of three years beginning with the date on which the shares were acquired on the participant’s behalf, the participant is chargeable to tax on the appropriate amount under Schedule F for the year of assessment in which the shares cease to be subject to the plan.
(2) In subsection (1) “the appropriate amount” means the amount of the cash dividend applied to acquire the shares on the participant’s behalf (except to the extent that it represents a foreign cash dividend).
(3) For the purposes of determining the tax credit (if any) to which the participant is entitled under section 231, the reference in subsection (1) of that section to the tax credit fraction in force when the distribution is made shall be read as a reference to the fraction in force when the shares cease to be subject to the plan.
(4) Where the participant is charged to tax under this section the tax due shall be reduced by the amount or aggregate amount of any tax paid on any capital receipts under section 501 of ITEPA 2003 in respect of those shares.
(5) In subsection (4) “the tax due” means the amount of tax due after deduction of the tax credit determined under subsection (3).
(6) This section has effect subject to section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to plan in certain circumstances).
(1) Sections 251A to 251C and this section form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).
(2) Accordingly, expressions used in those sections and contained in the index at the end of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.
(3) In sections 251B and 251C “foreign cash dividend” means a cash dividend paid in respect of plan shares in a company not resident in the United Kingdom.”
35 In section 257C(2A) (indexation of amounts in sections 257 and 257A) for “section 203” substitute “PAYE regulations”.
36 After section 266 insert—
(1) This section applies if—
(a) pursuant to a non-approved retirement benefits scheme, the employer in any year of assessment pays a sum with a view to the provision of any relevant benefits for or in respect of any employee of that employer, and
(b) the payment is made under such an insurance or contract as is mentioned in section 266.
This section applies whether or not the accrual of the relevant benefits is dependent on any contingency.
(2) Relief, if not otherwise allowable, shall be given to that employee under section 266 in respect of the payment to the extent, if any, to which such relief would have been allowable to him if—
(a) the payment had been made by him, and
(b) the insurance or contract under which the payment is made had been made with him.
(3) For the purposes of subsection (1)(a)—
(a) a retirement benefits scheme is “non-approved” unless it 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, and
(b) 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.
(4) Sections 611, 611A and 612 apply for the purposes of this section as they apply for the purposes of Chapter 1 of Part 14.
(5) Section 388 of ITEPA 2003 (apportionment of payments in respect of more than one employee) applies in relation to a sum within subsection (1) as it applies in relation to a sum within section 386 of that Act (charge on payments to non-approved retirement benefits schemes).
(6) This section does not apply in any case where either of the following provisions of ITEPA 2003 provides for section 386 of that Act not to apply—
(a) section 389 (employments where earnings charged on remittance basis), and
(b) section 390 (non-domiciled employees with foreign employers).”
37 In section 306(7) (claims) for “regulations made under section 203” substitute “PAYE regulations”.
38 In section 307(6)(a)(i) (withdrawal of relief) for “regulations under section 203” substitute “PAYE regulations”.
39 Omit section 313 (taxation of consideration for certain restrictive undertakings).
40 In section 314(1) (divers and diving supervisors) for the words from “and accordingly” to the end of the subsection substitute “and accordingly any employment income taken into account in computing the profits or gains of that trade is not chargeable under Part 2 of ITEPA 2003.”
41 Omit sections 315 to 318 (pensions etc. paid in respect of military or war service etc.).
42 Omit section 319 (crown servants: foreign service allowance).
43 Omit section 321 (consuls and other official agents).
44 (1) Amend section 322 (consular officers and employees) as follows.
(2) In subsection (1) for “any income of his falling within Case IV or V of Schedule D” substitute “any qualifying income of the consular officer or employee”.
(3) After subsection (1) insert—
“(1A) In subsection (1) “qualifying income” means—
(a) income falling within Case IV or V of Schedule D,
(b) income to which section 573 or 629 of ITEPA 2003 applies (foreign pensions and pre-1973 pensions paid under the Overseas Pensions Act 1973),
(c) income arising from a source outside the United Kingdom to which section 609, 610, 611 or 633 of ITEPA 2003 applies (certain employment-related annuities and voluntary annual payments), and
(d) a benefit to which section 678 of ITEPA applies (foreign benefits).”
(4) Omit subsection (2).
45 (1) Amend section 323 (visiting forces) as follows.
(2) Omit subsection (1).
(3) In subsection (2) for “subsection (1) above” substitute “section 303(1) of ITEPA 2003 (exemption for earnings of visiting forces etc.)”.
(4) In subsection (4)—
(a) for “subsections (1) and (2)” substitute “subsection (2)”;
(b) for “those subsections” substitute “that subsection”;
(c) before “the Visiting Forces Act 1952” insert “Part 1 of”.
(5) In subsection (5) for “subsections (1) and (2)” substitute “subsection (2)”.
(6) Omit subsection (6)(b) and the word “and” preceding it.
(7) Omit subsection (7).
46 Omit section 330 (compensation for National-Socialist persecution).
47 (1) Amend section 332 (expenditure and houses of ministers of religion) as follows.
(2) Omit subsections (1) and (2).
(3) In subsection (3)—
(a) for “(whether under Schedule E or any other Schedule)” substitute “under Schedule D”,
(b) for “profits, fees or emoluments” substitute “profits or fees”, and
(c) in paragraph (c), for the words from “in right of” to “that subsection” substitute “an interest belongs to a charity or ecclesiastical corporation and, in right of that interest, in which he has a residence from which to perform his duties as a clergyman or minister”.
(4) Omit subsections (3A), (3B) and (4).
48 (1) Amend section 336 (temporary residents in the United Kingdom) as follows.
(2) In subsection (1) for “Schedule D” substitute “a charge to which subsection (1A) applies”.
(3) After subsection (1) insert—
“(1A) This subsection applies to—
(a) the charge under Schedule D,
(b) the charge under Part 9 of ITEPA 2003 (pension income) in respect of—
(i) income to which section 573, 605, 609, 610, 611, 623 or 629 of that Act applies,
(ii) any annual payment to which section 633 of that Act applies which is made by or on behalf of a person who is outside the United Kingdom, or
(iii) income to which section 583 of that Act applies if the paying scheme (see subsection (3) of that section) is a pilots' benefit fund (see section 587 of that Act), and
(c) the charge under Part 10 of ITEPA 2003 (social security income) in respect of benefits to which section 678 of that Act applies (foreign benefits).”
49 In section 347A(5) (annual payments: general rule) for “, 68(1)(b) or 192(3)” substitute “or 68(1)(b) of this Act or section 355 of ITEPA 2003 (deductions for certain payments by non-domiciled employees with foreign employers)”.
50 (1) Amend section 348 (payments out of profits or gains brought into charge to income tax: deduction of tax) as follows.
(2) In subsection (1) for “charged with tax under Case III of Schedule D, not being interest,” substitute “to which this subsection applies”.
(3) After subsection (1) insert—
“(1A) Subsection (1) applies to any annuity or other annual payment, not being interest—
(a) which is charged with tax under Case III of Schedule D,
(b) which is charged with tax under Part 9 of ITEPA 2003 (pension income) because section 605 of that Act applies to it (retirement annuity contracts: annuities), or
(c) which arises from a source in the United Kingdom and is charged with tax under Part 9 of ITEPA 2003 because section 609, 610 or 611 of that Act applies to it (certain employment-related annuities).”
51 (1) Amend section 349 (payments not out of profits or gains brought into charge to income tax, and annual interest) as follows.
(2) In subsection (1)(a) for “charged with tax under Case III of Schedule D, not being interest” substitute “to which this paragraph applies”.
(3) After the first sentence of subsection (1) insert—
“(1A) Paragraph (a) of subsection (1) applies to any annuity or other annual payment, not being interest—
(a) which is charged with tax under Case III of Schedule D,
(b) which is charged with tax under Part 9 of ITEPA 2003 (pension income) because section 605 of that Act applies to it, or
(c) which arises from a source in the United Kingdom and is charged with tax under Part 9 of ITEPA 2003 because section 609, 610 or 611 of that Act applies to it.”
(4) Number the second sentence of subsection (1) as subsection (1B).
(5) In the new subsection (1B) for “This subsection” substitute “Subsection (1)”.
52 In section 376(2) (qualifying borrowers and qualifying lenders) for the words from “an office or employment” to “Schedule E” substitute “an office or employment which would, but for some special exemption or immunity from tax, be a taxable employment under Part 2 of ITEPA 2003 (as defined by section 66(3) of that Act)”.
53 In section 391(2) (losses from trade etc. carried on abroad) for “, 192(2), (3) or (4) or 196” substitute “of this Act or section 23, 355 or 615 of ITEPA 2003”.
54 (1) Amend section 392 (Case VI losses) as follows.
(2) For subsection (1)(a) and (b) substitute—
“(a) that the amount of the loss sustained by him shall, as far as may be, be deducted from or set off against the total of—
(i) the amount of any profits or gains arising from any transaction in respect of which he is assessed for that year under that Case, and
(ii) the amount of any qualifying income on which tax is charged under Part 9 of ITEPA 2003 (pension income) for that year, and
(b) that any portion of the loss for which relief is not so given shall, as far may be, be carried forward and deducted from or set off against the total of—
(i) the amount of any profits or gains arising from any transaction in respect of which he is assessed under that Case for any subsequent year of assessment, and
(ii) the amount of any qualifying income on which tax is charged under Part 9 of ITEPA 2003 for the subsequent year of assessment.”