FINANCE BILL 2000
CLAUSE 56 AND SCHEDULE 10 : BENEFITS IN KIND: DEREGULATORY AMENDMENTS
SUMMARY
1. Clause 56 and Schedule 10 bring in deregulatory relaxations from the tax charge on employee benefits in kind, notably to exempt small amounts of private use of assets and services which are mainly used by the employee for work purposes. A power is also being taken to exempt by regulation minor benefits available to employees generally. In addition, beneficial loans fully qualifying for tax relief will no longer have to be reported; and the exemption for beneficial loans which are made on ordinary commercial terms is being extended to cover loans whose terms are varied.
2. In more detail, subject to specified exemptions for certain potentially high value benefits, assets and services used in performing the duties of the employment, whether on the employers premises or elsewhere, will be exempt from tax even where there is some private use, provided such private use is not significant.
3. A power is being taken to make regulations to exempt from tax minor benefits which are available to employees generally. (Ministers have announced that welfare counselling will be exempted under these regulations.)
4. Beneficial loans where all the interest qualifies for tax relief will be fully exempt from the tax charge provisions, so that employers will no longer have to report these loans for tax purposes. In addition, the exemption for loans made to employees on terms which are the same as those available to and taken up by members of the public (?ordinary commercial loans?) will be extended to loans to employees which are varied to bring them on to ordinary commercial terms.
5. The Schedule also provides for the tax charge on a beneficial loan which is made jointly to more than one employee to be apportioned between the employees; and the exemption for ordinary commercial loans, which at present applies only to loans by lending businesses, is being extended to cover lending by any employer who supplies goods or services on credit.
DETAILS OF THE CLAUSE
6. The Clause introduces the Schedule containing the amendments and provides that the amendments take effect from 6 April 2000.
DETAILS OF THE SCHEDULE
7. Paragraph 1 introduces the amendments.
8. Paragraph 2(1) brings in new Section 155ZA of the Taxes Act.
Section 155ZA(1) provides that the general employee benefits charge of Section 154 is not to apply to a benefit if certain conditions are met.
Section 155ZA(2) lays down that, where the benefit is provided on the employer`s premises, the only condition for the exemption is that private use is not significant.
Section 155ZA(3) sets out the conditions to be met for exemption where the benefit is provided otherwise than on the employer's premises. These conditions are-
(a) that the sole purpose of providing the benefit is to enable the employee to perform the duties of his employment
(b) that private use is not significant,
(c) that it is not an excluded benefit.
Section 155ZA(4) enables the Treasury to make regulations defining what is an excluded benefit and to make that exclusion subject to certain conditions.
Section 155ZA(5) provides that motor vehicles, boats and aircraft, and extensions and alterations to living accommodation or to buildings relating to living accommodation, are to be excluded benefits.
Section 155ZA(6) defines ?private purposes?, and that simultaneous use for both employment and private purposes is to count as use for private purposes.
9. Paragraph 2(2) inserts cross-references to the new Section 155ZA into the Section 154 benefits provisions.
10. Paragraph 3(1) inserts a new Section 155ZB into the Taxes Act to allow the Treasury to make regulations to exempt minor benefits which are made available to employees generally on similar terms.
11. Paragraph 3(2) inserts a reference to Section 155ZB into Section 154.
12. Paragraph 4(1) brings in a new Section 161A to the Taxes Act, to provide an exemption for fully qualifying beneficial loans, in place of the existing provisions in Section 160 which give a deduction rather than outright exemption.
Section 161A(1) defines a qualifying loan as one where all or part of any interest payable is or would be eligible for relief, whether under the general interest relief provision for individuals of Section 353, or in computing the profits of a trade, profession or vocation taxable under Schedule D, or profits from the exploitation of land taxable under Schedule A.
Section 161A(2) removes the beneficial loans charge entirely on a loan where all the interest would qualify for tax relief.
13. Paragraph 4(2) removes existing Section 160(1)(C) - now replaced by new Section 161(A) - and adds a statutory cross-reference to that new section.
14. Paragraph 5(1) introduces a new Section 161B to the Taxes Act which exempts from the beneficial loans charge a loan on ordinary commercial terms, and paragraph 5(2) inserts a new Schedule 7A to the Taxes Act defining a loan on ordinary commercial terms.
Schedule 7A:
Paragraph 1 defines, subject to meeting the conditions of paragraphs 2, 3, or 4, a loan on ordinary commercial terms as a loan made by a person in the ordinary course of a business of lending money or of supplying goods or services on credit.
Paragraph 2 reproduces the existing exemption in Section 161(1A) and (1B). It sets out the conditions that have to apply for a loan made to an employee to be regarded as on ordinary commercial terms. The conditions are, broadly, that a substantial proportion of similar loans on the same terms are available to and taken up by ordinary commercial borrowers around the time of the making of the loan to the employee.
Paragraph 2(5) includes a provision, at present at Section 88(5) of the Finance Act 1994, whereby fees, commission or other incidental expenses of obtaining a loan are to be left out of account in deciding whether loans made before 1 June 1994 have been or are held on the same terms.
Paragraph 3 enables a loan which did not meet the ?ordinary commercial loan` conditions of paragraph 2 when it was made to be treated as meeting the ordinary commercial loan test if a variation in the loan terms occurred before 6 April 2000.
The conditions for this exemption are that a substantial proportion of loans on similar terms are varied by or made to ordinary commercial borrowers around the time of the employee loan variation.
Paragraph 4 sets out the conditions for loans to employees which are varied on or after 6 April 2000 to be regarded as loans on ordinary commercial terms and so entitled to exemption from the beneficial loans charge. Apart from the condition that members of the public must have the same rights to vary as employees, these conditions are similar to those applying for pre-April 2000 variations.
Paragraph 5 provides that penalties or interest incurred on the variation of a loan, and fees commission or other incidental expenses incurred to obtain a loan, are to be ignored in deciding whether rights to vary a loan are exercisable, or loans are held, on the same terms.
Paragraph 6 defines a member of the public.
15. Paragraph 5(3) of the new Schedule inserts new statutory cross-references.
16. Paragraph 5(4) provides that subsections (1A) and (1B) of Section 161, which are replaced by paragraph 2 of Schedule 7A, shall cease to have effect.
17. Paragraph 6 inserts a new paragraph 5A in Schedule 7 to the Taxes Act to ensure that, where two or more employees are chargeable to tax in respect of the same beneficial loan, the charge shall be apportioned between them in a fair and reasonable manner.
BACKGROUND
Exemption for small amounts of private use of work benefits
18. Assets and services provided to employees to do their job are at present generally taxable if there is any amount of private use, whether the assets are used in the workplace or in the employee's home or elsewhere. These deregulatory amendments will exempt such items where the private use is not significant.
19. Certain high value assets cars, boats, aircraft, extensions to living accommodation are excluded from this exemption because even a small amount of private use could involve a substantial amount of benefit. (This does not mean that relief will not be available for work use of these items; simply that relief for the appropriate amount of solely business use will fall to be claimed under the normal relief rules.)
Beneficial loans
20. The relaxation for beneficial loans where all the interest qualifies for relief will mean that employers will no longer have to report these loans as potentially conferring a chargeable benefit for employees, nor will employees have to claim offsetting tax relief.
21. In addition, in response to representations by bank and building society representatives, a relaxation to enable employees to vary their loans to take advantage of loan terms offered commercially by their employer lending institutions is being introduced. At present employees have to redeem their existing loan and take out a new loan to avoid a beneficial loans charge in these circumstances; this can involve extra cost and administrative burden for employers and employees. The change will enable them to avoid this.
22. And the opportunity is being taken to provide statutory cover to ensure that a joint loan to more than one employee only give rises to a single beneficial loan charge to be apportioned fairly between them.
23 The exemption for ordinary commercial loans is being extended to cover any employer who provides goods and services on credit. Loans can include normal credit (payment in arrears) offered by enterprises such as gas, water, electricity firms. This change ensures that employees who receive the same credit arrangements as other customers are not inadvertently faced with a beneficial loans charge on ordinary commercial credit.