EIM20030 - The benefits code: exemptions from charge
Part 4 ITEPA 2003 and Section 227 ITEPA 2003
Employment income consists of:
Benefits are treated as general earnings ( EIM00513). Some benefits, that are not excluded benefits ( EIM20006), are nevertheless exempt from charge.
Exemptions from charge
There are two different kinds of exemption (Section 227(1) ITEPA 2003):
- an “earnings-only exemption” (Section 227(2)) and
- an “employment income exemption” (Section 227(3)) that removes any charge to tax as employment income of any kind.
Earnings-only exemption
An earnings-only exemption removes any charge to tax as general
earnings. The benefits code charges income as general earnings and
so an earnings-only exemption will exempt from charge any income
arising under the benefits code. But an earnings-only exemption
does not necessarily exempt income from tax altogether, it may be
taxable as another form of specific employment income.
For example, Section 307 ITEPA 2003 exempts from charge as
earnings under the benefits code any expense incurred by an
employer for an employee in respect of a pension, or similar
payment, payable to the employee on death or retirement. However,
as an earnings-only exemption, Section 307 does not prevent a
charge arising under another provision that taxes the payment as
specific employment income, rather than as general earnings (see
EIM00512). For example, payments and
benefits on termination of employment under Part 6 Chapter 3 ITEPA
2003 (
EIM15120).
Employment income exemption
An employment income exemption is much broader in effect than an
earnings-only exemption. It ensures there is no possibility of
charge under any provision of the Income Tax (Earnings and
Pensions) Act 2003.
Where a benefit forms part of employment income because it is
specific employment income, an earnings-only exemption will not
matter when deciding whether or not the benefit is chargeable as
employment income.
See
EIM21240 for more information on
exemptions from charge.
