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6 1967

INCOME TAX ACT, 1967

Chapter III

Expenses Allowances and Benefits in Kind

Expenses allowances.

116. —(1) Subject to the provisions of this Chapter, any sum paid in respect of expenses, by a body corporate to any of its directors or to any person employed by it in an employment to which this Chapter applies, shall, if not otherwise chargeable to income tax as income of that director or employee, be treated for the purposes of section 110 as a perquisite of the office or employment of that director or employee and included in the emoluments thereof assessable to income tax (including sur-tax) accordingly, but nothing in this subsection shall prevent a claim for a deduction being made under Rule 3 of Schedule 2 in respect of any money expended wholly, exclusively and necessarily in performing the duties of the office or employment.

(2) The reference in subsection (1) to any sum paid in respect of expenses includes a reference to any sum put by a body corporate at the disposal of a director or employee and paid away by him.

Benefits in kind.

117. —(1) Subject to the following provisions of this Chapter, where—

(a) a body corporate incurs expense in or in connection with the provision, for any of its directors or for any person employed by it in an employment to which this Chapter applies, of living or other accommodation, of entertainment, of domestic or other services or of other benefits or facilities of whatsoever nature, and

(b) apart from this section, the expense would not be chargeable to income tax as income of the director or employee,

Rule 3 of Schedule 2 and sections 110 and 178 shall have effect in relation to so much of the expense as is not made good to the body corporate by the director or employee as if the expense had been incurred by the director or employee and the amount thereof had been refunded to him by the body corporate by means of a payment in respect of expenses, and income tax (including sur-tax) shall be chargeable accordingly.

(2) Subsection (1) shall not apply to expense incurred by the body corporate in or in connection with the provision for a director or employee, in any of its business premises, of any accommodation, supplies or services provided for the director or employee himself and used by him solely in performing the duties of his office or employment.

(3) Subsection (1) shall not apply to expense incurred by the body corporate in or in connection with the provision of living accommodation for an employee in part of any of its business premises which include living accommodation if the employee is, for the purpose of enabling him properly to perform his duties, required by the terms of his employment to reside in the accommodation and either—

(a) the accommodation is provided in accordance with a practice which, since before the beginning of the ten years ending with the passing of the Finance Act, 1958 , has commonly prevailed in trades of the class in question as respects employees of the class in question, or

(b) it is necessary, in the case of trades of the class in question, that employees of the class in question should reside on premises of the class in question,

but this subsection shall not apply where the employee is a director of the body corporate in question or of any other body corporate over which that body corporate has control or which has control over that body corporate or which is under the control of a person who also has control over that body corporate.

(4) Subsection (1) shall not apply to expense incurred by the body corporate in or in connection with the provision of meals in any canteen in which meals are provided for the staff generally.

(5) Subsection (1) shall not apply to expense incurred by the body corporate in or in connection with the provision for a director or employee himself, or for his spouse, children or dependants, of any pension, annuity, lump sum, gratuity or other like benefit to be given on his death or retirement.

(6) Any reference in this section to expense incurred in or in connection with any matter includes a reference to a proper proportion of any expense incurred partly in or in connection with that matter.

Valuation of benefits in kind.

118. —(1) Any expense incurred by a body corporate in the acquisition or production of an asset which remains its own property shall be left out of account for the purposes of section 117.

(2) Where the making of any such provision as is mentioned in section 117 (1) takes the form of a transfer of the property in any asset of the body corporate, and, since the acquisition or production thereof by the body corporate, the asset has been used or has depreciated, the body corporate shall be deemed to have incurred in the making of that provision expense equal to the value of the asset at the time of the transfer.

(3) (a) Where a body corporate is assessed or assessable under Schedule A in respect of any premises the whole or any part of which is made available by it as living or other accommodation for any of its directors or employees, and either the body corporate pays no rent in respect of the premises or the annual amount of the rent paid by it is less than the amount of the assessment under Schedule A on the premises, section 117 shall have effect as if the body corporate paid in respect of the premises an annual rent equal to the amount of the assessment under Schedule A on the premises.

(b) In this subsection “the amount of the assessment under Schedule A” means an amount which would have been the amount of the assessment thereunder for the year of assessment in question if—

(i) in section 10 (2) the words “except in the cases mentioned in the subsequent provisions of this section” and “five-fourths of” were omitted, and,

(ii) section 10 (3) (4) (5) (6) had not been enacted.

(4) Where an asset which continues to belong to the body corporate is used wholly or partly in the making of any such provision as is mentioned in section 117 (1) and the asset is not premises, the body corporate shall be deemed for the purposes of that section to incur (in addition to any other expense incurred by it in connection with the asset, not being expense to which subsection (1) of this section applies) annual expense in connection therewith of an amount equal to the annual value of the use of the asset, but where any sum by way of rent or hire is payable by the body corporate in respect of the asset—

(a) if the annual amount of the rent or hire is equal to or greater than the annual value of the use of the asset, this subsection shall not apply, and

(b) if the annual amount of the rent or hire is less than the annual value of the use of the asset, the rent or hire shall be left out of account for the purposes of that section.

(5) Any reference in this section to a body corporate which is assessable under Schedule A in respect of any premises shall be deemed to include a reference to a body corporate which would be so assessable if a state of affairs which subsists during any part of the year had subsisted for the whole of the year.

Meaning of “director”, “employment” and “employment to which this Chapter applies”.

119. —(1) In this Chapter, “director” means—

(a) in relation to a body corporate the affairs whereof are managed by a board of directors or similar body, a member of that board or similar body,

(b) in relation to a body corporate the affairs whereof are managed by a single director or similar person, that director or person,

(c) in relation to a body corporate the affairs whereof are managed by the members themselves, a member of the body corporate,

and includes any person in accordance with whose directions or instructions the directors of a body corporate, defined in accordance with the preceding provisions of this subsection, are accustomed to act, but a person shall not, within the meaning of this subsection, be deemed to be a person in accordance with whose directions or instructions the directors of a body corporate are accustomed to act by reason only that those directors act on advice given by him in a professional capacity.

(2) In this Chapter, “employment” means an employment such that any emoluments thereof would fall to be assessed under Schedule E, and references to persons employed by, or employees of, a body corporate include any person who takes part in the management of the affairs of the body corporate and is not a director thereof.

(3) Subject to the provisions of subsection (4) and this subsection, the employments to which this Chapter applies are employments the emoluments of which, estimated for the year of assessment in question according to the provisions of this Act and on the basis that they are employments to which this Chapter applies, and without any deduction being made under Rule 3 of Schedule 2 in respect of money expended in performing the duties thereof, are £1,500 or more:

Provided that—

(a) where a person is employed in two or more employments by the same body corporate, and the total of the emoluments of those employments, for the year of assessment in question, estimated as aforesaid, is £1,500 or more, all those employments shall be treated as employments to which this Chapter applies, and

(b) where a person is a director of a body corporate, all employments in which he is employed by the body corporate shall be treated as employments to which this Chapter applies.

(4) All the directors of, and persons employed by, a body corporate over which another body corporate has control shall be treated for the purposes of the proviso to subsection (3) (but not for any other purpose) as if they were directors of, or, as the case may be, as if the employment were an employment by, that other body corporate.

Additional information in returns under section 178.

120. —(1) Where, for the purposes of a return under section 178, a body corporate apportions expenses incurred partly in or in connection with a particular matter and partly in or in connection with other matters—

(a) the return shall contain a statement that the sum included in the return is the result of such an apportionment,

(b) the body corporate, if required so to do by notice from the inspector, shall prepare and deliver to the inspector, within the time limited by the notice, a return containing full particulars as to the amount apportioned and the manner in which and the grounds on which the apportionment has been made, and

(c) where the inspector is dissatisfied with any such apportionment of expenses, he may, for the purposes of assessment, apportion the expenses, but the body corporate may, on giving notice in writing to the inspector within twenty-one days after being notified of any such apportionment made by the inspector, appeal against that apportionment to the Special Commissioners.

(2) The Special Commissioners shall hear and determine an appeal to them under subsection (1) as if it were an appeal to them against an assessment to income tax and the provisions of this Act relating to the rehearing of an appeal or the statement of a case for the opinion of the High Court on a point of law, shall, with the necessary modifications, apply accordingly.

(3) The provisions of this Act relating to returns under section 178 shall apply in relation to any return required under subsection (1).

Application of this Chapter.

121. —This Chapter shall not apply in relation to any body corporate unless it carries on a trade or its functions consist wholly or mainly in the holding of investments or other property.

Interpretation.

122. —(1) In the preceding provisions of this Chapter “business premises”, in relation to a body corporate, includes all premises occupied by that body for the purpose of any trade carried on by it:

Provided that, except where the reference is expressly to premises which include living accommodation, “business premises” does not include so much of any such premises as aforesaid as is used wholly or mainly as living accommodation for any of the directors of the body corporate or for any persons employed by the body corporate in any employment to which this Chapter applies.

(2) Any reference in the preceding provisions of this Chapter to anything provided for a director or employee shall, unless the reference is expressly to something provided for the director or employee himself, be construed as including a reference to anything provided for the spouse, family, servants, dependants or guests of that director or employee, and the reference in the proviso to subsection (1) to living accommodation for directors or employees shall be construed accordingly.

(3) In the preceding provisions of this Chapter, “control”, in relation to a body corporate, means the power of a person to secure, by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate, or by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate, that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person.

Unincorporated bodies, partnerships and individuals.

123. —(1) The preceding provisions of this Chapter shall apply in relation to unincorporated societies and other bodies as they apply in relation to bodies corporate, and, in connection with the said preceding provisions, the definition of “control” in section 122 (3) shall, with the necessary adaptations, also so apply.

(2) The preceding provisions of this Chapter shall apply in relation to any partnership carrying on any trade or profession as they would apply in relation to a body corporate carrying on a trade, if so much thereof as relates to directors of the body corporate or persons taking part in the management of the affairs of the body corporate were omitted, but—

(a) “control”, in relation to a partnership, means the right to a share of more than one-half of the assets, or of more than one-half of the income, of the partnership, and

(b) where such a partnership as aforesaid has control over a body corporate to which this Chapter applies (“control” being construed for this purpose in accordance with the definition thereof in section 122 (3))—

(i) any employment of any director of that body corporate by the partnership shall be an employment to which this Chapter applies, and

(ii) all the employments of any person who is employed both by the partnership and by the body corporate (being employments by the partnership or the body corporate) shall, for the purpose of seeing whether those employments or any of them are employments to which this Chapter applies, be treated as if they were employments by the body corporate.

(3) The provisions of subsection (2) shall apply in relation to individuals as they apply in relation to partnerships, but nothing in this subsection shall be construed as requiring an individual to be treated in any circumstances as under the control of another person.