Emergency taxation of employment income
COVID-19 has highlighted the limited scope to make changes to the current benefits in kind and expenses tax system to respond quickly to the pandemic. The government has had to introduce primary and secondary legislation with temporary effect to respond to the pandemic, to exempt a number of benefits in kind, change the qualifying conditions of certain benefits and provide relief for specified expenses and reimbursements.
It is expected that during any future disaster or emergency of national significance, it may be necessary to make similar changes on a temporary basis. The current legislation only allows changes to be made through secondary legislation in limited circumstances.
Therefore, in order to be able to respond effectively to disasters or emergencies of national significance like COVID-19 in the future, the government will introduce regulation making powers that will allow HM Treasury to respond quickly to various emergency situations, including but not limited to pandemics, if deemed necessary.
This measure will allow HM Treasury, under ministerial direction, to make regulations to make temporary modifications to Parts 3,4 and 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) for a period of up to 2 tax years in the event of a disaster or emergency of national significance as determined by HM Treasury. This will enable the government to support taxpayers, for example by:
- Exempting benefits in kind of a specified description from income tax where appropriate
- Changing the qualifying conditions for exemptions on benefits in kind
- Exempting specified reimbursements from the charge to income tax
- Providing relief for specified expenses
Legislation will be introduced in Finance Bill 2021-22 that will grant HM Treasury the power to make regulations, under ministerial direction, in the event of a disaster or emergency of national significance.
HM Treasury can determine when it is appropriate to use the powers, but may only make temporary modifications to Parts 3,4 and 5 ITEPA (which includes the power to make consequential modifications to the Income Tax Acts).
Any modifications made in exercise of the new powers would have effect only for a limited period of time as set out in any regulations made under the new power. In any event, any modifications must cease to have effect at the end of the tax year after the year in which they first have effect (and will therefore only remain in place for a maximum of two complete tax years). However, the new powers may be exercised to make similar provision, if necessary, to extend any relieving measures for the taxpayer for a further period of time during which an emergency or disaster is having an impact, or in relation to a new disaster or emergency.
The power can only be exercised in a way that is wholly relieving to the taxpayer and cannot be used to create a tax charge.