Source: http://www.legislation.gov.uk/ukpga/2003/1/notes/division/4/3/4/12/data.xht?view=snippet&wrap=true
Timestamp: 2020-02-19 16:15:33
Document Index: 519803795

Matched Legal Cases: ['art 2', 'art 2', 'art 3', 'art 3', 'art 5', 'art 5', 'art.\n1611']

1378.This Part provides for deductions allowed from earnings.
1379.The charge to tax on employment income is a charge to tax on two different categories of employment income: “general earnings” and “specific employment income” (see section 6(1)); and, in the case of “general earnings”, (a term defined in section 7(3)), the amount charged to income tax is the “net taxable earnings” from the employment in the tax year (see section 9(2)). Section 11 then provides that the net taxable earnings from an employment in a tax year consist of the total amount of the taxable earnings from the employment less the total amount of any deductions allowed from those earnings (as listed in section 327(3) to (5)). And it is with this final component of “net taxable earnings” that this Part of this Act is concerned.
1380.In ICTA, the deductions provisions are very difficult to unravel. Some individual provisions are straightforward. But there are many connections between provisions. They interact in ways which are not always easy to follow. Several fictions have been adopted to make the provisions work.
1381.One major source of complexity is that the expenses of an employee may be met in several possible ways, taxed under different sections of ICTA. The mechanism for making a deduction may vary according to the circumstances.
1382.For example, consider the position of a director making a train journey to attend a meeting. The table below shows some of the various ways in which the employer might fund the trip, how the director would be taxed and how the director might obtain a deduction in respect of the expenses of the train ticket. (References to sections are to sections of ICTA.)
Employer funds trip by
Deduction allowable under
round sum allowance section 19(1)1 section 198
specific expense payment section 153 section 198
buying the ticket section 141 section 198 via section 141(3)
providing credit card for employee to use on ticket section 142 section 198 via section 142(3)
1383.There are other possibilities. For example, if the same director travelled to the same meeting using private transport provided by the employer, the provision of the transport would be taxed under section 154 of ICTA, with a deduction allowable under section 198 via section 156(8). And if the business journey involved foreign travel, there are further deduction provisions that may apply.
1384.Another major source of complexity is that the central provision relating to deductions, section 198 of ICTA, is used by other provisions of ICTA and is used in different ways. For example:
under section 156(8) of ICTA, the cost of a benefit provided is allowed as a deduction under section 198, or other provisions, if it would be allowed as a deduction if paid out of emoluments;
under section 193(3) of ICTA, certain travel expenses are treated as having been necessarily incurred in the performance of the duties of an overseas employment for the purposes of section 198(1);
under section 193(7) of ICTA, references to section 198, and to deductions under section 198, are treated as including references to section 193(3), and to deductions under that subsection; and
under section 200A(1) of ICTA, incidental overnight expenses are not regarded as emoluments if they would not be deductible under section 198.
1385.In this Act the number of provisions that cross-refer to other deductions provisions has been much reduced. The view has been taken that it is more helpful, in the case of each deduction provision, to set out in full the conditions that must be met. In setting out those conditions, Inland Revenue practice has been followed. As a result of this approach, sections 194(10) and 195(11) of ICTA, which provide for provisions to be construed with other provisions, have no direct successors in this Act.
1537.Suppose that F, a Frenchman, is resident and ordinarily resident in France. He performs most of the duties of his employment in France where he receives the earnings for those duties. F does not remit any of those earnings to the United Kingdom, so they are not chargeable to income tax in the United Kingdom. As the holder of his employment, F is also obliged, while in France, to incur expenditure wholly, exclusively and necessarily in the performance of his duties there. However, F also performs a minority of the duties of his employment in the United Kingdom where he receives earnings for these other duties. These earnings are chargeable to income tax in the United Kingdom (see section 27). This section prohibits F from deducting the expenditure incurred in France from the income chargeable to tax in the United Kingdom.
1538.Subsection (2) applies if the earnings from an employment for a tax year include both earnings charged on remittance under section 26 and other earnings. The subsection prohibits a deduction under section 353 from the earnings charged on remittance if the expenses in question relate to the other earnings.
1539.Subsection (3) provides that this section is to be disregarded for the purposes of the deductibility provisions. See Note 37 in Annex 2.
Section 355: Deduction for corresponding payments by non-domiciled employees with foreign employers
1540.This section provides for a non-domiciled employee with a foreign employer to claim a deduction if certain conditions are met.
1541.This section derives from section 192(1) and (3) of ICTA.
1542.Subsections (2) to (5) sets out the conditions that must be met:
The employment must be with a foreign employer (a term defined in section 721(1));
The payment did not reduce the employee’s liability to United Kingdom income tax, but was made in circumstances corresponding to those in which it would do so.
1543.Subsection (6) provides for the deduction to be allowed.
1544.Section 192(3) of ICTA provides for a successful claim to be allowed “as a deduction in computing the amount of the emoluments”; but this section provides for the claim to be allowed “as a deduction under this Chapter”. See Change 93 in Annex 1.
Section 356: Disallowance of business entertainment and gifts expenses
1545.This section prevents a deduction from earnings of expenses incurred in providing entertainment or a gift in connection with the employer’s trade, business, profession or vocation. This general prohibition is subject to the exceptions in sections 357 and 358.
1546.This section derives from section 577(1)(b), (5), (7) and (8) of ICTA and contains new drafting material.
1547.Subsection (1) contains the general prohibition on deducting expenses incurred in providing entertainment or a gift.
1548.This section makes it clear that the trade, business, profession or vocation to which the business entertainment expenses relate is the trade etc of the employer. See Change 94 in Annex 1.
1549.Subsection (2) refers to certain exceptions from the general prohibition in subsection (1).
1550.Subsection (3) extends the meaning of “entertainment” and brings incidental expenses within the scope of the section.
Section 357: Business entertainment and gifts: exception where employer’s expenses disallowed
1551.This section contains an exception to the general prohibition on deducting business entertainment and gifts expenses in section 356. It derives from section 577(1)(a) and (3) of ICTA and contains new drafting material.
1552.Subsection (1) disapplies the prohibition on deducting entertaining and gifts expenditure in section 356 where certain conditions are met and refers to further alternative conditions in subsections (2), (3) and (4).
1553.Subsection (2) requires that the deduction of the expense must fall to be disallowed in calculating the employer’s profits because of section 577 of ICTA where the employer is carrying on a trade, profession or vocation. In practice, this condition is treated as met where the expense would have been disallowed apart from any exemption in section 505(1)(e) of ICTA (exemption from tax under Schedule D in respect of the profits of any trade carried on by a charity where the profits are applied solely to the purposes of the charity etc.) or because of another relief applying to the profits of the employer. Subsection (2) spells out this treatment.
1554.Subsection (3) contains an alternative requirement that the expense must fall to be disallowed in calculating the employer’s expenses of management because of section 577 of ICTA. Again, it is made clear that the fact the disallowance does not operate because a relief applies is ignored.
1555.Subsection (4) contains the other alternative requirement that the expense would fall to be disallowed in calculating the employer’s “relevant shipping profits” apart from the making by the employer of a tonnage tax election. See Change 95 in Annex 1.
1556.Subsection (5) contains cross-references to Schedule 22 to FA 2000 to explain the terms used in subsection (4) relating to tonnage tax.
1557.The reference in section 577(3)(b) of ICTA to “in whole or in part” has been omitted. See Note 38 in Annex 2.
Section 358: Business entertainment and gifts: other exceptions
1558.This section contains the other exceptions from the general prohibition on deducting business entertaining and gifts expenses in section 356. It derives from section 577(5), (7)(c) and (8) of ICTA and contains new drafting material.
1559.Subsection (1) provides that the general prohibition on deducting expenses in section 356 does not apply, with some exceptions, if the sums are incurred in providing entertainment or gifts for the employer’s employees. But the prohibition in section 356 does still apply in the circumstances set out in paragraphs (a) and (b) of subsection (1) of section 358.
1560.Subsection (2) treats directors and persons engaged in the management of a company as employed by it for the purpose of this section.
1561.Subsection (3) provides that the general prohibition on deducting entertaining and gifts expenses in section 356 does not apply, with some exceptions, if the sums relate to the provision of a gift which incorporates a conspicuous advertisement for the employer. But the prohibition in section 356 does still apply in the circumstances set out in subsection (3)(a) or (b) of section 358.
1562.The subsection also provides that where the employer is a company, the general prohibition does not apply, with some exceptions, if the expenses are incurred in providing a gift which incorporates a conspicuous advertisement for another company which belongs to the same group as the employer. See Change 96 in Annex 1. This exception will not apply, however, in the circumstances set out in subsection (3)(a) or (b) of this section.
1563.This subsection also removes any doubt there might be about whether an employee is excepted from the prohibition in section 356 where the terms of the exception are met. See Change 96 in Annex 1.
1564.The word “donor” which appears towards the end of the introduction to section 577(8) of ICTA has been changed to “employer” in subsection (3) of section 358. See Change 96 in Annex 1.
1565.The £50 limit in subsection (3)(b) of this section is fixed at that amount by the section. However, section 716(2)(h) of this Act provides that the £50 limit may be increased by an order made by the Treasury. See Change 96 in Annex 1.
1566.Subsection (4) defines “group” for the purposes of subsection (3) of this section.
Section 359: Disallowance of travel expenses: mileage allowances and reliefs
1567.This section prohibits an employee from obtaining a deduction under the travel deduction provisions (defined as sections 337 to 342, 351, 370, 371, 373 and 374) if mileage allowance payments are made to the employee or mileage allowance relief is available. The section is necessary to establish the order in which the relevant provisions are to be applied and to ensure that there is no double relief.
1568.The section derives from section 198(5) of ICTA, added by Schedule 12, Part 2, paragraph 6 to FA 2001 (in so far as this section relates to the travel deductions provisions other than section 351); and from section 332(3A) and (3B) of ICTA, added by Schedule 12, Part 2, paragraph 10 to FA 2001 (in so far as this section relates to section 351).
1569.Subsection (4) contains the definitions of “mileage allowance payments” and “the travel deductions provisions” and contains signposts to the definitions of “company vehicle” and “mileage allowance payments”. Mileage allowance relief is dealt with in section 231.
Section 360: Disallowance of certain accommodation expenses of MPs and other representatives
1570.This section prevents MPs and other representatives from obtaining a deduction from earnings for residential or overnight accommodation.
1571.The section derives from section 198(4) of ICTA.
1572.Section 198(4) is the counterpart to provisions contained in sections 200 and 200ZA of ICTA, from which sections 292 and 293 derive. Those sections provide that allowances for residential or overnight accommodation are exempt from income tax: and this present section accordingly provides that no deduction is allowed for the accommodation expenses in respect of which the allowances are paid.
1573.Subsection (1) provides that no deduction from earnings is allowed “under this Chapter”, and may, accordingly, be contrasted with section 198(4) of ICTA, which provided that no deductions should be made “under this section”. See Change 97 in Annex 1.
1574.The sections in this Chapter allow deductions where goods or services are provided which are within the scope of the benefits code and deductions would have been allowed if the goods or services had been paid for by the employee. The sections derive from sections 141(3), 142(2), 145(3) and 156(8) of ICTA.
1575.All the sections in the Chapter refer to deductions under the whole of Chapter 2 and Chapter 5 of this Part instead of restricting them to the rewritten versions of the provisions referred to in sections 141(3), 142(2), 145(3) and 156(8) of ICTA. See Change 99 in Annex 1.
Section 361: Scope of this Chapter: cost of benefits deductible as if paid by employee
1576.This section sets out the general proposition for a deduction to be allowed under this Chapter. A person’s earnings must include an amount treated as earnings under the relevant parts of the benefits code and a deduction must have been allowable if the employee had paid the cost of the goods or services. The sections in this Chapter are a change in approach to provisions from which they are derived. The changes in sections 362, 363, 364 and 365 are explained in detail in Changes 98 and 99 in Annex 1.
Section 362: Deductions where non-cash voucher provided
1577.This section applies where goods or services are obtained by an employee in exchange for a non-cash voucher for which an amount is treated as earnings by virtue of section 87(1). It derives from section 141(3) of ICTA. If, had the goods or services been provided by the employee, a deduction would be allowable by the provisions of Chapter 2 or 5 of this Part a deduction is allowable by virtue of this section.
1578.Subsection (1) sets out the conditions which must apply if a deduction from earnings is to be allowed.
1579.Subsection (2) quantifies the amount of the deduction. A limit is placed on the amount of the deduction allowed rather than providing the deduction is only to be set against the amount treated as earnings.
Section 363: Deductions where credit-token provided
1580.This section applies where goods or services are provided using a credit-token. A deduction may be allowed where the earnings include an amount treated as earnings under section 94(1) and the token is used to obtain goods or services. If the employee would have been allowed a deduction under Chapter 2 or Chapter 5 of this Part if he had paid for the goods or services, a deduction is allowed by this section.
1581.Subsection (1) sets out the conditions which must apply if a deduction from earnings is to be allowed.
1582.Subsection (2) quantifies the amount of the deduction, with the same limit as described for section 362.
1583.The section derives from section 142(2) of ICTA.
Section 364: Deductions where living accommodation provided
1584.This section applies where the benefit provided is living accommodation. A deduction may be allowed where the earnings include an amount treated as earnings under Chapter 5 of Part 3. If the employee would have been allowed a deduction under Chapter 2 or Chapter 5 of this Part if he had paid for the accommodation, a deduction is allowed under this section. It derives from section 145(3) and 146(9) of ICTA.
1585.A limit is placed on the deduction to be made. The deduction will be calculated on the basis that the amount paid by the employee for the accommodation is equal to the amount treated as earnings in respect of that accommodation.
1586.Subsection (1) sets out the conditions which must apply if a deduction from earnings is to be allowed.
1587.Subsection (2) quantifies the amount of the deduction.
Section 365: Deductions where employment-related benefit provided
1588.This section applies where an unspecified benefit is provided. A deduction may be due where the earnings include an amount treated as earnings under Chapter 10 of Part 3 of this Act in respect of a benefit. If the employee would have been allowed a deduction under Chapter 2 or Chapter 5 of this Part if he had paid for the cost of the benefit, a deduction is allowed under this section. It derives from section 156(8) of ICTA.
1589.Subsection (1) sets out the conditions which must apply if a deduction from earnings is to be allowed.
1590.Subsection (2) quantifies the amount of the deduction with the same limit as described for section 362.
1591.Subsection (3) contains an explanation of the “cost of the benefit”.
Chapter 4: Fixed allowances for employee’s expenses
1592.This Chapter contains provisions that allow deductions from an employee’s earnings for amounts fixed by the Treasury.
Section 366: Scope of this Chapter: amounts fixed by Treasury
1593.This section sets out the scope of the Chapter – to allow deductions from earnings for a sum fixed by the Treasury by reference to the employee’s employment.
Section 367: Fixed sum deductions for repairing and maintaining work equipment
1594.This section allows a deduction from the earnings of certain classes of employees for a sum fixed by the Treasury.
1595.It derives from ESC A1. See Change 100 in Annex 1.
1596.Subsection (1) allows a deduction from the earnings of an employee for a sum fixed by the Treasury as representing the average annual expense in respect of the repair and maintenance of work equipment incurred by employees of the class to which the employee belongs.
1597.Subsection (2) sets out the terms under which the Treasury may fix a sum for a class of employees.
1598.Subsection (3) prevents the allowance of the fixed-sum deduction if the expense in respect of which the sum is fixed is paid or reimbursed by the employer or would be if requested.
1599.Subsection (4) provides that where the employer meets part of the expenses (or would do if so requested) in respect of which the fixed-sum deduction is set, the deduction is reduced by that amount.
1600.Subsection (5) defines “work equipment” for subsections (1) and (2).
1601.Subsection (6) requires the section to be read with section 330(2) (prevention of double deductions). If an expense on work equipment were deductible under Chapter 2 of Part 5, it would not be deductible under this section. See Change 82 in Annex 1.
Section 368: Fixed sum deductions from earnings payable out of public revenue
1602.This section allows for certain descriptions of employees a deduction of a sum fixed by the Treasury from earnings paid out of public revenue.
1603.It derives from section 199 of ICTA.
1604.Subsection (1) allows a deduction from earnings payable out of public revenue for fixed sum expenses relating to the duties that give rise to those earnings.
1605.Subsection (2) defines “fixed sum expenses”.
1606.Subsection (3) requires the section to be read with section 330(2) (prevention of double deductions). If the expense were deductible under Chapter 2 of Part 5, it would not be deductible under this section.
1607.This Chapter deals with cases where the employer, or a third party, bears the cost of something that is taken into account as part of the employee’s earnings, but the employee is entitled to a deduction from those earnings in respect of that cost.
1608.This Chapter derives from provisions in sections 193 to 195 of ICTA and in sections 50 to 52 of FA 1989. In the majority of cases dealt with, the amount of such a deduction is expressed as being “equal to so much of that cost or, as the case may be, those expenses as fall to be included in those emoluments”. In the present Chapter, by contrast, it is possible to define the amount in question as “the included amount”, and then to say that “the deduction is equal to the included amount”.
1609.Another common thread in the provisions dealt with in this Chapter is that the amounts included in the employee’s earnings are generally expressed in terms of provision being made “by or on behalf of the employer” (or similar). It has not been possible to establish the original policy reasons for limiting the scope of the deductions to provision made in this way. There may be circumstances where the provision is by or on behalf of someone other than the employer and the amount is still chargeable as part of the employee’s earnings. As long as all the other conditions for the deductions are met, there seems no reason why a deduction should be withheld because the provision was made by a person other than the employer or someone acting on the employer’s behalf. The words “by or on behalf of the employer” (or similar) which appear in the source legislation are therefore omitted. To the extent that this change has any practical effect, it will be in favour of the taxpayer. See Change 101(A) in Annex 1.
1610.This Chapter does not deal with a deduction for expenses incurred and paid by the employee without any reimbursement. That kind of deduction is dealt with in Chapter 2 of this Part.
1611.As in Chapter 2 of this Part, the sections have been grouped according to the type of expense involved. After section 369, which is introductory:
sections 370 to 372 allow deductions for travel costs and expenses where the employee is resident and ordinarily resident in the United Kingdom, but the duties of the employment are performed abroad;
section 373 to 375 allow deductions for travel costs and expenses where the employee is not domiciled in the United Kingdom, but the duties of the employment are performed in the United Kingdom;
section 376 allows a deduction for costs and expenses in respect of accommodation or subsistence where the employee is resident and ordinarily resident in the United Kingdom, but working abroad;
section 377 allows a deduction for costs and expenses in respect of personal security assets and services.
Section 369: Scope of this Chapter: earnings representing benefits or reimbursed expenses
1612.This section deals with preliminary matters relevant for this Chapter.
1613.Subsection (1) brings together material contained in sections 193(4), 194(1) and 195(7) of ICTA and in section 50(2) and (3) of FA 1989. Subsections (2) and (3) are drafting additions.
1614.Subsection (1) states the general proposition that a deduction from a person’s earnings is allowed under the following provisions of this Chapter where an amount has been included in the earnings in respect of provision made for the person or expenses reimbursed by another person. See Change 101(A) in Annex 1.
1615.Subsection (2) provides that the amount described in subsection (1) is referred to in this Chapter as “the included amount”.
1616.Subsection (3) is concerned with the overlap between this Chapter and Chapter 3 of this Part. If the included amount is an amount treated as earnings by virtue of the benefits code, a deduction may be available under Chapter 3; and this subsection accordingly provides a signpost to that Chapter.
1617.The next three sections provide for deductions to be allowed from earnings for travel costs and expenses where the employee is resident and ordinarily resident in the United Kingdom but the duties of the employment are performed abroad. These sections derive from provisions in section 194 of ICTA.
Section 370: Travel costs and expenses where duties performed abroad: employee’s travel
1618.This section provides that a deduction is allowed from earnings for travel costs and expenses where the journey in question is made by the employee.
1619.The section derives from provisions in section 194(1), (3), (4), (5), (6) and (8) of ICTA.
1620.Subsection (1) specifies the circumstances in which a deduction from earnings is allowed. See also Change 101(A) in Annex 1. The deduction is allowed if:
the employee has earnings which are taxable earnings under section 15 or 21 (which apply if the employee is resident and ordinarily resident in the United Kingdom in the tax year);
1621.Subsection (2) provides that the deduction is equal to the included amount; and cases A, B and C are set out in subsections (3), (4) and (5).
1622.In the source legislation the provisions of section 132(2) of ICTA could affect the availability of this deduction. The application of section 132(2) would mean the disallowance of a deduction under this section where the duties performed in the United Kingdom were merely incidental to the performance of the other duties of the employment outside the United Kingdom. In practice deductions are allowed in these circumstances; and, accordingly, material deriving from section 132(2) of ICTA has not been included in this section. See Change 101(B) in Annex 1.
Section 371: Travel costs and expenses where duties performed abroad: visiting spouse’s or child’s travel
1623.This section provides that a deduction is allowed from earnings for travel costs and expenses where the journey in question is made by the employee’s spouse or child.
1624.The section derives from provisions in section 194(1) and (2) of ICTA.
1625.Subsection (1) specifies the circumstances in which a deduction from earnings is allowed. See also Change 101(A) in Annex 1. The deduction is allowed if:
the earnings include an amount is respect of the provision of travel facilities for a journey made by the employee’s spouse or child, or the reimbursement of expenses incurred by the employee on such a journey; and
1626.Subsection (2) provides that the deduction is equal to the included amount; and conditions A, B and C are set out in subsections (3), (4) and (5).
Section 372: Where seafarers’ duties are performed
1627.This section provides that section 40(2) (certain duties treated as performed in the United Kingdom) does not apply for the purposes of determining whether duties performed on a vessel are performed in or outside the United Kingdom for the purposes of sections 370 and 371. It derives from section 194(7) of ICTA.
1628.The next three sections provide for deductions to be allowed from earnings for travel costs and expenses where the employee is not domiciled in the United Kingdom, but the duties are performed there. These sections derive from provisions in section 195 of ICTA.
Section 373: Non-domiciled employee’s travel costs and expenses where duties performed in UK
1629.This section provides that a deduction is allowed from earnings for travel costs and expenses where the journey in question is made by the employee.
1630.The section derives from provisions in section 195(1), (2), (5), (7), (8) and (9) of ICTA.
1631.Subsection (1) specifies the circumstances in which a deduction from earnings is allowed. See also Change 101(A) in Annex 1. The deduction is allowed if:
1632.Subsection (2) provides for the deduction from earnings to be allowed if:
1633.Condition A insubsection (3) reflects Inland Revenue practice in linking the five year period to the date when the journey was undertaken as opposed to the date when the expenditure was incurred. See Change 102 in Annex 1.
1634.Subsection (5) provides that if the journey is wholly for the purpose specified in subsection (4), the deduction allowed is equal to the included amount; and subsection (6) provides that if the journey is only partly for that purpose, the deduction allowed is only a proportion of the included amount.
1635.In section 195 of ICTA there are references to a person’s “usual place of abode” and this expression is then defined (in section 195(9)) as “the country (outside the United Kingdom) in which he normally lives”. The provisions in this Act take a simpler approach, referring just to “the country outside the United Kingdom in which the employee normally lives”.
Section 375: Meaning of “qualifying arrival date”
1643.This section explains the meaning of the expression “qualifying arrival date”, which is used in sections 373 and 374. It derives from section 195(2), (3) and (4) of ICTA.
1644.Subsection (4) provides that if there are two or more dates in a tax year which are capable of being a “qualifying arrival date”, the qualifying arrival date is the earliest of those dates.
Section 377: Costs and expenses in respect of personal security assets and services
1652.This section provides that a deduction is allowed for costs and expenses in respect of personal security assets and services.
1653.The section derives from sections 50 to 52 of FA 1989.
1654.Subsection (1) specifies the circumstances in which a deduction from earnings is allowed. See also Change 101(A) in Annex 1. The deduction is allowed if:
there is a special threat to the employer’s personal physical security which arises wholly or mainly because of the employee’s employment;
the employee’s earnings include an amount in respect of the asset or service because some or all of the costs are borne by the provider; and
the provider’s sole object in bearing the whole or part of the cost or reimbursing the expenses is meeting the threat.
1655.If the provider of an asset within subsection (1) intends that asset to be used solely for the purpose of improving personal physical security, a deduction equal to the included amount is allowed (subsection (2)). Use incidental to this purpose is ignored (subsection (3)). If the provider of the asset intends it to be used only partly to improve personal physical security, the deduction allowed is only a proportion of the included amount (subsection (4)). In determining whether or not this section applies, certain matters may be disregarded (subsection (5)).
1656.In the case of a service within subsection (1), if the benefit resulting to the employee consists wholly or mainly of an improvement of the employee’s physical security, a deduction equal to the included amount is allowed (subsection (6)).
1657.Subsection (7) provides that the fact that an asset or a service improves the personal physical security of a member of the employee’s family or household, as well as that of an employee, does not prevent a deduction being allowed under this section. In subsection (7) the expression “member of the employees’ family or household” is not defined in the source legislation; but in this Act this expression is covered by the general definitions in section 721(4) and (5). See Note 39 in Annex 2.
1658.Subsection (8)omits the reference to “living accommodation” in section 52(3)(b) of FA 1989 on the basis that this expression is already encompassed by the word “dwelling”.
Chapter 6: Deductions from seafarers’ earnings
1659.This Chapter rewrites section 192A of and Schedule 12 to ICTA. These provide a deduction, commonly called the Foreign Earnings Deduction (“FED”) for seafarers against earnings for a year in which the seafarer is resident and ordinarily resident in the United Kingdom. This deduction has something of the flavour of an exemption in that the amount deductible is equal to an amount of earnings rather than any costs or expenses incurred.
Section 378: Deduction from seafarers’ earnings: eligibility
1660.This section sets out the conditions for eligibility for the deduction. Broadly speaking, seafarers must spend no less than half of a qualifying period of at least 365 days outside the United Kingdom and not more than 183 consecutive days in the United Kingdom during the qualifying period.
1661.It is possible to combine various periods of absence from the United Kingdom to determine whether the test has been satisfied. Paragraph 3 of Schedule 12 to ICTA deals with this by using the terms “qualifying period”, “relevant periods”, “a single qualifying period”, “the last qualifying period” and the “intervening period”. These concepts and their various combinations are difficult to follow.
1662.So, in subsection (2) the new term “eligible period”, which consists of either a period of continuous absence from the United Kingdom or a “combined period” (another new term which is itself defined in subsection (3)) has been introduced.
Section 380: Limit on deduction where UK duties etc. make amount unreasonable
1666.This section derives from paragraph 2 of Schedule 12 to ICTA. It contains anti-avoidance provisions against attempts to manipulate the amount of the earnings to take advantage of the relief.
1667.The rules in paragraph 2(3) of Schedule 12 to ICTA for determining associated employments end with the words “but paragraph (b) above shall not be construed as requiring an individual to be treated in any circumstances as under the control of another person”. These words did not appear to have any policy or practical purpose and have been omitted as unnecessary. The rules are now the same as in section 24 and rather than repeat them here subsection (4) contains a cross-reference to that section.
Section 381: Taking account of other deductions
1668.This section contains the rules for calculating the amount of the earnings for the purposes of this Chapter. It derives from paragraph 1A of Schedule 12 to ICTA.
1669.All the other employment income deductions are allowed against the full amount of earnings from the employment for the tax year in question. However, the deduction is only allowed in respect of the earnings from the employment which are attributable to an eligible period.
1670.This means that in some circumstances only a part of a seafarer’s earnings for a year may be eligible for the deduction. If the deduction was computed and allowed by reference to the gross earnings for the eligible period, this would displace any other employment income deductions, with the effect that those other deductions, which were for a full year, would be allowed against the earnings for only part of the year.
1671.To prevent this, this section requires that the amount of the earnings for the eligible period is to be computed by first deducting all of the employment income deductions and any capital allowances from the gross earnings of the employment for the year. The net product of this calculation is then apportioned to find the earnings for both the eligible and non-eligible periods.
1672.Paragraph 1A of Schedule 12 to ICTA lists the deductions which are to be taken into account in determining the earnings for the purposes of the FED. However, this list is not complete. For example, it does not refer to deductions under sections 201AA or 201A of ICTA, or under sections 50 to 52 of FA 1989.
1673.This appears to be unintended. In practice, all the other employment income deductions and capital allowances are taken into account when calculating the earnings eligible for the FED. Accordingly the list has been extended to include all those which may be made under the appropriate employment income provisions. This is a minor change to the law. See Change 103 in Annex 1.
Section 382: Duties on board ship
1674.This section determines whether duties performed on particular voyages are regarded as having been performed in or outside the United Kingdom. It derives from paragraph 5 of Schedule 12 to ICTA and section 132(4)(b) of ICTA.
1675.This section modifies one of the rules in section 132(4)(b) of ICTA, but only for the specific purpose of identifying the duties and earnings which are eligible for the FED. For all other purposes, the rules in section 40 are unaffected by this section.
Section 383: Place of performance of incidental duties
1676.This section derives from paragraph 6 of Schedule 12 to ICTA and sets out the rules (which apply only to the FED), regarding the performance of duties which are incidental to the main duties of the employment.
1677.Under section 132(2) of ICTA, if the duties of an employment are mainly performed outside the United Kingdom, any duties incidental to those performed in the United Kingdom are treated as being performed outside the United Kingdom. However, this rule does not apply when deciding whether or not a seafarer is absent from the United Kingdom to determine entitlement to the FED. This exception to the section 132(2) rule is in section 132(3) and has been rewritten in subsection (4) of this section.
Section 384: Meaning of employment “as a seafarer”
1678.This section defines what this means. It derives from section 192A(2) of ICTA. The exception for earnings from Crown employments derives from section 132(4)(a) of ICTA and ensures that those earnings do not qualify for the FED.