Travel costs and expenses of non-domiciled employees where duties performed in UK
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:
the employee is not domiciled in the United Kingdom;
the employee receives earnings from an employment for duties performed in the United Kingdom; and
an amount is included in the earnings in respect of the provision of travel facilities for a journey made by the employee, or the reimbursement of expenses incurred by the employee on such a journey.
1632.Subsection (2) provides for the deduction from earnings to be allowed if:
the earnings are earnings charged on receipt (a term defined in section 335(4)); and
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 374: Non-domiciled employee’s spouse’s or child’s travel costs and expenses where duties performed in UK
1636.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.
1637.The section derives from provisions in section 195(1), (2) and (6) to (10) of ICTA.
1638.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 is not domiciled in the United Kingdom;
the employee receives earnings from an employment for duties performed in the United Kingdom; and
an amount is included in the earnings in respect of the provision of travel facilities made by the employee’s spouse or child, or the reimbursement of expenses incurred by the employee on such a journey.
1639.Subsection (2) provides for the deduction from earnings to be allowed if:
the earnings are earnings charged on receipt (a term defined in section 335(4)); and
1640.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.
1641.Subsection (6) provides that if the journey is wholly for the purpose specified in subsection (5), the deduction allowed is equal to the included amount; and subsection (7) provides that if the journey is only partly for that purpose, the deduction allowed is only a proportion of the included amount.
1642.As in the case of section 373, references to an employee’s “usual place of abode” have been replaced by references 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 376: Foreign accommodation and subsistence costs and expenses (overseas employments)
1645.This section provides that a deduction is allowed for costs or expenses in respect of accommodation or subsistence while an employee is working abroad.
1646.The section derives from section 193(2) and (4) of ICTA.
1647.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 duties of the employment are performed wholly outside the United Kingdom;
the employee is resident and ordinarily resident in the United Kingdom;
in a case where the employer is a foreign employer (see section 721(1)), the employee is domiciled in the United Kingdom; and
the earnings include an amount in respect of the provision of accommodation or subsistence outside the United Kingdom for the purpose of enabling the employee to perform the duties of the employment, or the earnings include an amount in respect of the reimbursement of expenses incurred by the employee on such accommodation or subsistence for that purpose.
1648.Subsection (2) provides that if the accommodation or subsistence is wholly for the purpose of enabling the employee to perform the duties of the employment, the deduction is equal to the included amount; and subsection (3) provides that if the accommodation or subsistence is only partly for that purpose, the deduction allowed is only a proportion of the included amount.
1649.The expression “board and lodging” in section 193(4) of ICTA has been replaced in this Act by the expression “accommodation or subsistence”. It is not necessary for both elements mentioned in section 193(4) to be present for the deduction to be allowed.
1650.In the detail of the wording used, this section departs from the legislation it replaces to a significant extent. Some of these changes reflect the decision to dispense with the term “foreign emoluments” and to use the term “foreign employer”.
1651.Subsections (4) and (5) derive from section 132(2) of ICTA. These subsections ensure that a deduction under this section is still available if duties of the employment are performed in the United Kingdom which are merely incidental to the duties of the employment performed outside the United Kingdom. See also Change 101(B) in Annex 1.
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;
an asset or service which improves personal security is provided for or used by the employee to meet the threat;
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 379: Calculating the deduction
1663.This section sets out the amount of the deduction which may be allowed from the earnings attributable to the eligible period. Subsection (1) derives from section 192A(1) of ICTA.
1664.Subsection (2) derives from the rule in paragraph 3(3) Schedule 12 to ICTA concerning earnings for a period of leave immediately following an eligible period. That rule says that the emoluments for such a period of leave may be taken as attributable to the qualifying period, but only to the extent that this would not mean having to treat any emoluments for one tax year as belonging to a different tax year. Essentially this rule allows emoluments for a period of leave to be attributed to the qualifying period to the extent that they are emoluments for the tax year during which the qualifying period ends.
1665.Subsection (3) makes the deduction subject to the limit contained in the following section.
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.
Section 385: Meaning of “ship”
1679.This section derives from section 192A(3) of ICTA. “Ship” takes its everyday meaning, subject to the exception in respect of an “offshore installation” as provided by the Mineral Workings (Offshore Installations) Act 1971. Further guidance on the meaning of those terms is given in the Inland Revenue Schedule E manual at paragraphs SE 33221 to 33222.