EIM33001 - Seafarers’ Earnings Deduction: general conditions
Section 378 ITEPA 2003
A deduction is allowed from earnings from employment as a seafarer (see EIM33101) if all of the following conditions are met in the tax year:
- the earnings are taxable under Section 15 (or Section 21 before 6 April 2008) ITEPA 2003 (general earnings for a year when the employee is ordinarily resident in the United Kingdom, see EIM40101)
- the duties of the employment are performed wholly or partly outside the United Kingdom (see EIM33031)
- any of those duties are performed in the course of an eligible period falling wholly or partly in the tax year (see EIM33004).
The tests are applied separately.
See
EIM33002 for how to calculate the
deduction.
Salvage payments
See
EIM70220 for details relating to salvage
awards.
If the award is payable by the employer to the employee it
represents part of the employee’s earnings from his
employment and is taxable under Section 62 ITEPA 2003 as general
earnings (
EIM00600).
If the award is payable by a third party to the employee, it
may still form part of earnings within Section 62. It will depend
on the facts. But even if it is not taxable under Section 62, it is
very likely to be taxable as a cash benefit under Section 201 ITEPA
2003 as in most circumstances the payment will arise “by
reason of” employment (
EIM20503) even if paid by a third
party.
Share option gains
Seafarers’ earnings deduction is not available as a
deduction to be set against gains made on the exercise of a share
option. Such gains are taxable under the rules on Securities
Options in Chapter 5 of Part 7 (section 471 onwards) ITEPA 2003.
See ERSM110100.
Seafarers’ earnings deduction is available only
against “general earnings” as defined in Section 7(3)
ITEPA - see
EIM00510. The gain on exercise of a
share option does not fall within the definition of general
earnings. Rather income chargeable under Part 7 of ITEPA is defined
as “specific employment income” under Section 7(4)
ITEPA.
Deduction not exemption
Section 378 provides for a deduction from a seafarer's earnings in order to calculate the net taxable earnings from employment. It does not exempt the earnings from tax.
National Insurance
The deduction applies for tax purposes only. For information about seafarers’ liability to National Insurance Contributions (NICs), see NIM29002 onwards.
