EIM33051 - Seafarers’ Earnings Deduction: attribution of earnings: example
EIM33003 shows how earnings from an employment can be time-apportioned when an eligible period straddles two tax years. The example assumes that the rate of pay remains the same throughout the periods:
- before the off-shore assignment commenced
- during the assignment (when the employee worked as a seafarer abroad) and
- after the employee returned to the United Kingdom.
However, if the earnings fluctuate it is not appropriate to simply time-apportion the amount reported at the end of the year on form P14. The figures should be analysed to establish if and to what extent the employee was paid at different rates when he or she worked as a seafarer overseas. This will reveal the earnings that are attributable to the eligible period.
Example
A seafarer had a 13 month eligible period ending on 30 September 2004 that entitled him to the deduction. He was paid as follows:
- annual salary of £30,000 until 1 August 2003
- 1 August 2003 annual salary increased to £40,000
- while he was working in the Far East from 1 September 2003 to 30 September 2004 he received a pay supplement of £100 a month
- in November 2004 he received a bonus of £12,000 relating to the employer's accounts year ended 31 July 2004.
The amount of earnings that attract the deduction in the tax years covered by the eligible period is set out below:
2003/04
| Salary (1 September 2003 to 5 April 2004) | 7/12 x £40,000 = | £23,333 | |
| Supplement (7 months) | 7 x £100 = | £700 | |
| Bonus (1 September 2003 to 5 April 2004) | 7/12 x £12,000 = | £7,000 | paid in 2004/05 |
| Earnings covered by the deduction | £31,033 |
2004/05
| Salary (6 April 2004 to 30 September 2004) | 6/12 x £40,000 = | £20,000 |
| Supplement (6 months) | 6 x £100 = | £600 |
| Bonus (6 April 2004 to 31 July 2004) | 4/12 x £12,000 = | £4,000 |
| Earnings covered by the deduction | £24,600 |
Self-assessments are outlined below:
2003/04
| Salary (6 April 2003 to 31 July 2004) | 4/12 x £30,000 = | £10,000 |
| Salary (1 August 2003 to 5 April 2004) | 8/12 x £40,000 = | £26,666 |
| Supplement (7 months) | 7 x £100 = | £700 |
| Total earnings received | £37,366 | |
| Less seafarers' deduction | £24,033 | |
| Net taxable earnings | £13,333 |
2004/05
| Salary (6 April 2004 to 5 April 2005) | £40,000 | |
| Supplement (6 months) | 6 x £100 = | £600 |
| Bonus | £12,000 | |
| Total earnings received | £52,600 | |
| Less seafarers' deduction | £31,600 | |
| Net taxable earnings | £21,000 |
The performance period of the bonus ran from 1 August 2003 to 31
July 2004. The part of the bonus payment attributable to August
2003 was not covered by the deduction as the eligible period did
not begin until 1 September. The whole of the bonus was received in
2004/05 and is taxable in that year. However, the deduction is due
on those parts of the bonus falling into the eligible period in
2003/04 and 2004/05.
Attribution of leave pay is dealt with at
EIM33052.
