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HMRC internal manual

Employment Income Manual

Employment income: calculation of net taxable earnings

Section 11 ITEPA 2003

The charge to tax as employment income is imposed by Part 2 ITEPA 2003.  Chapter 3 of Part 2 explains the operation of the tax charge.  Section 11 explains how to calculate the amount that is “net taxable earnings” from an employment in a tax year.

Net taxable earnings

Section 11(1) states that the “net taxable earnings” is given by the formula:


For the purposes of that formula:

‘TE’ means the total amount of any taxable earnings from the employment in the tax year

‘DE’ means the total amount of any deductions allowed from those earnings under the provisions listed at section 327(3) to (5).

General principle

If the amount calculated using the formula is negative, the amount that is treated as net taxable earnings from the employment is nil.

However, in exceptional circumstances, it is possible for employment loss relief to be available.

Section 11(3) ITEPA 2003

Loss relief may be available under section 128 ITA 2007, to be given by set-off against general income, where:

  • TE is negative (see EIM00805), or
  • in certain exceptional cases where the amount calculated under the formula is negative (see EIM32866).