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HMRC internal manual

Employment Income Manual

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Other expenses: Losses

Section 128 ITA 2007

Relief for losses arising from an employment or office is claimed under Section 128 ITA 2007. An expense deduction from earnings (where the relief is sought under Chapter 2, Part 5 ITEPA 2003) (see EIM31600 onwards) cannot exceed the earnings from which it is deductible (see EIM31655). There are limited circumstances in which loss relief may be claimed under Section 128 ITA 2007.

Employment Income Losses

An employee’s title to relief should not be admitted unless the loss arises directly from the conditions of the employment. The employee must be contractually obliged to suffer a part of the employer’s losses. Examples include:

  • A departmental manager remunerated by a percentage of the profits of their department and responsible for a corresponding percentage of any losses, or
  • A commercial traveller responsible for bad debts arising from orders obtained by him or her.

Anti-avoidance provision

Relief can not be claimed under Section 128 in respect of a loss if it arises as a result of arrangements of which the main purpose or one of the main purposes is the avoidance of tax. Section 68 FA 2009 amended S128 ITA 2007 to this effect and relates to any losses generated on or after 12 January 2009.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Capital Allowances

The restrictions on employment income losses explained in EIM31655 do not apply to Capital Allowances. A loss can be generated by Capital Allowances because relief is given by Section 36 CAA 2001 (see EIM36500) and not by reference to Sections 336-9 ITEPA 2003.

Expenses of ministers of religion

Section 329(4) ITEPA 2003 makes clear that the restriction on employment income losses also does not apply to the expenses of religion where the relief is due under Section 351 ITEPA 2003 (see EIM60040).