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HMRC internal manual

Employment Income Manual

Seafarers’ Earnings Deduction: attribution of earnings: example

EIM33003 shows how earnings from an employment can be time-apportioned when an eligible period straddles 2 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’s 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 2009 that entitled him to the deduction. He was paid as follows:

  • annual salary of £30,000 until 1 August 2008
  • 1 August 2008 annual salary increased to £40,000
  • while he was working in the Far East from 1 September 2008 to 30 September 2009, he received a pay supplement of £100 a month
  • in November 2009 he received a bonus of £12,000 relating to the employer’s accounts year ended 31 July 2009.

The amount of earnings that attract the deduction in the tax years covered by the eligible period is set out below.

2008 to 2009

Salary (1 September 2008 to 5 April 2009) 7/12 × £40,000 = £23,333  
       
Supplement (7 months) 7 × £100 = £700  
Bonus (1 September 2008 to 5 April 2009) 7/12 × £12,000 = £7,000 paid in tax year 2004 to 2005
Earnings covered by the deduction   £31,033  

2009 to 2010

Salary (6 April 2009 to 30 September 2009) 6/12 × £40,000 = £20,000
     
Supplement (6 months) 6 × £100 = £600
Bonus (6 April 2009 to 31 July 2009) 4/12 × £12,000 = £4,000
Earnings covered by the deduction   £24,600

Self-assessments are outlined below.

2008 to 2009

Salary (6 April 2008 to 31 July 2009) 4/12 × £30,000 = £10,000
     
Salary (1 August 2008 to 5 April 2009) 8/12 × £40,000 = £26,666
Supplement (7 months) 7 × £100 = £700
Total earnings received   £37,366
Less seafarers’ deduction   £24,033
Net taxable earnings   £13,333

2009 to 2010

Salary (6 April 2009 to 5 April 2010)   £40,000
     
Supplement (6 months) 6 × £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 2008 to 31 July 2009. The part of the bonus payment attributable to August 2008 was not covered by the deduction as the eligible period did not begin until 1 September. The whole of the bonus was received in the tax year 2009 to 2010 and is taxable in that year. However, the deduction is due on those parts of the bonus falling into the eligible period in 2008 to 2009 and 2009 to 2010.

Attribution of leave pay is dealt with at EIM33052.