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HMRC internal manual

Employment Income Manual

Seafarers’ Earnings Deduction: anti-avoidance legislation: introduction

Section 380 ITEPA 2003

A seafarer may try to exploit the deduction by inflating the earnings attributable to the employment or the eligible period. Powers are provided at Section 380 to challenge such attempts. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Section 380 is designed to operate against two different avoidance arrangements:

  • where there are two or more associated employments but only one attracts the deduction. Earnings attributable to the relevant employment are inflated at the expense of earnings from the other employment(s). This is dealt with at EIM33071.
  • where there is one employment but the eligible period straddles tax years and the earnings paid during the eligible period are inflated. This is dealt with at EIM33072.

In such circumstances the legislation permits the deduction to be restricted to the proportion of the total earnings that can reasonably be attributed to the overseas duties. Regard should be given to the following factors:

  • the nature of the duties performed overseas and
  • the amount of time devoted to the overseas duties and
  • all other relevant circumstances

The legislation does not provide a formula for calculating the amount of the deduction. Instead it provides a ceiling. The deduction should not exceed what is reasonable when all of those factors have been taken into consideration.

Overseas assignments are of course sometimes remunerated at a higher level than in the United Kingdom and we would not challenge the rate of remuneration on that ground alone. A relevant circumstance to take into account would be the level of remuneration payable for similar duties in the overseas country.

If an adjustment is necessary, the proper amount of earnings is attributed to the qualifying period. The deduction is then given in accordance with the instructions at EIM33021.