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HMRC internal manual

Employment Income Manual

Tax treatment of the Merchant Navy Reserve

The Merchant Navy Reserve is a voluntary organisation. Reservists are paid a bounty each year. Reservists are employees and the bounty is taxable as employment income.

The bounty is deemed to cover the cost of one return journey a year from the reservist’s home to the nominated reporting station for call-out exercise, one single journey to the nominated station when called out to serve (if at all) and the cost of any examinations, including medical examinations, required to become eligible to join the reserve.

No deduction under Section 338 ITEPA 2003 can be made for the expenditure covered by the bounty since the journey involved is an ordinary commuting journey.

Failure to report for duty when leave of absence has not been granted is an offence punishable by a fine. These fines are not deductible for income tax purposes and the gross bounty remains chargeable.