Income Tax (Earnings and Pensions) Act 2003 (c. 1)

(The document as of February, 2008)

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(ii) at the time the fees are paid is carrying on an employment agency with a view to profit, and

(b) fees paid under an arrangement under which a co-operative society or the members of such a society agree to act as the employee's agent in connection with the employment.

(6) For the purposes of subsection (5)--

"co-operative society" does not include a society which carries on or intends to carry on business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with or lent to the society or any other person, and
"employment agency" has the meaning given by section 13(2) of the Employment Agencies Act 1973 (c. 35).

Special rules for earnings with a foreign element

353 Deductions from earnings charged on remittance

(1) A deduction is allowed from earnings charged on remittance for expenses within subsection (2) if the condition in subsection (3) is met.

(2) The expenses are--

(a) any expenses--

(i) paid by the employee out of the earnings, or

(ii) paid on the employee's behalf by another person and included in the earnings, and

(b) any other expenses paid in the United Kingdom in the tax year or an earlier tax year in which the employee has been resident in the United Kingdom.

(3) The condition is that the expenses would have been deductible under sections 336 to 342 if the earnings had been earnings charged on receipt in the tax year in which the expenses were incurred.

(4) Where--

(a) any of the deductibility provisions refers to amounts or expenses that would be deductible from earnings if they were paid by a person, and

(b) the earnings in question are earnings charged on remittance,

it is assumed for the purposes of those provisions that the person pays the amounts or expenses out of those earnings.

354 Disallowance of expenses relating to earnings taxed on different basis or untaxed

(1) If the earnings from an employment for a tax year include both earnings charged on receipt and other earnings (except earnings charged under section 22), no deduction is allowed under sections 336 to 342 from the earnings charged on receipt for an amount paid in respect of duties of the employment to which the other earnings relate.

(2) If the earnings from an employment for a tax year include both earnings charged on remittance under section 26 and other earnings, no deduction is allowed under section 353 from the earnings charged on remittance for an amount paid in respect of duties of the employment to which the other earnings relate.

(3) This section is to be disregarded for the purposes of the deductibility provisions.

355 Deductions for corresponding payments by non-domiciled employees with foreign employers

(1) An employee may make a claim to the Board of Inland Revenue under this section if conditions A to D are met.

(2) Condition A is that the employee is not domiciled in the United Kingdom.

(3) Condition B is that the employment is with a foreign employer.

(4) Condition C is that the employee has made a payment out of earnings from the employment.

(5) Condition D is that the payment does not reduce the employee's liability to United Kingdom income tax, but was made in circumstances corresponding to those in which it would do so.

(6) If the Board are satisfied that conditions A to D are met, they may allow the payment as a deduction under this Chapter.

Disallowance of business entertainment and gifts expenses

356 Disallowance of business entertainment and gifts expenses

(1) No deduction from earnings is allowed under this Part for expenses incurred in providing entertainment or a gift in connection with the employer's trade, business, profession or vocation.

(2) Subsection (1) is subject to the exceptions in--

(a) section 357 (exception where employer's expenses disallowed), and

(b) section 358 (other exceptions).

(3) For the purposes of this section and those sections--

(a) "entertainment" includes hospitality of any kind, and

(b) expenses incurred in providing entertainment or a gift include expenses incurred in providing anything incidental to the provision of entertainment or a gift.

357 Business entertainment and gifts: exception where employer's expenses disallowed

(1) The prohibition in section 356 on deducting expenses does not apply if--

(a) the earnings include an amount in respect of the expenses,

(b) the employer--

(i) paid the amount to, or on behalf of, the employee, or

(ii) put it at the employee's disposal,

exclusively for meeting expenses incurred or to be incurred by the employee in providing the entertainment or gift, and

(2) Condition A is that the deduction of the amount falls to be disallowed under section 577 of ICTA in calculating the employer's profits from the trade, profession or vocation in question for the purposes of the Tax Acts (or it would do so apart from the exemption in section 505(1)(e) of ICTA or any relief applying in respect of those profits).

(3) Condition B is that the inclusion of the amount falls to be disallowed under that section in calculating the employer's expenses of management for the purposes of giving relief under the Tax Acts (or it would do so apart from another relief applying to the employer).

(4) Condition C is that--

(a) the employer is a tonnage tax company during the whole or part of the tax year, and

(b) apart from the tonnage tax election, the deduction of the amount included in the employee's earnings would fall to be disallowed in calculating the employer's relevant shipping profits.

(5) In subsection (4) "tonnage tax company", "tonnage tax election" and "relevant shipping profits" have the same meaning as in Schedule 22 to FA 2000.

358 Business entertainment and gifts: other exceptions

(1) The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing entertainment or gifts for the employer's employees unless--

(a) they are also provided for others, and

(b) their provision for the employees is incidental to their provision for the others.

(2) For this purpose directors and persons engaged in the management of a company are regarded as employed by it.

(3) The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing a gift which incorporates a conspicuous advertisement for the employer or, if the employer is a company, another company which belongs to the same group as the employer, unless--

(a) the gift is food, drink, tobacco or a token or voucher exchangeable for goods, or

(b) the cost of the gift to the donor, together with any other gifts (except food, drink, tobacco or tokens or vouchers exchangeable for goods) given to the same person in the same tax year, is more than £50.

(4) In subsection (3) "group" means a body corporate and its 51% subsidiaries.

Other rules preventing deductions of particular kinds

359 Disallowance of travel expenses: mileage allowances and reliefs

(1) No deduction may be made under the travel deductions provisions in respect of travel expenses incurred in connection with the use by the employee of a vehicle that is not a company vehicle if condition A or B is met.

(2) Condition A is that mileage allowance payments are made to the employee in respect of the use of the vehicle.

(3) Condition B is that mileage allowance relief is available in respect of the use of the vehicle by the employee (see section 231).

(4) In this section--

"company vehicle" has the meaning given by section 236(2),
"mileage allowance payments" has the meaning given by section 229(2), and
"the travel deductions provisions" means sections 337 to 342, 370, 371, 373 and 374 (travel expenses) and section 351 (expenses of ministers of religion).

360 Disallowance of certain accommodation expenses of MPs and other representatives

(1) No deduction from earnings is allowed under this Chapter or section 373 (non-domiciled employee's travel costs and expenses where duties performed in UK) for accommodation expenses incurred by a member of--

(a) the House of Commons,

(b) the Scottish Parliament,

(d) the Northern Ireland Assembly.

(2) In this section "accommodation expenses" means expenses incurred in, or in connection with, the provision or use of residential or overnight accommodation to enable the member to perform duties as a member of the Parliament or Assembly in or about--

(a) the place where it sits, or

(b) the constituency or region which the member represents.

Chapter 3 Deductions from benefits code earnings

Introduction

361 Scope of this Chapter: cost of benefits deductible as if paid by employee

A deduction from a person's earnings is allowed under the following provisions of this Chapter where--

(a) the earnings include an amount treated as earnings under--

(i) Chapter 4 of Part 3 (taxable benefits: vouchers and credit-tokens),

(ii) Chapter 5 of Part 3 (taxable benefits: living accommodation), or

(iii) Chapter 10 of Part 3 (taxable benefits: residual liability to charge), and

(b) an amount in respect of the benefit in question would be deductible under Chapter 2 or 5 of this Part if the person had incurred and paid it.

Deductions where amounts treated as earnings under the benefits code

362 Deductions where non-cash voucher provided

(1) A deduction from earnings is allowed if--

(a) the earnings include an amount treated as earnings under section 87(1) (cash equivalent of benefit of non-cash voucher treated as earnings),

(b) the voucher is exchanged for goods or services (whether in the tax year or a later year), and

(c) had the employee incurred and paid the cost of the goods or services in the tax year, the whole or part of the amount paid would have been deductible from the earnings under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the lesser of--

(a) the amount treated as earnings, and

(b) the amount that would have been so deductible.

363 Deductions where credit-token provided

(1) A deduction from earnings is allowed if--

(a) the earnings include an amount treated as earnings under section 94(1) (cash equivalent of benefit of credit-token treated as earnings), and

(b) had the employee incurred and paid the cost of the goods or services obtained by using the token, the whole or part of the amount paid would have been deductible from the earnings under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the lesser of--

(a) the amount treated as earnings, and

(b) the amount that would have been so deductible.

364 Deductions where living accommodation provided

(1) A deduction from earnings is allowed if--

(a) the earnings include an amount treated as earnings under Chapter 5 of Part 3 (taxable benefits: living accommodation), and

(b) had the employee incurred and paid an amount equal to that amount for the accommodation in the tax year, the whole or part of the amount paid would have been deductible under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the amount that would have been so deductible.

365 Deductions where employment-related benefit provided

(1) A deduction from earnings is allowed if--

(a) the earnings include an amount treated as earnings under Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of a benefit, and

(b) had the employee incurred and paid the cost of the benefit, the whole or part of the amount paid would have been deductible under Chapter 2 or 5 of this Part.

(2) The deduction is equal to the amount that would have been so deductible.

(3) For the purposes of this section, the cost of the benefit is determined in accordance with sections 204 to 206.

Chapter 4 Fixed allowances for employee's expenses

Introduction

366 Scope of this Chapter: amounts fixed by Treasury

A deduction from an employee's earnings for an amount is allowed under this Chapter where the amount has been fixed by the Treasury by reference to the employee's employment.

Fixed sum deductions

367 Fixed sum deductions for repairing and maintaining work equipment

(1) A deduction is allowed for the sum, if any, fixed by the Treasury as in their opinion representing the average annual expenses incurred by employees of the class to which the employee belongs in respect of the repair and maintenance of work equipment.

(2) The Treasury may only fix such a sum for a class of employees if they are satisfied that--

(a) the employees are generally responsible for the whole or part of the expense of repairing and maintaining the work equipment, and

(b) the expenses for which they are generally responsible would be deductible from the employees' earnings under section 336 if paid by them.

(3) No deduction is allowed under this section if the employer pays or reimburses the expenses in respect of which the sum is fixed or would do so if requested.

(4) If the employer pays or reimburses part of those expenses or would do so if requested, the amount of the deduction is reduced by the amount which is or would be paid or reimbursed.

(5) In this section "work equipment" means tools or special clothing.

(6) This section needs to be read with section 330(2) (prevention of double deductions).

368 Fixed sum deductions from earnings payable out of public revenue

(1) A deduction is allowed from earnings payable out of the public revenue for the employee's fixed sum expenses in respect of the duties to which the earnings relate.

(2) "Fixed sum expenses" means the sum, if any, fixed by the Treasury as in their opinion representing the average annual expenses which employees of the employee's description are obliged to pay wholly, exclusively and necessarily in the performance of duties to which such earnings relate.

(3) This section needs to be read with section 330(2) (prevention of double deductions).

Chapter 5 Deductions for earnings representing benefits or reimbursed expenses

Introduction

369 Scope of this Chapter: earnings representing benefits or reimbursed expenses

(1) A deduction from a person's earnings for an amount is allowed under the following provisions of this Chapter where the amount is included in the earnings in respect of--

(a) provision made for the person, or

(b) expenses reimbursed by another person.

(2) In this Chapter references to "the included amount" are references to the amount so included.

(3) If the included amount is an amount treated as earnings under--

(a) Chapter 4 of Part 3 (taxable benefits: vouchers and credit-tokens),

(b) Chapter 5 of Part 3 (taxable benefits: living accommodation), or

a deduction may be allowed instead in respect of the benefit in question under Chapter 3 of this Part (deductions from benefits code earnings).

Travel costs and expenses where duties performed abroad

370 Travel costs and expenses where duties performed abroad: employee's travel

(1) A deduction is allowed from earnings which are taxable earnings under section 15 or 21 (earnings for year when employee resident and ordinarily resident in UK) if--

(a) the earnings include an amount in respect of--

(i) the provision of travel facilities for a journey made by the employee, or

(ii) the reimbursement of expenses incurred by the employee on such a journey, and

(b) the circumstances fall within Case A, B or C.

(2) The deduction is equal to the included amount.

(3) Case A is where--

(a) the employee is absent from the United Kingdom wholly and exclusively for the purpose of performing the duties of one or more employments,

(b) the duties concerned can only be performed outside the United Kingdom, and

(i) a journey from a place outside the United Kingdom where such duties are performed to a place in the United Kingdom, or

(ii) a return journey following such a journey.

(4) Case B is where--

(a) the duties of the employment are performed partly outside the United Kingdom,

(b) those duties are not performed on a vessel,

(c) the journey is between a place in the United Kingdom and a place outside the United Kingdom where duties of the employment are performed,

(d) the duties performed outside the United Kingdom can only be performed there, and

(e) the journey is made wholly and exclusively for the purpose of performing them or returning after performing them.

(5) Case C is where--

(a) the duties of the employment are performed partly outside the United Kingdom,

(b) those duties are performed on a vessel,

(c) the journey is between a place in the United Kingdom and a place outside the United Kingdom where duties of the employment are performed,

(d) the duties performed outside the United Kingdom can only be performed there, and

(e) the journey is made wholly and exclusively for the purpose of performing those duties, or those duties and other duties of the employment, or returning after performing them.

371 Travel costs and expenses where duties performed abroad: visiting spouse's or child's travel

(1) A deduction is allowed from earnings which are taxable earnings under section 15 or 21 (earnings for year when employee resident and ordinarily resident in UK) if--

(a) the earnings include an amount in respect of--

(i) the provision of travel facilities for a journey made by the employee's spouse or child, or

(ii) the reimbursement of expenses incurred by the employee on such a journey, and

(b) conditions A to C are met.

(2) The deduction is equal to the included amount.

(3) Condition A is that the employee is absent from the United Kingdom for a continuous period of at least 60 days for the purpose of performing the duties of one or more employments.

(4) Condition B is that the journey is between a place in the United Kingdom and a place outside the United Kingdom where such duties are performed.

(5) Condition C is that the employee's spouse or child is--

(a) accompanying the employee at the beginning of the period of absence,

(b) visiting the employee during that period, or

(6) A deduction is not allowed under this section for more than two outward and two return journeys by the same person in a tax year.

(7) In this section "child" includes a stepchild and an illegitimate child, but not a person who is 18 or over at the beginning of the outward journey.

372 Where seafarers' duties are performed

For the purposes of--

(a) section 370 (employee's travel costs and expenses where duties performed abroad), and

(b) section 371 (visiting spouse's or child's travel costs and expenses where duties performed abroad),

whether duties performed on a vessel are performed in or outside the United Kingdom is determined without regard to section 40(2) (certain duties treated as performed in UK).

Travel costs and expenses of non-domiciled employees where duties performed in UK

373 Non-domiciled employee's travel costs and expenses where duties performed in UK

(1) This section applies if a person ("the employee") who is not domiciled in the United Kingdom--

(a) receives earnings from an employment for duties performed in the United Kingdom, and

(b) an amount is included in the earnings in respect of--

(i) the provision of travel facilities for a journey made by the employee, or

(ii) the reimbursement of expenses incurred by the employee on such a journey.

(2) A deduction is allowed from earnings from the employment which are earnings charged on receipt if the journey meets conditions A and B.

(3) Condition A is that the journey ends on, or during the period of 5 years beginning with, a date that is a qualifying arrival date in relation to the employee (see section 375).

(4) Condition B is that the journey is made--

(a) from the country outside the United Kingdom in which the employee normally lives to a place in the United Kingdom in order to perform duties of the employment, or

(b) to that country from a place in the United Kingdom in order to return to that country after performing such duties.

(5) If the journey is wholly for a purpose specified in subsection (4), the deduction is equal to the included amount.

(6) If the journey is only partly for such a purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

374 Non-domiciled employee's spouse's or child's travel costs and expenses where duties performed in UK

(1) This section applies if a person ("the employee") who is not domiciled in the United Kingdom--

(a) receives earnings from an employment for duties performed in the United Kingdom, and

(b) an amount is included in the earnings in respect of--

(i) the provision of travel facilities for a journey made by the employee's spouse or child, or

(ii) the reimbursement of expenses incurred by the employee on such a journey.

(2) A deduction is allowed from earnings from the employment which are earnings charged on receipt if conditions A to C are met.

(3) Condition A is that the journey--

(a) is made between the country outside the United Kingdom in which the employee normally lives and a place in the United Kingdom, and

(b) ends on, or during the period of 5 years beginning with, a date that is a qualifying arrival date in relation to the employee (see section 375).

(4) Condition B is that the employee is in the United Kingdom for a continuous period of at least 60 days for the purpose of performing the duties of one or more employments from which the employee receives earnings for duties performed in the United Kingdom.

(5) Condition C is that the employee's spouse or child is--

(a) accompanying the employee at the beginning of that period,

(b) visiting the employee during that period, or

(c) returning to the country outside the United Kingdom in which the employee normally lives, after so accompanying or visiting the employee.

(6) If the journey is wholly for the purpose of so accompanying or visiting the employee or so returning, the deduction is equal to the included amount.

(7) If the journey is only partly for that purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

(8) A deduction is not allowed under this section for more than two inward journeys and two return journeys by the same person in a tax year.

(9) In this section "child" includes a stepchild and an illegitimate child, but not a person who is 18 or over at the beginning of the inward journey.

375 Meaning of "qualifying arrival date"

(1) For the purposes of sections 373(3) and 374(3), a date is a qualifying arrival date in relation to a person if--

(a) it is a date on which the person arrives in the United Kingdom to perform duties of an employment from which the person receives earnings for duties performed in the United Kingdom, and

(b) condition A or B is met.

(2) Condition A is that the person has not been in the United Kingdom for any purpose during the period of 2 years ending with the day before the date.

(3) Condition B is that the person was not resident in the United Kingdom in either of the 2 tax years preceding the tax year in which the date falls.

(4) If, in a case where condition B applies, there are 2 or more dates in the tax year on which the person arrives in the United Kingdom to perform duties of an employment from which the person receives earnings for duties performed in the United Kingdom, the qualifying arrival date is the earliest of them.

Foreign accommodation and subsistence costs and expenses

376 Foreign accommodation and subsistence costs and expenses (overseas employments)

(1) A deduction from earnings from an employment is allowed if--

(a) the duties of the employment are performed wholly outside the United Kingdom,

(b) the employee is resident and ordinarily resident in the United Kingdom,

(d) the earnings include an amount in respect of--

(i) the provision of accommodation or subsistence outside the United Kingdom for the employee for the purpose of enabling the employee to perform the duties of the employment, or

(ii) the reimbursement of expenses incurred by the employee on such accommodation or subsistence for that purpose.

(2) If the accommodation or subsistence is wholly for that purpose, the deduction is equal to the included amount.

(3) If the accommodation or subsistence is only partly for that purpose, the deduction is equal to so much of the included amount as is properly attributable to that purpose.

(4) Subsection (5) applies if in the tax year the employment is in substance one whose duties fall to be performed outside the United Kingdom.

(5) Duties of the employment performed in the United Kingdom, whose performance is merely incidental to the performance of duties outside the United Kingdom, are to be treated for the purposes of subsection (1)(a) as performed outside the United Kingdom.

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