SolvedEIM33051 | Seafarers’ Earnings Deduction: attribution of earnings: example
From HM Revenue & Customs · Employment Income Manual
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.