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									4                                                                           Consultation draft

1         Seafarers’ earnings
    (1)    Section 378 of ITEPA 2003 (deductions from seafarers’ earnings: eligibility) is
           amended as follows.
    (2)    In subsection (1)(a) after “relevant taxable earnings” insert “or EEA-resident
           earnings”.
    (3)    After subsection (5) insert—
            “(6)   In this section—
                        “EEA-resident earnings” means section 15 or 27 earnings for a
                            period—
                              (a) in which the employee is resident for tax purposes in an
                                     EEA State (other than the United Kingdom), and
                              (b) which falls within a tax year in which the employee is
                                     not ordinarily UK resident,
                        “resident for tax purposes” means liable, under the law of the EEA
                            State, to tax there by reason of domicile or residence,
                        “section 15 earnings” means general earnings to which section 15
                            applies, and
                        “section 27 earnings” means general earnings to which section 27
                            applies.”
    (4)    The amendments made by this section have effect for the tax year 2011-12 and
           subsequent tax years but only in relation to eligible periods beginning on or
           after 6 April 2011.
                                             FINANCE (No.2) BILL 2010




DRAFT EXPLANATORY NOTE

SEAFARERS' EARNINGS


                            SUMMARY

1.   This clause amends the provisions for the deduction from seafarers’
     earnings for the tax year 2011-12 onwards so that the deduction can
     be claimed by seafarers, not being UK ordinarily resident, who are
     resident for tax purposes in any other European Economic Area
     (EEA) State.


                   DETAILS OF THE CLAUSE

2.   Subsection (2) inserts a reference to EEA-resident earnings into
     section 378(1)(a) of the Income Tax (Earnings and Pensions) Act
     2003 (ITEPA), which defines the earnings that can qualify for a
     deduction.

3.   Subsection (3) inserts a new provision into section 378 of ITEPA.
     New section 378(6) defines EEA-resident earnings for the purposes
     of the deduction. They are general earnings taxable under either
     section 15 (earnings for a year when employee UK resident) or
     section 27 (UK-based earnings for year when employee resident, but
     not ordinarily resident, in UK) of ITEPA that meet the conditions in
     new section 378(6)(a) and new section 378(6)(b).

4.   New section 378(6)(a) provides that the earnings are for a period in
     which the employee is resident for tax purposes in an EEA State
     other than the UK.

5.   New section 378(6)(b) provides that the earnings are for a period in a
     tax year in which the employee is not ordinarily resident in the UK.
     New section 378(6) also defines “resident for tax purposes”, “section
     15 earnings” and “section 27 earnings.

6.   Subsection (4) provides that these amendments have effect for the tax
     year 2011-2012 for eligible periods beginning on or after 6 April
     2011.


                      BACKGROUND NOTE

7.   Currently, the deduction from seafarers’ earnings (sometimes referred
     to as “seafarers’ earnings deduction”) provides a 100 per cent
     deduction for income tax for earnings from employment as a seafarer
     wholly or partly outside the UK during an eligible period. One of the
                                               FINANCE (No.2) BILL 2010



      qualifying conditions for entitlement to claim is that the seafarer must
      be ordinarily resident in the UK.

8.    Seafarers resident in other EEA States who are not ordinarily resident
      in the UK may be liable to UK income tax on their earnings as a
      seafarer in the UK. They are not entitled to claim for seafarers’
      earnings deduction.

9.    This clause will allow seafarers who are resident for tax purposes in
      another EEA State who are not ordinarily resident in the UK, but
      would otherwise be entitled to claim seafarers’ earnings deduction, to
      claim it to the extent that their earnings as a seafarer in an eligible
      period are liable to UK income tax.

10.   For the purposes of entitlement to seafarers’ earnings deduction, the
      UK includes the territorial sea around the UK and designated areas of
      the UK Continental Shelf.

11.   If you have any questions about this change or comments on the
      legislation, please contact Graham Lewis on 0121 712 8604 (email:
      graham.lewis@hmrc.gsi.gov.uk) or Paul Thomas on 020 7147 2479
      (email: paul.thomas@hmrc.gsi.gov.uk).

								
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