Foreign Earnings Deduction FA 2000 Changes

Introduction

The legislation providing for foreign earnings deduction (FED), section 823 TCA 1997, has been amended by Section 47 Finance Act 2000. Firstly, an upper limit of £25,000 has been put on the amount which can be claimed under the relieving provision, section 823(3), for a year of assessment. Secondly, the section relaxes the requirement that each period of absence from the State must be for a minimum of 14 days at a time in order for each day to count as a ‘qualifying day’. The minimum period of absence has been reduced to 11 consecutive days with effect from 29 February 2000. Similarly, the minimum period of absence for seafarers under Section 823(2A) has been reduced to 11 consecutive days. This is also effective from 29 February 2000.

Limit of £25,000

The cap of £25,000 on the amount which can be claimed as a foreign earnings deduction for a year of assessment is applicable for the year 2000/2001 et seq. A restriction also applies for the year 1999/2000 and special apportionment rules apply to deal with this. The purpose of the apportionment is to determine the portion of the deduction which arises as a result of including income accrued or paid on or after 29 February 2000.

If that portion is less than £25,000 then there is no restriction on the relief. If, however, the portion of the deduction which arises as a consequence of including income accrued or paid on or after 29 February 2000 is greater than £25,000, then that figure is restricted to £25,000. It should be noted that if an individual has more than one employment which has qualifying days separate computations are required to calculate the deduction in respect of each employment. The cap of £25,000, which was inserted by section 47 Finance Act 2000, applies to the aggregate of all such deductions.

Example 1 - 1999/2000

Ann is resident in the State for the tax year 1999/2000 and has 122 qualifying days abroad. Her earnings from her employment for the year are £80,000, £10,000 of which was paid in the period 29/2/2000 to 5/4/2000.

Computation of deduction

122	× £80,000 = £26,740
365

What is the proportion of the deduction which arises as a result of including income accrued or paid on or after 29 February 2000?

Apportionment Calculation

£26,740 ×	10,000	= £3,342
	80,000

So £3,342 is the amount of the deduction which arises as a result of including income accrued or paid on or after 29 February. Since this figure is less than £25,000 no restriction applies for 1999/2000.

Ann’s FED deduction is £26,740.

Example 2 - 2000/20001.

The same circumstances as above except that the tax year is 2000/2001

The calculation of relief is the same as in Example 1 i.e. £26,740. However, the FED deduction is restricted to £25,000 as this is the maximum which may be allowed in the year 2000/2001.

Example 3 - 1999/2000

Sean is resident in the State in the year 1999/2000 and has 290 qualifying days abroad. His basic salary for the year was £90,000, of which £10,000 was accrued in the period 29 February 2000 to 5/4/2000. He was also paid a bonus of £40,000 on 31 March 2000.

Computation of deduction

290 × £130,000 = £103,287

365

In this case the income which was accrued or paid on or after 29 February is £50,000. We now need to see what portion of the deduction of £103,287 arises as a result of including this £50,000 in the computation.

£103,287 ×	£50,000	= £39,726
	£130,000

As the figure of £39,726 is greater than £25,000, this portion of the deduction which arises as a result of including income accrued or paid on or after 29 February is restricted to £25,000.

Sean’s FED deduction for 1999/2000 is:

Period prior to 29 February:
£103,287 - £39,726	£63,561
Period 29 February to
5 April	£25,000
	£88,561

So, as a result of the amendment in Finance Act 2000 the FED deduction is £88,561 rather than £103,287.

Example 4 - 2000/20001

If the above circumstances applied to Sean in the year 2000/2001 rather than 1999/2000 then the overall FED deduction would be restricted to £25,000.

Example of the ‘Qualifying Days’ amendment

Martin, who is resident in Ireland for 1999/2000, spent the following periods working abroad:

Location	Date of Departure	Date of Return	Number of qualifying days
USA	12/4/99	22/5/99	40
France	6/9/99	3/10/99	47
Germany	8/11/99	19/11/99	-*
France	9/2/2000	23/2/2000	14
Germany	5/3/2000	16/3/2000	11**
Total number of qualifying days			112

* Not ‘one of 14 consecutive days’
** Post 29/2/2000 - ‘one of 11 consecutive days’

As regards any period that straddles 29 February 2000, each day must be looked at separately. In order for a day which is prior to 29 February 2000 to count as a ‘qualifying day’ it must be one of 14 consecutive days spent abroad. A day which falls on or after 29 February 2000 will be a ‘qualifying day’ if it is one of 11 consecutive days spent abroad.