Commentary on Sections Example 3 £150(Pe) – £50(E) = £100 Section 218: Calculation of earnings rate for a tax year
861.Subsection (1) of this section contains a method statement that sets out what is taken into account when calculating the annual rate. It derives from section 167(2) of ICTA. Further guidance on the interpretation of the method of calculation is available in the Schedule E Manual at SE 20101 to SE 20111.
862.Paragraph (b) in Step 1 of the statement makes clear that one must assume, for the purposes of the calculation, that the employment is not lower-paid so that the cash equivalents of any of the benefits specified in section 216(4) are included in the calculation. The cash equivalent of any benefits that are chargeable on the lower-paid are also included in the calculation.
863.Step 2 adds in any extra amount required under the special rules relating to the provision of a car, set out in full in section 219.
864.Step 3 subtracts any authorised deductions. It derives from section 167(2)(b), but it seems more sensible to list what deductions may be allowed, rather than just listing prohibited deductions as in section 167(2)(b). In the Schedule E Manual SE 20104 makes clear what deductions can be made in calculating the earnings rate for the year. This change in approach is described in detail in Note 26 in Annex 2.
865.Subsection (2) makes sure that section 216(1) is disregarded for the purposes of Step 1 of the method statement.
866.Subsection (3) draws attention to special rules that apply if the benefits in question are the provision of living accommodation.
867.Subsection (4) lists the “authorised deductions” that may be subtracted at Step 3 of the method statement. The list reflects SE 20104 of the Schedule E Manual.
868.There follows a flow diagram that demonstrates the decisions that must be made in the process of determining whether an employment is lower-paid.