Commentary on Sections Overview Overview Section 1123: “Staffing costs”
2896.This section defines “staffing costs”. It is based on paragraph 5 of Schedule 20 to FA 2000.
2897.Paragraph 5(1)(a) of Schedule 20 to FA 2000 refers to “emoluments paid by the company … including all salaries, wages, perquisites and profits whatsoever other than benefits in kind”. This is based on the definition of emoluments that section 131 of ICTA applied for Schedule E before that Schedule was rewritten by ITEPA.
2898.None of the definitions of “earnings” in ITEPA is appropriate, because none matches the scope of the definition in paragraph 5(1)(a) of Schedule 20 to FA 2000.
2899.In rewriting Schedule 20 to FA 2000 the language has been modernised and the definition has been adapted so that it applies more clearly from the position of the company making the payment, rather than the employee receiving it. This is achieved by referring to money earnings and reimbursed expenses. When interpreting these definitions, it should be borne in mind that this Part does not create a new class of deduction. It merely enhances an existing staffing costs deduction, the scope of which is determined on ordinary principles. Before an expense can be considered for the purposes of this Part, it must first be deductible on ordinary principles. See for example section 1050(5).
2900.Subsection (2) rewrites the reference to salaries and wages by reference to money earnings. “Earnings” takes its ordinary meaning. The statutory definitions of “earnings” in ITEPA are not relevant to the scope of “earnings” in this subsection. See Change 79 in Annex 1.
2901.Subsection (3) rewrites the reference to perquisites or profits whatsoever by reference to reimbursed expenses but making clear that it does not include benefits in kind. See Change 79 in Annex 1.
2902.In subsections (2) and (3), the phrase “because of employment” is used instead of the ITEPA phrase “by reason of employment”. The effect is that interpretations developed in relation to ITEPA, which might not be appropriate to this section, cannot simply be read across into this section.
2903.ITEPA amended paragraph 5 of Schedule 20 to FA 2000 so that it referred to earnings which constitute employment income. In doing so it inadvertently expanded the definition to include benefits in kind. This change was reversed by paragraph 7 of Schedule 17 to FA 2004, which reinstated the original wording. Schedule 2 (transitionals and savings) preserves the wider definition inserted by ITEPA for the brief window in which it applies to accounting periods covered by this Act. It is relevant only to expenditure incurred before 1 April 2004.