ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small. Change 18: Employment losses: claims for set-off of losses made by an office holder against general income: section 128
This change extends the scope of the relief for employment losses to include office holders as well as employees.
Section 380 of ICTA provides for losses sustained by a person in any trade, profession, vocation or employment to be set off against that person’s general income. It makes no mention of losses sustained by an office holder, but in practice HMRC accept a claim for the set-off of such a loss.
An employment loss might arise if an employee is remunerated (in whole or in part) by way of a share in the profit or loss of his employer, or if the employee is entitled to capital allowances that exceed earnings.
In the former case, HMRC accept that a loss can arise if an employee is obliged, under the terms of his employment, to make a payment to his employer that exceeds his income. For example, someone paid commission on sales might be obliged to guarantee his employer against bad debts and the guarantee payment could exceed the commission in any given year.
The reason for employment being included in section 380 of ICTA appears to have been that certain employments (which included certain offices), like trades, were originally taxed under Schedule D, so the loss provisions which applied to trades applied to those employments (and offices). Almost all employments were taxed under Schedule E following the transfer from Schedule D to Schedule E brought about by section 18 of FA 1922, but the inclusion of the word “employment” in the loss provision was never amended.
In fact, HMRC took the view as long ago as 1925 that the transfer of offices and employments to Schedule E should not deprive the taxpayer of any benefits enjoyed under Schedule D. Accordingly, and despite the wording of section 380(1) of ICTA, loss relief is in practice available to office holders as well as to employees.