What does section 297D of ITEPA 2003 do?

Section 297D provides a complete income tax exemption for accommodation allowances paid to, or on behalf of, members of the armed forces of the Crown. Where the allowance is paid from public revenue and meets Treasury regulation conditions, no income tax liability arises on the payment, and it need not be reported on a tax return.

What conditions must an accommodation allowance meet to qualify for the exemption under section 297D?

The allowance must satisfy three requirements: it must be payable out of public revenue, it must be paid for or towards the costs of accommodation, and it must meet any additional conditions specified in Treasury regulations. The Treasury may cross-reference external schemes or documents as amended from time to time.

Can Treasury regulations under section 297D be applied retrospectively?

Yes, Treasury regulations may be given retrospective effect, but only where they do not increase any person's income tax liability. This safeguard ensures beneficial changes, such as broadening the definition of qualifying accommodation allowances, can be backdated, while any disadvantageous changes to taxpayers cannot be applied retrospectively.

Does the section 297D exemption require the armed forces member to report the allowance through PAYE or on a tax return?

No. Because the accommodation allowance is fully exempt from income tax under section 297D, the armed forces member does not need to include it in their tax return, and their employer does not need to deduct tax from it through PAYE, provided all qualifying conditions are met.

Income Tax (Earnings and Pensions) Act 2003 section 297D

Armed forces: accommodation allowances

Section 297D provides an income tax exemption for accommodation allowances paid to, or in respect of, members of the armed forces of the Crown.

Accommodation allowances paid to or on behalf of armed forces members are completely exempt from income tax
The allowance must be paid from public revenue and must be for, or towards, accommodation costs, meeting any conditions set out in Treasury regulations
Treasury regulations may vary by case and by area, and may reference external schemes or documents as updated from time to time
Regulations that do not increase anyone's income tax liability may be applied retrospectively

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