Chapter 42 Overseas Aspects of employment income Flashcards
employees resident and domiciled in the UK, UK resident but not domiciled, section 26 ITRPA 2003
The taxation of employment income is primarily dependent on where the employment duties are performed. If an employee performs employment duties outside the UK, the position is more complicated. Earnings in respect of those duties will generally be taxed on receipts basis but a claim on the remittance basis is possible.
Employees resident and domiciled in the UK – charged to UK tax on full amount of any earnings, irrespective of where the employment duties are performed. The date of receipt is the earlier of when payment is made or entitled to be paid. Double tax relief will apply if those same earnings are taxed in the overseas country as well as in the UK.
Employees UK resident but non-UK domiciled – the general position is that UK income is taxed on an arising basis, but foreign income can be taxed on a remittance basis if the taxpayer makes a claim. When foreign income arises from employment overseas it is more complicated. The employee can use the remittance basis in this instance if conditions of s.22 ITEPA 2003 are satisfied or where the conditions of s.26 ITEPA 2003 are satisfied.
Section 26 ITRPA 2003 – the employee is a remittance basis user for the tax year in which the duties are performed, and the tax year is one of the 3 years following 3 consecutive years of non-residence. Therefore for non-domiciled taxpayers coming to work in the UK who have previously been non-UK resident for at least 3 tax years. Overseas workday relief will be available to them in 19/20, 20/21 and 21/22. By 22/23 the taxpayer will have had 3 consecutive years of UK residence, so OWR will no longer be available.
overseas workday relief, section 22 ITEPA 2003 and employees not resident in the UK
Overseas Workday relief – OWR apportions the employee’s earnings between UK and non-UK duties. The earnings attributable to UK duties will be taxed on a receipts basis. The earnings attributable to non-UK duties will be taxed on a remittance basis. Earnings are apportioned between UK and non-UK duties based on the number of UK and overseas workdays in the tax year.
Section 22 ITEPA 2003 – once a non-domiciled employee has been resident in the UK for more than three consecutive tax years, he is no longer eligible for overseas workday relief. This means that earnings in respect of duties performed outside the UK will be taxable on an arising basis. But where OWR does not apply, UK resident but non-UK domiciled employees can still use the remittance basis for their foreign earnings if the earnings are chargeable earnings. Chargeable earnings is when the employment is with a foreign employer and the duties of employment are performed wholly outside the UK.
Employees not resident in the UK – the tax position will depend on where the employment duties are performed. If the duties are in the UK, earnings are fully taxable when received. If duties are performed outside the UK the earnings are not subject to UK tax. Where duties are performed both in and out of the UK, the earnings from employment must be apportioned.
Summary –
Status UK Duties Overseas duties
UK resident & domiciled Receipt Receipt
UK resident and deemed domiciled Receipt Receipt
Non-UK resident Receipt Receipt /remittance
Receipt Not taxable
