EIM31756 - The general rule for employees: expenses: expenses that are deductible where some or all of the duties are performed outside the UK: deductions from earnings taxable on remittance under Section 26 ITEPA 2003: example
In the tax year 2014 to 2015, an employee who was resident but not domiciled in the UK and elected to be taxed on the remittance basis, performed part of their employment duties in the UK and part outside the UK. The employee worked for a total of 240 days in 2014/15, of which 60 were worked in the UK. Their total earnings from the employment were £40,000, which were wholly paid outside the UK and then £22,000 of these earnings was paid into a UK bank account. They met expenses of £2,500 that pass the tests for a deduction under section 336 ITEPA 2003.
Of the expenses
- £1,000 is spent outside the UK
- £1,500 is spent out of their UK bank account, consisting of
- £800 relating to the duties in the UK
- £700 relating to the duties outside the UK
The employee’s net taxable earnings are calculated as follows.
Earnings taxable on receipt under section 15 are £10,000 (£40,000 × 60/240)
Expenses deductible under section 354 are £800, see EIM31750
Net earnings taxable on receipt under section 15 are £9,200 (£10,000 − £800)
Earnings taxable on remittance under section 26, are £12,000 (£22,000 − £10,000), see EIM40304
Expenses deductible under section 353 are £700, see EIM31755
Net earnings taxable on remittance under section 26 are £11,300 (£12,000 −£700)
Total net taxable earnings are £20,500 (£9,200 + £11,300)
No relief is permitted for the £1,000 spent outside the UK which was not paid from the UK bank account.