EIM31771 - 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 charged on remittance: chargeable overseas earnings: example

In the tax year 2015 to 2016, an employee who is resident but not domiciled in the UK has an employment with a Belgian employer the duties of which are performed wholly in Belgium. In 2015/16 the general earnings from the employment total £30,000, of which £25,000 is received in the UK. The employee is entitled to

• capital allowances of £500 under Section 36 CAA 2001 , see EIM36500 and
• a deduction of £2,800 for expenses under Section 336 ITEPA 2003, see EIM31630.

The chargeable overseas earnings are calculated by subtracting from the full amount of earnings any amounts that would (assuming the earnings were taxable) be allowed as deductions from those earnings (Step 2 section 23 ITEPA 2003), see EIM40106. The calculation is as follows:

Total earnings of £30,000

Less deductions from earnings of £3,300 (£500 + £2,800), see EIM31770

Chargeable overseas earnings of £26,700

The total amount chargeable under section 22 is £26,700 but the taxable earnings in 2015/16 is restricted to the amount remitted to the UK, the £25,000 received in the UK, see EIM40302.

The earnings that are not chargeable overseas earnings within section 22 because of the operation of Step 2 in section 23 will be chargeable under section 15:

Earnings chargeable under section 15 are £3,300 (£30,000 − £26,700)

Deductions from earnings £3,300

Net taxable earnings taxable on receipt under section 15 is nil (£3,300 − £3,300)