EIM40102 - Taxable earnings: employee resident and not domiciled, or not resident, in the United Kingdom

Part 2 Chapter 5 ITEPA 2003

Sections 22 to 24, 26, 26A and 27

Chapter 5 of Part 2 ITEPA 2003 establishes the circumstances under which a charge to tax can arise on the foreign earnings of UK resident, non-domiciled employees and on the earnings from UK duties for non-resident employees.

Where a non-domiciled taxpayer is resident in the UK for a tax year and does not elect to pay tax on the remittance basis, any general earnings for that year will be liable to tax in the UK under section 15. However, where the taxpayer has elected to pay tax on the remittance basis, there may be restrictions on the amounts of tax due in the UK on any earnings from abroad.

The appropriate section for charging earnings from abroad for remittance basis taxpayers depends on the employee’s circumstances. For employees who have 3 recent years of non-residence as detailed in section 26A, earnings taxable on remittance will be determined under section 26 from the tax year 2013 to 2014 onwards. Prior to the tax year 2013 to 2014 section 26 applied where the employee was resident but not ordinarily resident in the UK, but FA 2013 abolished the concept of ‘ordinary residence’ and inserted section 26A instead. Where the resident non-domiciled employee performs duties abroad, no UK charge to tax will arise on earnings in respect of overseas workdays where those earnings are not remitted to the UK. This is known as overseas workday relief. It is available to a non-domiciled employee irrespective of whether the duties are performed for a UK based or foreign employer. Full details are at EIM40103.

Where an employee has become more established in the UK and does not have 3 recent years of non-residence, they’ll no longer fall within section 26A. This means that section 26 no longer applies. Section 22 applies to the general earnings for a tax year in which an employee is resident but not domiciled in the United Kingdom to the extent that they are chargeable overseas earnings for that year.

The definition of chargeable overseas earnings is contained in section 23. These are earnings from an employment with a foreign employer where the employee has chosen to use remittance basis and the duties of the employment are performed wholly outside the UK. Certain incidental duties can be performed in the UK without bringing the earnings into charge under section 15. This is detailed in EIM40203. The entire amounts earned from such overseas employments are deemed to be chargeable overseas earnings and the UK tax charge is restricted to the amount remitted to the UK. Full details are at EIM40105.

Where an employee is not resident in the UK, a UK charge to tax is limited to earnings for duties performed in the UK. This is under section 27 ITEPA 2003. Full details are at EIM40109.