RDRM10425 - Residence: Liability to UK Tax: Scope of liability to income tax on earnings
Table 1 - How Employment Income is taxed in the UK
| Your UK domicile status | Your UK residence status | Arising Basis (AB) or Remittance Basis (RB)claimed | Employment duties performed wholly or partly in the UK | Employment duties performed wholly or partly in the UK | Employment duties performed wholly outside the UK |
|---|---|---|---|---|---|
| - | - | - | Duties performed in UK | Duties performed outside UK | - |
| Domiciled within UK | 1. Resident and Ordinarily Resident | AB | Liable | Liable¹ | Liable |
| Domiciled within UK | 2. Resident and Not Ordinarily Resident | 2(a) AB | Liable | Liable | Liable |
| Domiciled within UK | 2. Resident and Not Ordinarily Resident | 2(b) RB | Liable | Liable on remittance | Liable on remittance |
| Domiciled within UK | 3. Not Resident | AB | Liable | Not liable | Not liable |
| Domiciled outside UK | 4. Resident and Ordinarily Resident | 4(a) AB | Liable | Liable¹ | Liable |
| Domiciled outside UK | 4. Resident and Ordinarily Resident | 4(b) RB | Liable (on AB) | Liable (on AB) | *See below |
| Domiciled outside UK | 5. Resident And Not Ordinarily Resident | 5(a) AB | Liable | Liable | Liable |
| Domiciled outside UK | 5. Resident And Not Ordinarily Resident | 5(b) RB | Liable | Liable on remittance | Liable on remittance |
| Domiciled outside UK | 6. Not Resident | AB | Liable | Not liable | Not liable |
Note: Use of this table is subject to any different treatment provided for under the terms of the relevant article in a Double Taxation Agreement.
*If the individual is resident and ordinarily resident but they are not domiciled in the UK the remittance basis operates differently from the way in which it works for individuals who are resident but not ordinarily resident in the UK. An individual is liable to UK tax on the arising basis for any earned income where the duties are performed wholly or partly in the UK. The liability to UK tax on income earned wholly outside the UK will depend on the residence status of the employer:
(a) when the employer is non-UK/foreign resident - liable on remittance basis
(b) when the employer is UK resident - employment earnings are liable on arising basis.
Earnings received from an employer
Resident: When an individual is liable to UK tax on the arising basis (AB), they are taxed in the UK on their earnings from any employments, whether their duties of employment are carried out in the UK or abroad.
If an individual can and does choose to be liable to UK tax on the remittance basis (RB), their UK employment earnings are taxed in the UK but any earnings from employment abroad will only be taxed if they are remitted here.
But, if an individual is resident and ordinarily resident in the UK and they are not domiciled here, the remittance basis will apply only to foreign employment income where the employment is performed wholly outside the UK for a foreign (non UK) employer. The concept of ordinarily residence was abolished with the introduction of the Statutory Residence Test (SRT), and applies only to years up to and including 2012-2013.
Not Resident: Although an individual may be not resident in the UK they will still pay UK tax on any employment duties which they carry out in the UK unless those UK duties are ‘merely incidental’ to an employment abroad.
An individual will not pay UK tax on any employment duties which are carried out wholly abroad.
If an individual’s employment duties are carried out partly in the UK and partly abroad, the duties carried out in the UK will be liable to UK tax.