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Contributed by ACCA, in their own words

New measure will tax the overseas employment income of non-domiciles on the arising basis, rather than on the remittance basis, in the case of artificially arranged contracts with the same or associated employers.

First announced in the Autumn statement then followed by draft legislation in January, this new measure announced at Budget 2014 will tax the overseas employment income of non-domiciles on the arising basis, rather than on the remittance basis, in case of artificially arranged contracts with the same or associated employers.

Under section 22 of ITEPA 2003 a resident non-domiciled employee may be taxed on the remittance basis in respect of overseas earnings resulting from the employment with a foreign employer where the duties of the employment are wholly performed outside the UK.

Similar rules in ITEPA 2003 apply the remittance basis to income from employment related securities.

In order to obtain a tax advantage, some UK resident non-domiciled individuals create an artificial division between the duties of UK employment and an employment overseas by entering into separate employment contracts with the same or associated employers in the UK and overseas.

The new measure to be introduced in Finance Bill 2014 will tackle such artificial arrangements by taxing identified overseas earnings on the arising basis rather than when the earnings are remitted to the UK.

In particular the new legislation will apply to income of an overseas employment where all the criteria below are met:

  • an individual has both UK and overseas employment(s) either with the same employer, or where the UK employer is ‘associated’ with an overseas employer
  • a UK and an overseas employment are ‘related’ to each other
  • the foreign tax rate that applies to the income associated with an overseas employment, calculated in accordance with the amount of foreign tax credit relief available against that income under section 18 of the Taxation (International and Other Provisions) Act 2010, is less than 65% of the UK’s additional rate of tax (currently 45%).

Foreign tax credit relief against any UK tax charge will be available in the normal way.

The new legislation will be effective for earnings and employment related securities income from an overseas employment arising on or after 6 April 2014.

Income which arises on or after this date but which is related to employment duties performed in a year prior to 2014/15 will not be subject to this legislation.