Part 3 of 4
This is the Finance Act 2014 version of this article. It is relevant for candidates sitting the Paper P6 (UK) exam in the period 1 April 2015 to 30 June 2016. Candidates sitting Paper P6 (UK) after 30 June 2016 should refer to the Finance Act 2015 version of this article (to be published in 2016).
So far in this article we have looked at some basic rules, the taxation of overseas investment and trading income and the remittance basis. We are now going to look at the taxation of overseas employment income.
Figure 3 sets out an individual’s liability to UK IT in respect of overseas employment income, ie income in respect of overseas duties.
Figure 3 – UK IT on overseas employment income
Figure 3 relates to the taxation of overseas employment income only and is slightly different from Figure 1 that we looked at in Part 2. A UK resident but non-UK domiciled individual can only be taxed on the remittance basis in certain particular circumstances.
The rules set out in Part 2 in respect of the remittance basis apply equally here.
The costs of travelling to an overseas employment may be deductible from earnings depending on the circumstances. It is important to identify whether the costs are being borne by the employer or the employee.
Where the costs are borne by the employer they should be included as part of the employee’s earnings. A deduction will then be available for the employee’s travel costs (including return trips to the UK during the period of employment) where the employee is absent from the UK wholly and exclusively for the purpose of performing duties that can only be performed outside the UK. A deduction is also available for the travel costs of the employee’s spouse/civil partner and children provided certain conditions are satisfied.
Travel costs borne by the employee are only deductible if they relate to the start and/or the end of the period of overseas employment.
The costs of accommodation and subsistence whilst working overseas are only deductible from earnings if they are borne by the employer – ie they are first added to and then deducted from earnings.
Care must be taken when dealing with the remittance basis in relation to overseas employment income; simply being resident in the UK but domiciled overseas is not sufficient to enable the remittance basis to be claimed.
Written by a member of the Paper P6 examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The author and the ACCA expressly disclaims all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.