EIM31756 - 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 under Section 26 ITEPA 2003: example

In 2003/2004 an employee is resident but not ordinarily resident in the UK. She performs part of her duties in Liverpool and part in Dublin. Her total earnings are £40,000 and she works 60 days in Liverpool and 180 days in Dublin. She meets expenses of £2,500 that pass the tests for a deduction under Section 336 ITEPA 2003. She is paid the whole of her earnings in Dublin and then pays £22,000 of these earnings into a bank account in Liverpool.

Of the expenses

  • £1,000 is spent in Dublin and
  • £1,500 is spent out of her bank account in Liverpool, consisting of
  • £800 relating to her duties in Liverpool,
  • £700 relating to her duties in Dublin.

Her net taxable earnings are computed as follows:

Earnings charged on receipt under Section 25£40,000 x 60/240=£10,000
Expenses deductible under Section 354, see EIM31750£800
Net earnings charged on receipt under Section 25£9,200
Earnings charged on remittance under Section 26, see EIM40304£22,000 - £10,000£12,000
Expenses deductible under Section 353, see EIM31755=£700
Net earnings charged on remittance under Section 26£11,300
Net taxable earnings£9,200 + £11,300=£20,500

No relief is permitted for the £1,000 spent in Dublin.

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