(Adapted from an article in Tax Bulletin 63 – February
2003. The section headed “Practical issues - international
business travel” sets out a methodology that first appeared
as Appendix 2 to the Minutes of the meeting of the Joint Forum on
Expatriate Tax and NICs held on 18 April 2007.)
Employees who are resident but not ordinarily resident in the UK
are chargeable to income tax under section 25 ITEPA on general
earnings in respect of duties performed in the UK (UK- based
earnings). Section 27 ITEPA is the corresponding charging provision
that taxes the UK- based earnings of non resident employees. Where
all of the employment duties are performed in the UK, calculating
the amount of taxable earnings under either section 25 or section
27 is straightforward. Where duties are performed partly in the UK
and partly overseas an apportionment is required to determine how
much of the earnings are in respect of UK duties. The balance will
be attributable to duties performed overseas. For UK resident
employees who are not ordinarily resident, general earnings for
overseas duties will be taxable under section 26 ITEPA to the
extent that they are remitted to the UK. Employees who are not
resident in the UK are not chargeable to UK tax on general earnings
for overseas duties.
Whether general earnings (emoluments) are in respect of UK
duties is essentially a question of fact. In Taylor v Provan
(49TC579), the courts agreed that the touchstone must be the
wording of the statute. In that case, travel expenses paid to a
director to come to the UK in order to perform duties here were
considered to be “emoluments in respect of duties performed
in the UK”. In Perro v Mansworth (SpC286), a Special
Commissioner found that the payment by an employer of an employee's
liability to tax on UK-based earnings (Case II Schedule E) was
itself "an emolument in respect of duties performed in the
UK”.
Where an attribution is required, Statement of Practice 5/84
(SP5/84) approves time apportionment according to the number of
days worked abroad and in the UK except where this would clearly be
inappropriate. The Perro case is an example of where time
apportionment is not appropriate. The starting point for the SP5/84
approach to time apportionment is that the employee's contractual
right to earnings for the work performed usually accrues from day
to day. Authority for this view comes from Varnam v Deeble
(58TC501), although that case was not directly concerned with
attributing earnings to UK duties for the purposes of the charge to
UK tax. In Platten v Brown (59TC408), it was held that correct
attribution on a time apportionment basis should employ units of
days rather than hours.
The courts have consistently taken the view that time
apportionment should not be applied to earnings that can be
specifically allocated either to duties performed in the UK or to
duties performed elsewhere. So time apportionment would be
inappropriate in a case where the contract of employment
specifically allocated earnings to periods spent working in the UK
or overseas. Provisions in a contract of employment that regulate
the amount of time to be devoted to the employment, dealing with
matters such as the number of days to be worked, the length of
holidays or how to calculate compensation do not amount to an
allocation of particular parts of remuneration to particular days
of work.
This appendix gives examples of how the time apportionment
approach envisaged by SP5/84 applies in practice. Self-Assessment
Helpsheet IR211 approaches apportionment by calculating the
earnings from the employment that are not taxable in the UK. The
total earnings are multiplied by a fraction where the numerator is
the number of days worked outside the UK and the denominator is the
number of days worked in pursuit of the employment during the tax
year. Where there are no UK-based earnings taxable under either
section 25 or section 27 ITEPA, the resultant figure will be
entered at Box 1.31 on the employment page as foreign earnings not
taxable in the UK. Although the amount that is not taxable is
sometimes referred to as “overseas workday relief”, it
is not a statutory relief from tax subject to the claims machinery
in Section 42 TMA 1970.
Note 4 to IR211 clarifies what is meant by days worked
overseas. They are defined as those days that have been spent
outside the UK substantially performing the duties of the
employment. “Substantially” should be taken as meaning
“for the most part”. In Platten v Brown there is the
example of an employee who spends a whole day working in the UK but
then leaves the country that evening on an overseas business trip.
It would be difficult to say as a matter of contract that the
employee's earnings for that day were not attributable on a time
apportionment basis to duties performed in the UK. It follows that
the earnings for a day spent working overseas before returning to
the UK in the evening will be attributable to duties performed
overseas.
There are two questions of fact to be addressed in order to
attribute the earnings for a particular day. These are:
Employees should retain evidence such as travel documents and business diaries to demonstrate how they have calculated the earnings from overseas workdays. The following comprehensive example illustrates some practical issues.
Monica is resident but not ordinarily resident in the UK. Her
salary of £100,000 is paid directly into an offshore bank
account. Her contract of employment provides for a five-day 40-hour
working week with 22 days holiday plus public holidays - a total of
230 workdays.
During 2005-06, her employer sent her to work at its branch
in India for the whole of October and November, a period of 45
weekdays. She also attended the branch office in India on the first
Saturday and Sunday in October and spent three other Saturdays
working on her employer's Indian premises. She received a special
bonus of £15,000 awarded solely in recognition of her work in
India.
In addition, she attended her employer's Munich office on
five separate occasions during the year. On four of these
occasions, she left the UK after work and stayed overnight before
returning to the UK on the following evening. On the final
occasion, she left the UK on a Friday evening and spent the weekend
in Munich. She spent three hours of the Sunday reading papers
relevant to a meeting on the following day. She returned to the UK
on Monday evening.
Monica was substantially performing the duties of her
employment on the five non-weekdays spent working in India, giving
a total 50 workdays in India. The Sunday in Munich was not an
overseas workday so her duties in Germany encompassed five
workdays. The special bonus was on the facts solely attributable to
the performance of duties in India.
Time apportionment produces the following result –
UK duties - Salary 100,000 * 180/235 = 76,595 (Section 25
ITEPA)
Overseas duties - Salary 100,000 * 55/235 = 23,405 plus
15,000 = 38,405
Following her return to the UK, Monica's employer gave her time
off in lieu of the weekends spent working in India. The denominator
in the fraction would become 230 and not 235.
UK duties - Salary 100,000 * 175/230 = 76,086 (Section 25
ITEPA)
Overseas duties - Salary 100,000 * 55/230 = 23,914 plus
15,000 = 38,914
Facts are as variation A plus Monica spent the whole of Sunday
30 September travelling to India and was granted a further day off
in lieu when she returned to the UK. That day should also be
counted as an overseas workday increasing the numerator by one to
56.
UK duties - Salary 100,000 * 174/230 = 75,652 (Section 25
ITEPA)
Overseas duties - Salary 100,000 * 56/230 = 24,348 plus
15,000 = 39,348
The time of departure or arrival and the duration of
international business travel can make it extremely difficult to
decide whether a particular day should be regarded as a UK or an
overseas workday. In these specific circumstances, HMRC is prepared
to accept that the following treatment provides a reasonable basis
for determining the status of such a day:
International flight or journey lasting no more than seven
hours
International flight or journey lasting more than seven hours
A morning or afternoon arrival or departure is judged according
to the time that the aircraft, vessel or train actually arrives or
departs, not the scheduled times.
Where a journey involves more than one international flight,
a one hour transfer addition may be added to the actual flight
times to determine whether the total flight time lasts more than
seven hours. International business travel that takes place on a
Saturday, Sunday or Bank Holiday is subject to the same treatment
as any other day.
Note: HMRC may accept alternative approaches to
quantifying overseas workdays if the available evidence indicates
that such an approach better reflects the facts.
