(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
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
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.