SE33052 - Foreign Earnings Deduction (FED): attribution of emoluments - terminal leave pay

Paragraph 3(3) Schedule 12 ICTA 1988

Leave pay for a holiday taken at the end of a FED qualifying period in the United Kingdom

The following guidance applies when:

• An employee takes a holiday in the United Kingdom
• At the end of an overseas assignment and
• Emoluments from the assignment has been subject to an FED claim and
• The employee is receiving terminal leave pay for the duration of the holiday

For the purposes of the FED, the emoluments for the leave period are attributed to the qualifying period that ended when the employee returned to the United Kingdom There is a restriction on this treatment. The emoluments are attributed but not so as to make the emoluments for one year of assessment the emoluments for another.

Examples

A female employee returned to the United Kingdom on 31 January 1997. She had been working in the Gulf for 13 months during which time she had established a qualifying period of more than 365 days. She was entitled to terminal leave of 6 weeks. She remained in the United Kingdom until 14 March. Leave pay for the period 1 February to 14 March is attributed to the qualifying period ended on 31 January and covered by FED.

A male employee returned to the United Kingdom on 28 February 1997. He had been working in the Gulf for 13 months during which time he had established a qualifying period of more than 365 days. He was entitled to terminal leave of 6 weeks. He remained in the United Kingdom until 14 April. Leave pay for the period 1 March to 5 April is attributed to the qualifying period ended on 28 February and covered by FED. However, the terminal leave pay for the period 6 – 14 April is not attributed to the qualifying period as this would make emoluments of 1997/98 emoluments of 1996/97.

Leave Pay for a period spent in the United Kingdom while Resident and Ordinarily Resident after returning from overseas during which time the employee had been Non-resident

Non-residents who return to the United Kingdom and become Resident and Ordinarily Resident may have their terminal leave pay treated differently.

Leave pay for employees returning to the United Kingdom after 6 April 1992, following a period of non-residence, is likely to be taxable if it is receivable after the date of return. (See SE33061).