SE40304 - Schedule E: interaction of Case II and III:

Section 19(1)1 ICTA 1988 and Statement of Practice 5/1984

If an employee is Resident but Not Ordinarily Resident in the United Kingdom and some of the employment duties are carried out here, a proportion of the emoluments will be within Case II (see SE40201). Rules are needed to determine whether emoluments received in the United Kingdom relate to duties performed here or to duties performed abroad.

The relevant rules are in Statement of Practice 5/1984. They are set out below:

Employee remunerated wholly abroad

An employee who is:

• Resident but Not Ordinarily Resident in the United Kingdom and
• performs the duties of an office or employment both inside and outside the United Kingdom and
• is remunerated wholly abroad

is permitted, by a broad interpretation of the decision in the case of Sterling Trust Ltd v CIR (12TC868), to say that any remittances made to the United Kingdom are made primarily out of emoluments for that year in respect of duties performed in the United Kingdom assessable under Case II. Only any excess emoluments above the Case II amount that are remitted to the United Kingdom are assessable under Case III.

Employee remunerated partly in the United Kingdom and partly abroad

This rule applies an employee who:

• is Resident but Not Ordinarily Resident in the United Kingdom and
• performs duties of a single employment both inside and outside the United Kingdom, so that the emoluments from that employment are potentially liable under both Cases II and III of Schedule E and
• receives part of the emoluments in the United Kingdom and part abroad.

In these circumstances, provided the emoluments that are assessable under Case II are arrived at in a reasonable manner, the Inland Revenue is prepared to accept that Case III liability will arise only where the aggregate of emoluments remitted to the United Kingdom exceeds the amount assessable under Case II for that year. Case III liability is the excess of the aggregate over the Case II liability.

“arrived at in a reasonable manner” means, in the absence of special facts, the proportion of the emoluments, including benefits in kind, relating to United Kingdom duties is arrived at on a time basis by reference to working days.

The aggregate of emoluments includes; sums paid in, cash equivalents of benefits enjoyed in, and emoluments transmitted to the United Kingdom in any form.