SE40103 - Foreign emoluments exception: dual contract arrangements

Section 192(2) ICTA 1988

Non-domiciled individuals sometimes come to work for United Kingdom resident employers. Depending on the length of their visit they may be Resident and Ordinarily Resident from the date of arrival. They may locate in London but the job may have European or global dimensions which requires foreign travel and the performance of duties outside of the United Kingdom.

Emoluments from a single employment with duties performed inside and outside of the United Kingdom are chargeable under Case I, assuming that the employee is Resident and Ordinarily Resident. Even though the individual is not domiciled there is no exception from Case I.

In the circumstances described above the employee may be offered two employments instead of one:

• Employment 1 covering the performance of duties in the United Kingdom and
• Employment 2, usually with an associated company resident offshore, covering duties performed in the rest of the world, excluding the United Kingdom.

The two, or more, employments may require very similar duties to be performed. The only significant difference is the geographical areas in which those duties are carried out.

The advantage to the taxpayer is that the emoluments from Employment 2 are excepted from Case I of Schedule E and are only chargeable under Case III if remitted to the United Kingdom. For this reason, dual contract arrangements are popular among non-domiciled employees assigned to work in the United Kingdom.

Identification

Taxpayers should complete a separate copy of the Employment Pages in the SA Return for each employment held during the relevant year. This includes the two or more employments held under a dual contract arrangement. Employment Pages returning the second 'offshore' employment may only carry a statement of total emoluments paid or provided. If there has been no remittances in the year there will be a matching deduction in Box 1.31.

Action in Districts

You may seek to establish that:

• There are two (or more) employments in reality and not one employment that has been artificially divided to exploit the provisions of Section 192(2).
• No duties under the 'offshore contract' have been performed in the United Kingdom

If emoluments paid under the two (or more) contracts appear to be disproportionate you may consider invoking powers provided by Paragraph 2 Schedule 12 ICTA 1988 (applied to these circumstances by Section 192(5)). The legislation permits the Inspector to reapportion the remuneration on a commercial basis, to ensure that the amount paid in respect of UK duties is a fair proportion of the total remuneration from both or all associated employments.

Where the facts of a case lead you to suspect that the provisions of Paragraph 2 Schedule 12 should be invoked, submit the papers to Employment Income Technical , before taking any other action. Further guidance and information on dual contract arrangements may be obtained from the Employment Income Technical.

See example SE40104.