Are you claiming tax-relief for working outside the UK correctly?

Overseas work relief

Overseas Tax Relief

In the UK, income from employment are taxable upon receipt of those earnings. However, if the salary is relevant to duties carried out wholly or partly overseas, it is referred to as foreign earnings and unless this is remitted to the UK in the tax year of receipt, or in a later tax year, may not be subject to tax in the UK.

To qualify for Overseas workday relief (OWR), and benefit from not having foreign earnings taxed in the UK the following conditions need to be met for an individual:

  • not domiciled in the UK for the whole tax year

  • taxed on the remittance basis

  • Conducts all or part of their employment outside of the UK, and that year is the first, second or third tax year immediately following 3 consecutive tax years of non-residency in the UK.

When a tax year is split between an overseas and UK part, the foreign earnings relating to the UK part will benefit from overseas workday relief. OWR does not apply to earnings relating to overseas duties that take place in the overseas part of a split year, and in addition, any monies earnt in relation to overseas duties whist a taxpayer is not resident in the UK are also exempt.

If a bonus or similar be paid in a subsequent tax year, it is the individuals’ circumstances at the time of earning that dictate an eligibility for OWR and not the circumstance in the year the monies were received.

When evaluating the earnings for either a split year, or one where a taxpayer is not resident in the UK for the whole year, additional rules will apply to any earnings from overseas Crown employment and will be subject to UK tax.

On April 6 2013 new rules were introduced and special mixed fund rules were introduced to provide a more straightforward approach to the tax treatment of the remittances to the UK. To benefit from this treatment the income from both UK and non-UK earnings must be paid into a qualifying account.

The qualifying account has to be located outside the UK, be a checking or deposit account, have not been previously qualifying account that subsequently ceases to be a nominated account, and although it can be a joint account; only the individual is able to deposit employment income, and no other income, into it other than interest arising on that bank account. Most crucially the bank balance must not exceed £10 on the day that the first qualifying earnings are paid into it.

Our advice would be to check your tax position as we are currently helping many individuals with offshore accounts set up to hold foreign earnings, being caught out.

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