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HMRC internal manual

Employment Income Manual

Termination payments and benefits: Section 401 ITEPA 2003: exceptions: “foreign service”: definition

Section 413 ITEPA 2003 (as amended by Section 30 Schedule 7 FA 2008)

EIM13680 explained that a payment or benefit may be fully excepted from the charge under Section 401 ITEPA 2003 if sufficient of the employee’s service counts as “foreign service”. Foreign service has a special meaning for this purpose.

All periods when an employee is a seafarer eligible for 100% deduction from earnings under Part 5 Chapter 6 ITEPA 2003 (see EIM33000) count as “foreign service”.

Otherwise, this guidance deals only with the legislation relating to periods of service after 5 April 2003. For earlier periods after 5 April 1974 the rules are effectively the same but they are expressed in different statutory language (see SE13690 for details if necessary). If service before 6 April 1974 is involved, see EIM13705.

A period of service counts as “foreign service” where the earnings from the employment are not “relevant earnings”. Note that this is a negative test so that if the earnings are found to be “relevant earnings”, that period will not count towards the exception.

If there is a period of service when there are no earnings from the employment, apply the guidance as if there were.

Up to 5 April 2008 “relevant earnings” means earnings within Section 15 or Section 21 ITEPA 2003 as then enacted (see EIM40002). So if the earnings fall within any other provision, the period counts as “foreign service”.From 6 April 2008, “relevant earnings” means that the employee is ordinarily resident in the UK and the earnings are within Section 15 ITEPA 2003 (see EIM40002). So if any other situation applies to the earnings, the period counts as “foreign service”.

Combine the periods that count as “foreign service” by applying the rules above and then give the full exception if any one of the requirements from the table below are met (see example EIM13970):

### Total period of service down to the relevant date ### Requirement for full exception to be given
All cases of whatever duration. 3/4 of the whole period of service is foreign service.
More than 10 years. The last 10 years are foreign service.
More than 20 years. 1/2 of the whole period of service (including 10 of the last 20 years) is foreign service.

For this purpose treat successive employments with different members of the same group of companies as if they were a single continuing employment where the payment takes account of that service, see example EIM13975.

Note: a taxpayer with some foreign service who does not meet the requirements in the table above may be able to claim a foreign service reduction instead, see EIM13700.