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HMRC internal manual

Employment Income Manual

Termination payments and benefits: Section 401 ITEPA 2003: foreign service: reduction of charge

Section 414 ITEPA 2003

EIM13690 explained that if an employee whose service includes foreign service fails to satisfy the conditions for full exception, the employee might still qualify for a reduction in the Section 401 ITEPA 2003 charge.

If service before 6 April 1974 is involved, see EIM13705.

The £30,000 threshold must be deducted before calculating the reduction (see example EIM13980). The result, for this purpose, is called the amount charged to tax (in Section 414(2) ITEPA 2003 it is called the amount that would otherwise count as employment income). It is this amount charged to tax that is reduced if the qualifying conditions are met.

The amount of the reduction is the amount charged to tax multiplied by the length of foreign service and divided by the length of total service before the relevant date (the meaning of relevant date is the same as in EIM13680). See example EIM13985.

Note that:

  • the taxpayer can claim the foreign service reduction by notice in writing to the Inspector at any time up to four years from the end of the year of assessment to which the claim relates (for claims made before 2 April 2010 the limit is five years after 31 January following the end of the relevant year of assessment)