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HMRC internal manual

Employment Income Manual

Termination payments and benefits: example: foreign service reduction

Section 414 ITEPA 2003

The employee is non-UK resident for the tax year that the employment is terminated. The full exception in EIM13690 is not available. Two out of five years total service is ‘foreign service’ (see EIM13685).

The foreign service reduction of EIM13700 is calculated as follows.

Payments and benefits within section 401 ITEPA 2003 £100,000
Post-employment notice pay (PENP) (see EIM13872) £10,000
Termination awards subject to section 403 ITEPA 2003 (see EIM13872) £90,000
Less £30,000 threshold (see EIM13700 and example EIM13980). £30,000
The ‘amount charged to tax’ (see EIM13700) £60,000
Foreign service reduction = £60,000 ×  2/5 £24,000
Amount chargeable to income tax as specific employment income under section 403 ITEPA 2003 £36,000

A reduction for ‘foreign service’ is not available for the element of the termination payment that is post-employment notice pay (PENP) (see EIM13700).

If the employee was UK resident for the tax year in which their employment ended and their service in that employment included qualifying ‘foreign seafaring service’ then the amount of PENP would be reduced by the same proportion as the ‘amount charged to tax’ (see EIM13702).