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HMRC internal manual

Employment Income Manual

The general rule for employees: expenses: expenses that are deductible where some or all of the duties are performed outside the UK: deductions from UK based earnings: example

An employee who is neither resident nor ordinarily resident in the UK performs part of the duties of the employment in London and part in Paris. In the tax year 2003 to 2004, the employee worked for a total of 250 days, of which 50 were worked in London. The total earnings were £50,000. The employee incurred expenses of £500 that qualify for relief under section 336 ITEPA 2003. Of this total, £200 was incurred in performing duties in Paris.

The employee is chargeable on receipt under section 27 on the UK based earnings, see EIM40201. The earnings are computed in accordance with EIM40110. There is no charge on the remaining earnings of the employment.

Section 354 prevents a deduction for the £200 expenses incurred in performing duties outside the UK, see EIM31750. The practical effect is that no relief is permitted for expenses that are incurred in respect of earnings that are not brought into charge.

The employee’s net taxable earnings are computed as follows.

Earnings charged on receipt under section 27 £50,000 × 50/250 = £10,000
Expenses deductible under section 354 £500 − £200 = £300
Net taxable earnings     £9,700