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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 earnings charged on remittance under Section 26 ITEPA 2003: example

In the tax year 2003 to 2004, an employee is resident but not ordinarily resident in the UK. She performs part of her duties in Liverpool and part in Dublin. Her total earnings are £40,000 and she works 60 days in Liverpool and 180 days in Dublin. She meets expenses of £2,500 that pass the tests for a deduction under section 336 ITEPA 2003. She is paid the whole of her earnings in Dublin and then pays £22,000 of these earnings into a bank account in Liverpool.

Of the expenses

  • £1,000 is spent in Dublin
  • £1,500 is spent out of her bank account in Liverpool, consisting of
    • £800 relating to her duties in Liverpool
    • £700 relating to her duties in Dublin

Her net taxable earnings are computed as follows.

Earnings charged on receipt under section 25 £40,000 × 60/240 = £10,000
       
Expenses deductible under section 354, see EIM31750     £800
Net earnings charged on receipt under section 25     £9,200
       
Earnings charged on remittance under section 26, see EIM40304 £22,000 − £10,000 = £12,000
Expenses deductible under section 353, see EIM31755     £700
Net earnings charged on remittance under section 26     £11,300
       
Net taxable earnings £9,200 + £11,300 = £20,500

No relief is permitted for the £1,000 spent in Dublin.