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HMRC internal manual

Employment Income Manual

General earnings from employment: "taxable earnings"

Part 2 Chapters 4 and 5 ITEPA 2003

Chapters 4 and 5 of Part 2 ITEPA 2003 include the conditions which underpin the charging provisions for general earnings. Earnings from an office or employment that are not covered by any of these charging provisions are not taxable earnings and therefore fall outside of the scope of United Kingdom income tax.

The circumstances of the employee or office holder (see EIM40001) are used to determine the relevant part of the charging provisions. These are summarised below together with the relevant guidance:

Part 2 Chapter 4 ITEPA 2003

This chapter deals with the charge to tax on UK based earnings for individuals who are resident in the UK.

Section 15

Until 5 April 2008, section 15 related to general earnings for a tax year in which the employee or office holder was resident, ordinarily resident and domiciled in the UK (see EIM40101).

With effect from 6 April 2008, section 15 applies to general earnings for a tax year in which the employee or office holder is resident in the United Kingdom (see EIM40101). This section will also apply to the UK earnings of employees who are resident but non-domiciled in the UK. In order to decide whether there is a charge to tax for resident non-domiciled employees on earnings which do not arise in the UK, we need to consider the provisions of Chapter 5 of Part 2 of ITEPA 2003.

Part 2 Chapter 5 ITEPA 2003

This Chapter deals with the charge to tax on foreign earnings or chargeable overseas earnings for those employees who are resident in the UK but who do not have a UK domicile and whose non-UK income is charged on the remittance basis. The remittance basis means the employees have elected to pay tax on their foreign or chargeable overseas earnings only when they bring those earnings into the UK.

Where this Chapter applies, an employee’s circumstances will dictate whether his or her earnings will be taxed as foreign earnings under section 26 or as chargeable overseas earnings under section 22. There are differences in what is capable of being charged to tax in the UK, dependent on which section applies.

Section 26A determines, by reference to the length of the taxpayer’s residence in the UK, whether section 22 or 26 applies. For years prior to 2013/14, the determination was made by reference to the residence and ordinary residence status of the employee.

A charge on foreign earnings and chargeable overseas earnings in the same tax year is not possible. It is possible that an employee may be taxed on foreign earnings in one year but then on chargeable overseas earnings in the following year.

This chapter also charges to tax under section 27 any earnings of employees who are non-resident if the duties giving rise to those earnings have been performed in the UK.