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HMRC internal manual

Employment Income Manual

Employee resident but not ordinarily resident in the United Kingdom: interaction of Sections 15 and 26: Statement of Practice 1/2009

Statement of Practice 1/09 - for 2009/10 and 2010/11

If an employee is resident but not ordinarily resident in the UK and some of the employment duties are carried out in the UK, a proportion of the general earnings will be UK-based earnings charged on receipt under Section 15 (see EIM40201). Rules are needed to determine whether general earnings remitted to the United Kingdom relate to duties performed here or to duties performed abroad.

The relevant rules are in Statement of Practice 1/09. The full text of SP1/09 is at EIM40306.

SP1/09 took effect from 6 April 2009. It replaced SP5/84. For information concerning SP5/84 for years up to and including 2008/09 see EIM40304.

Overview of SP1/09

Section 25 and Schedule 7 Finance Act 2008 introduced changes to the remittance basis of taxation affecting the taxation of employment income where the employee is resident and but not ordinarily resident in the UK. Amongst other things, the new rules determined the kind and amount of income or chargeable gains remitted to the UK where a transfer is made out of a mixed fund.

For further details regarding the FA2008 changes see “Residence and Domicile; Guidance on the new tax rules” at

Transfers from an offshore account (mixed fund) under SP1/09

The remittance basis changes introduced in FA08 introduced new rules where a transfer was made to the UK out of an offshore account that contained more than one kind of income and capital, or income or capital of more than one year. Such an account is defined in Sections 809Q and 809R ITA 2007 as a “mixed fund”.

Whereas SP5/84 provided that the tax liability should be calculated by reference to the total amount transferred to the UK during the tax year as a whole, the FA08 rules required that where amounts are transferred to the UK out of a mixed fund, the individual’s tax liability must be calculated by reference to each individual transfer (Section 809Q(3)). This is known as the mixed fund rule.

HMRC accepts that these rules introduced in FA08 may impose additional administrative burdens in some cases. Consequently in the circumstances set out in paragraphs 6 to 9 of SP1/09 (see EIM40306), HMRC will accept for 2009/10 that individuals who are resident but not ordinarily resident in the UK do not have to apply the mixed fund rule. Instead they may continue to calculate their tax liability by reference to the total amount transferred out of a mixed fund during the whole tax year, rather than by reference to individual transfers.

Transfers from an account that fall within SP1/09

Broadly speaking SP1/09 excludes from the mixed fund rule, employees who are resident but not ordinarily resident in the UK and perform duties both inside and outside of the UK who make transfers from an account which is held solely in the employee’s name and contains only employment income from a single employment.

Employment income in this respect includes

  • employment income (section 809Q(4)(a));
  • relevant foreign earnings (section 809Q(4)(b));
  • foreign specific employment income (including termination payments and the proceeds from employee share schemes) (section 809Q(4)(c)); and
  • employment income subject to a foreign tax (section 809Q(4)(f)).

However, HMRC will accept that SP1/09 also applies if any of the following additional sources of income or gains are held in that account -

  • interest arising on the account;
  • gains arising from foreign exchange transactions in respect of funds in that account;
  • gains arising on employee share scheme related transactions; and
  • proceeds from employee share scheme related transactions in respect of amounts paid by the employee acquiring shares.

Joint account holders

Where an account is held in joint names and one of the account holders is a spouse or civil partner with no income or gains of their own (except a share in any interest that arises on the joint account), SP1/09 can apply to the account. This applies to all accounts that qualify for SP1/09 on or after 6 April 2009.

Income and gains from more than one year in an account

SP1/09 also applies to an account if an employee is resident but not ordinarily resident and the account contains only income or gains of the kind listed in the two paragraphs above but for more than one tax year.

Transfers from an account where SP1/09 does not apply

SP1/09 does not apply if transfers are made from a mixed fund account containing -

  • income or gains of more than one employment (including employments with different employers within a group); or
  • income or gains or more than one individual (e.g. a joint account that holds the income or gains of an individual and their spouse or partner).

Apportionment of earnings

The second part of SP1/09 (paragraphs 12 to 17) is concerned with apportionment of earnings where the relevant conditions are satisfied for the operation of the SP.

This part of SP1/09 is unchanged in its application and effect from the same rules that applied until 2008/09 under SP5/84 (see EIM40304).