EIM43646 - Globally mobile employees: Overseas Workday Relief: pre-6 April 2025 tax years: Overview

Where an employee benefits from Overseas Workday Relief (“OWR”) (see EIM43555) for a year ended prior to 6 April 2025 (“a pre-April 2025 tax year”):

  • any of their general earnings for that year which relate to duties performed in the UK are taxable on receipt under section 15 ITEPA 2003 (“section 15 earnings”);
  • any of their general earnings for that year which relate to duties performed outside the UK are taxable on remittance under section 26 ITEPA 2003 (“section 26 earnings”).

Where an employee benefits from OWR in a pre-April 2025 tax year, it’s necessary to determine to what extent their general earnings for that year relate to duties performed in or outside the UK, and when any section 26 earnings are remitted to the UK.

In some circumstances it can be simple to determine which duties an amount of general earnings relates to, as a particular amount of general earnings will wholly relate to duties performed either in or outside the UK (see EIM43675). 

Where general earnings cannot be attributed in this way, it is necessary to have some method of attribution. Case law establishes that this should normally be on the basis of time apportionment (see Varnam (Inspector of Taxes) v Deeble (58 TC 501)) . However, there are exceptions to this. For example, where a contract specifically allocates an amount of general earnings to overseas duties performed in a tax year, those general earnings will relate to overseas duties.

From 2013/14, section 41ZA ITEPA 2003 provides that the extent to which general earnings are in respect of UK duties is to be determined on a just and reasonable basis. 

When undertaking time apportionment, HMRC’s longstanding practice is to accept apportionment based on the number of days worked abroad and in the UK, except where this would clearly be inappropriate. An employee’s particular facts and circumstances may mean that a workday apportionment is not just and reasonable, or that alternative basis of apportionment are also just and reasonable.

Where an employee’s general earnings for a tax year include both section 15 earnings and section 26 earnings, it is necessary to determine if, and when, any section 26 earnings are remitted into the UK. It is therefore necessary to determine the character of any general earnings paid or provided by their employer.

The guidance in the following sections sets out how this should be done.

From 6 April 2025, it is no longer possible to use the remittance basis of taxation, though the mixed fund rules continue to apply to remittances of pre-6 April 2025 foreign income and gains. This means that this guidance is only applicable to general earnings which are for a tax year ended prior to 6 April 2025 (see EIM40008 for guidance on the year earnings are ‘for’), for which an employee had elected to be taxed on the remittance basis and met the requirement of section 26A, so that they were eligible for Overseas Workday Relief.