Employment Income Manual

EIM43665 - Globally mobile employees: Overseas Workday Relief: pre-6 April 2025 tax years: Determining the character of earnings - examples

Example 1 (Part 1)

François benefitted from OWR in a tax year in which his total general earnings for that year were £177,600, made up of £150,000 salary, a cash benefit of £24,000 and a non-cash benefit of £3,600. On the last day of each month his employer paid his salary of £12,500 and his accommodation costs of £2,000, on François’ behalf.  François had £133,200 section 15 earnings and £44,400 section 26 earnings.

PAYE tax of £4,500 was deducted from his monthly salary, together with Primary Class 1 NICs of £120. Half of François’ net earnings of £7,880 were paid into a UK bank account, and the other half were paid into an overseas bank account.

Treating each element as comprised of section 15 earnings and section 26 earnings in the same proportion as the total general earnings received in the tax year,

• £1,155 of the PAYE and Primary Class 1 NICs would have been deducted from section 26 earnings,
• £500 of the £2,000 cash benefit provided in the UK would have been paid from section 26 earnings, and
• the two £3,940 payments into François’ UK and offshore accounts would each be made up of £2,955 section 15 earnings and £985 section 26 earnings.

François’ made a number of UK transfers from his overseas account during the tax year:

14 May	£350
23 June	£1,000
6 September	£700
19 September	£1,200
13 October	£500
8 January	£650

Under the mixed fund rules, transfers out of the overseas account into the UK are treated as being made from section 15 earnings first, so that it is necessary to determine the amount of section 15 earnings available in the account at the time each transfer was made. As each monthly payment into the overseas account included £2,955 section 15 earnings, none of these UK transfers resulted in a remittance of any section 26 earnings.

If any of the PAYE tax deducted from section 26 earnings is not repayable, there will have been a remittance to the UK when this PAYE tax was paid to HMRC.

Any of the Primary Class 1 NICs deducted from section 26 earnings will result in a remittance when it is paid to HMRC. Of the £1,440 total Primary Class 1 NICs deducted in the year, £360 was deducted from section 26 earnings.

There were remittances of £500 each month as a result of the cash benefit provided in the UK and £75 as a result of the non-cash benefit, totalling £6,900. 

To determine whether any of the section 26 PAYE tax paid is not repayable, it may be necessary to undertake a preliminary income tax liability calculation, not including the PAYE tax paid.

François’ preliminary taxable earnings are made up of £133,200 salary taxable on receipt under section 15, £20,700 BiKs taxable on receipt under section 15, £6,900 BiKs taxable on remittance under section 26 and £360 Primary Class 1 NICs taxable on remittance under section 26. François’ total preliminary taxable earnings are £161,160.

The tax payable on these earnings was £58,725. As total PAYE tax of £54,000 was deducted, a payment is due of £4,725. £13,860 total PAYE tax was deducted from section 26 earnings, so that none of it is repayable, and this amount was remitted when the PAYE tax was paid. 

François’ total taxable earnings are £175,020 and the tax payable on these earnings is £64,962.

No PAYE tax is repayable and £10,962 is payable once François has filed his return for the tax year.

Example 1 (Part 2)

Instead of treating the amounts deducted, the benefit paid and the payment into the UK and overseas accounts as being comprised proportionately of section 15 earnings and section 26 earnings, François could instead treat the PAYE tax and Primary Class 1 NICs as being deducted wholly from section 15 earnings. He could also treat the cash benefit and the payment into his UK account as being wholly paid from section 15 earnings, if there was sufficient section 15 earnings available to permit this treatment.

The £4,500 PAYE tax and £120 Primary Class 1 NICs deducted each month would be treated as deducted from section 15 earnings, and the cash benefit of £2,000 and payment of £3,940 paid into François’ UK bank account would be treated as paid wholly from section 15 earnings.

The £3,940 paid overseas would then be made up of £315 section 15 earnings and £3,625 section 26 earnings.

It would then be necessary to undertake a mixed fund calculation to determine whether the transfers out of the overseas bank account resulted in any remittances of section 26 earnings:

	Total transfers in	Section 15 transfers in	Section 26 transfers in	Total transfers out	Section 15 transfers out	Section 26 transfers out	Section 15 balance	Section 26 balance
30 April	£3,940	£315	£3,625	£0	£0	£0	£315	£3,625
14 May	£0	£0	£0	£350	£315	£35	£0	£3,590
31 May	£3,940	£315	£3,625	£0	£0	£0	£315	£7,215
23 June	£0	£0	£0	£1,000	£315	£685	£0	£6,530
30 June	£3,940	£315	£3,625	£0	£0	£0	£315	£10,155
31 July	£3,940	£315	£3,625	£0	£0	£0	£630	£13,780
31 August	£3,940	£315	£3,625	£0	£0	£0	£945	£17,405
6 September	£0	£0	£0	£700	£700	£0	£245	£17,405
19 September	£0	£0	£0	£1,200	£245	£955	£0	£16,450
30 September	£3,940	£315	£3,625	£0	£0	£0	£315	£20,075
13 October	£0	£0	£0	£500	£315	£175	£0	£19,900
31 October	£3,940	£315	£3,625	£0	£0	£0	£315	£23,525
30 November	£3,940	£315	£3,625	£0	£0	£0	£630	£27,150
31 December	£3,940	£315	£3,625	£0	£0	£0	£945	£30,775
8 January	£0	£0	£0	£650	£650	£0	£295	£30,775
	£35,460	£2,835	£32,625	£4,400	£2,540	£1,850	£295	£30,775

There were remittances of £1,850 section 26 earnings from François’ overseas bank account, as well as £900 remittances of section 26 earnings from the non-cash benefit provided in the UK, so that his total taxable earnings were £156,650. The tax payable on these earnings is £56,695.50.

François will need to pay tax of £2,695.50 once he files his ITSA return, but there was no remittance as a result of the PAYE tax not repayable, as none of this was deducted from section 26 earnings.

Example 2 (Part 1)

Anastasija benefitted from OWR in a tax year in which her total general earnings for that year were £144,000, made up of £120,000 salary and a cash benefit of £24,000. On the same day of each month her employer paid her salary of £10,000 and her accommodation costs of £2,000, on Anastasija’s behalf.  Anastasija had £96,000 section 15 earnings and £48,000 section 26 earnings. 

PAYE tax of £3,372 was deducted from her monthly salary, together with Primary Class 1 NICs of £368. Anastasija’s net earnings of £6,260 were paid into an overseas bank account. 

Treating each element as comprised of section 15 earnings and section 26 earnings in the same proportion as the total general earnings received in the tax year, 

• £1,246.67 of the PAYE and Primary Class 1 NICs would have been deducted from section 26 earnings, 

• £666.67 of the £2,000 cash benefit provided in the UK would have been paid from section 26 earnings, and 

• the payments into Anastasija’s overseas account would be made up of £4,173.33 section 15 earnings and £2,086.67 section 26 earnings.

Anastasija made a number of UK transfers from her overseas account during the tax year:

16 April	£3,250
16 May	£3,250
18 May	£1,000
16 June	£3,250
21 June	£500
16 July	£3,250
16 August	£3,250
16 September	£3,250
16 October	£3,250
16 November	£3,250
16 December	£3,250
17 December	£2,000
16 January	£3,250
1 February	£3,500
16 February	£3,250
16 March	£3,250

 

Under the mixed fund rules, transfers out of the overseas account into the UK are treated as being made from section 15 earnings first, so that it is necessary to determine the amount of section 15 earnings available in the account at the time each transfer was made. As each monthly payment into the overseas account included £4,173.33 section 15 earnings, none of these UK transfers resulted in a remittance of any section 26 earnings.

If any of the PAYE tax deducted from section 26 earnings is not repayable, there will have been a remittance to the UK when this PAYE tax was paid to HMRC. 

Any of the Primary Class 1 NICs deducted from section 26 earnings will result in a remittance when it is paid to HMRC. Of the £4,146 total Primary Class 1 NICs deducted in the year, £1,472 was deducted from section 26 earnings.

There were remittances of £666.67 each month as a result of the cash benefit provided, totalling £8,000.  

To determine whether any of the section 26 PAYE tax paid is not repayable, it may be necessary to undertake a preliminary income tax liability calculation, not including the PAYE tax paid.

Anastasija’s preliminary taxable earnings are made up of £80,000 salary taxable on receipt under section 15, £16,000 BiKs taxable on receipt under section 15, £8,000 BiKs taxable on remittance under section 26 and £1,472 Primary Class 1 NICs taxable on remittance under section 26. Anastasija’s total preliminary taxable earnings are £105,472. 

The tax payable on these earnings was £34,648.80. As total PAYE tax of £40,464 was deducted, a repayment is due of £5,815.20. £13,488 total PAYE tax was deducted from section 26 earnings, so that £7,672.80 is not repayable, and this amount was remitted when the PAYE tax was paid.  

The total amount remitted as a result of the section 26 PAYE tax paid, would be the lower of the grossed up £7,672.80 or the £13,488 PAYE tax deducted from section 26 earnings. £7,672.80 grossed up is £12,788, so that the remittance was £12,788.

Anastasija’s total taxable earnings are £118,260 and the tax payable on these earnings is £39,764, so that tax of £700 is repayable. If this tax is repaid into an overseas account there are no remittances either in the year the earnings were received, or in the subsequent tax year, until it is subsequently transferred into the UK.

Example 2 (Part 2)

Instead of treating the amounts deducted, the benefit paid and the payment into the UK and overseas accounts as being comprised proportionately of section 15 earnings and section 26 earnings, Anastasija could instead treat the PAYE tax and Primary Class 1 NICs as being deducted wholly from section 15 earnings. She could also treat the cash benefit as being wholly paid from section 15 earnings, if there was sufficient section 15 earnings available to permit this treatment. 

The £3,372 PAYE tax and £368 Primary Class 1 NICs deducted each month would be treated as deducted from section 15 earnings, and the cash benefit of £2,000 would be treated as paid wholly from section 15 earnings.

The £6,260 paid overseas would then be made up of £2,260 section 15 earnings and £4,000 section 26 earnings.

It would then be necessary to undertake a mixed fund calculation to determine whether the transfers out of the overseas bank account resulted in any remittances of section 26 earnings:

	Total transfers in	Section 15 transfers in	Section 26 transfers in	Total transfers out	Section 15 transfers out	Section 26 transfers out	Section 15 balance	Section 26 balance
15 April	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£4,000
16 April	£0	£0	£0	£3,250	£2,260	£990	£0	£3,010
15 May	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£7,010
16 May	£0	£0	£0	£3,250	£2,260	£990	£0	£6,020
18 May	£0	£0	£0	£1,000	£0	£1,000	£0	£5,020
15 June	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£9,020
16 June	£0	£0	£0	£3,250	£2,260	£990	£0	£8,030
21 June	£0	£0	£0	£500	£0	£500	£0	£7,530
15 July	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£11,530
16 July	£0	£0	£0	£3,250	£2,260	£990	£0	£10,540
15 August	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£14,540
16 August	£0	£0	£0	£3,250	£2,260	£990	£0	£13,550
15 September	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£17,550
16 September	£0	£0	£0	£3,250	£2,260	£990	£0	£16,560
15 October	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£20,560
16 October	£0	£0	£0	£3,250	£2,260	£990	£0	£19,570
15 November	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£23,570
16 November	£0	£0	£0	£3,250	£2,260	£990	£0	£22,580
15 December	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£26,580
16 December	£0	£0	£0	£3,250	£2,260	£990	£0	£25,590
17 December	£0	£0	£0	£2,000	£0	£2,000	£0	£23,590
15 January	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£27,590
16 January	£0	£0	£0	£3,250	£2,260	£990	£0	£26,600
1 February	£0	£0	£0	£3,500	£0	£3,500	£0	£23,100
15 February	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£27,100
16 February	£0	£0	£0	£3,250	£2,260	£990	£0	£26,110
15 March	£6,260	£2,260	£4,000	£0	£0	£0	£2,260	£30,110
16 March	£0	£0	£0	£3,250	£2,260	£990	£0	£29,120
	£75,120	£27,120	£48,000	£46,000	£27,120	£18,880	£0	£29,120

 

There were remittances of £18,880 section 26 earnings from Anastasija’s overseas bank account, so that his total taxable earnings were £114,800. The tax payable on these earnings is £38,380. 

Anastasija is now entitled to a repayment of £2,084, which she could receive into a UK bank account without resulting in any further remittance, as none of it was deducted from section 26 earnings.

Alternatively, rather than treat all of the £5,350 PAYE tax as having been deducted from section 15 earnings, she could treat part of is as being deducted from section 26 earnings. She could choose to treat 8% of the PAYE tax as having been deducted from section 26 earnings. It may therefore be necessary to undertake a preliminary income tax liability calculation not including the PAYE tax paid, as well as a further mixed fund calculation.

	Total transfers in	Section 15 transfers in	Section 26 transfers in	Total transfers out	Section 15 transfers out	Section 26 transfers out	Section 15 balance	Section 26 balance
15 April	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,529.76	£3,730.24
16 April	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£3,010.00
15 May	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£6,740.24
16 May	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£6,020.00
18 May	£0	£0	£0	£1,000	£0	£1,000	£0	£5,020.00
15 June	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£8,750.24
16 June	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£8,030.00
21 June	£0	£0	£0	£500	£0	£500	£0	£7,530.00
15 July	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£11,260.24
16 July	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£10,540.00
15 August	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£14,270.24
16 August	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£13,550.00
15 September	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£17,280.24
16 September	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£16,560.00
15 October	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£20,290.24
16 October	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£19,570.00
15 November	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£23,300.24
16 November	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£22,580.00
15 December	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£26,310.24
16 December	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£25,590.00
17 December	£0	£0	£0	£2,000	£0	£2,000	£0	£23,590.00
15 January	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£27,320.24
16 January	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£26,600.00
1 February	£0	£0	£0	£3,500	£0	£3,500	£0	£23,100.00
15 February	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£26,830.24
16 February	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£26,110.00
15 March	£6,260	£2,529.76	£3,730.24	£0	£0	£0	£2,530	£29,840.24
16 March	£0	£0	£0	£3,250	£2,529.76	£720.24	£0	£29,120.00
	£75,120	£30,357	£44,763	£46,000	£30,357	£15,642.88	£0	£29,120

There would be remittances of £15,642.88, so that Anastasija’s total taxable earnings would then be £111,642.88 on which there would be £37,116.80 tax payable. The PAYE tax repayable would be £3,347.20, and the PAYE tax deducted from section 26 earnings would have been £3,237.12. All the tax deducted from section 26 earnings is repayable, so it is unnecessary to undertake a further income tax liability calculation. 

If this tax is repaid into an overseas account there are no remittance either in the year the earnings were received, or in the subsequent tax year, until it is subsequently transferred to the UK.