Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Residence, Domicile and Remittance Basis Manual

From
HM Revenue & Customs
Updated
, see all updates

Remittance Basis: Introduction to the Remittance Basis: Foreign Income and Gains: Employment income - provided through third parties

General

This section provides an overview of the legislation that applies from 6 April 2011 when new legislation was introduced at Part 7A ITEPA 2003. See the Employment Income Manual (EIM45000+) for detailed guidance on the treatment of employment income provided by third parties - sometimes referred to as ‘disguised remuneration’.

The tax legislation on employment income provided through third parties tackles arrangements which:

  • involve third parties (including trusts or other vehicles used to reward employees), and
  • seek to avoid or defer the payment of income tax.

The legislation also deals with pension schemes which are not registered pension schemes,

Broadly speaking, if third party arrangements are used to provide what is in substance a reward or recognition, or a loan, in connection with the employee’s current, former, or future employment, then an income tax charge arises.

The rules contain detailed exclusions. These prevent the legislation from catching certain arrangements. Generally the exclusions are targeted at arrangements which are not tax avoidance arrangements.

If the legislation applies, it deems an amount to count as employment income.

Remittance Basis

It is important to note that different rules apply to remittance basis users who are resident, ordinarily resident but not domiciled in the UK and those who are resident but not ordinarily resident.

In the case of a remittance basis taxpayer, amounts that are identified under Part 7A ITEPA as ‘employment income provided through third parties’, are ‘Taxable Specific Income’ (TSI).

To the extent that amounts of TSI are remitted to the UK by a remittance basis taxpayer, TSI is ‘foreign specific employment income’ (ITA07/s809Z7(4B)). See RDRM33020 for what is meant by ‘remitted to the UK’.

The meaning of ‘TSI’ is defined in Part 7A ITEPA 2003 and depends upon the individual’s residence and domicile status. For that reason TSI has two possible meanings (ITEPA03/s554Z9 and s554Z10). See EIM45800+ for more information.

Non-domiciled but ordinarily resident

Where an individual is resident and ordinarily resident but not domiciled in the UK and has an employment that is:

  • under a contract with a foreign employer - that is an employer who is not resident in the UK

and

  • the duties of that employment are performed wholly outside of the UK

and

  • they elect to pay tax on the remittance basis in respect of their foreign income and gains of the relevant tax year

an amount identified under Part 7A ITEPA03 as TSI is ‘foreign specific employment income’ that is only chargeable to UK tax to the extent that it is remitted in whole or in part to the UK.

See EIM45805 for more information.

Not ordinarily resident

Where an individual is resident but not ordinarily resident in the UK (their domicile status is not relevant) and has an employment that is:

  • under the terms of a contract with a UK employer

and

  • some of the duties of that employment are performed wholly outside of the UK (sometimes referred to as ‘overseas work days’) not including earnings for employment overseas by the Crown

and

  • they elect to pay tax on the remittance basis in respect of their foreign income and gains of the relevant tax year

an amount identified under Part 7A ITEPA03 as TSI is ‘foreign specific employment income’ that is only chargeable to UK tax to the extent that it is remitted in whole or in part to the UK.

See EIM45810 for more information