Non-doms’ dual UK/overseas employment contracts

Tue 01 Apr 2014

Finance Bill 2014 includes legislation aimed at the artificial division of the duties of one employment between the UK and overseas, where a “comparable level” of overseas tax is not paid. Dual contract arrangements are not uncommon among non-domiciled individuals (“Non-Doms”) who work both in the UK and overseas for essentially the same or an associated employer.

An individual who is caught by all of four conditions will lose the ability to use the remittance basis on the overseas earnings and so will be taxed on the arising basis on total earnings. The conditions are:

• the individual holds a “UK employment”;
• there is an “associated” overseas employer;
• the employments are “related” to each other; and
• any foreign tax on the overseas earnings is less than 65% of the current top rate of UK income tax (i.e. 65% 0f 45% or 29.25% for 2014/15).

The last condition should prevent many genuine dual employments being caught because the level of tax in most non–tax-havens is higher than that rate.  This comparative test was originally proposed to be set at 75% so even more employments will fall out of these new rules.

Employments are related to each other where the individual has a “senior” position: a director or an employee who is highly paid relative to other employees.

The legislation gives the ability for regulations to be added by Parliament in respect of the “related” employment conditions and to vary the percentage of foreign tax as necessary.

The legislation does give some detail on what “related” means and envisages a close link between the two employments, such as where: one employment would not exist without the other; the employments may have the same clients; or the only difference may be geographical.

Following consultation after the Autumn Statement additional safeguards were added to prevent charges applying to nominal directorships – broadly where the director owns or controls less than 5% of the ordinary share capital of the company.

The legislation will not be retrospective so will only apply to 2014/15 and later tax years.