Special charging rules for employment incomeU.K.
57U.K.ITEPA 2003 is amended as follows.
58(1)In section 15 (earnings for year when employee UK resident), for subsection (1) substitute—U.K.
“(1)This section applies to general earnings for a tax year for which the employee is UK resident except that, in the case of a split year, it does not apply to any part of those earnings that is excluded.
(1A)General earnings are “excluded” if they—
(a)are attributable to the overseas part of the split year, and
(b)are neither—
(i)general earnings in respect of duties performed in the United Kingdom, nor
(ii)general earnings from overseas Crown employment subject to United Kingdom tax.”
(2)After subsection (3) insert—
“(4)Any attribution required for the purposes of subsection (1A)(a) is to be done on a just and reasonable basis.
(5)The following provisions of Chapter 5 of this Part apply for the purposes of subsection (1A)(b) as for the purposes of section 27(2)—
(a)section 28 (which defines “general earnings from overseas Crown employment subject to United Kingdom tax”), and
(b)sections 38 to 41 (which contain rules for determining the place of performance of duties of employment).
(6)Subject to any provision made in an order under section 28(5) for the purposes of subsection (1A)(b), provisions made in an order under that section for the purposes of section 27(2) apply for the purposes of subsection (1A)(b) too.”
59U.K.In section 22 (chargeable overseas earnings for year when remittance basis applies and employee outside section 26), for subsection (7) substitute—
“(7)Section 15(1) does not apply to general earnings within subsection (1).”
60(1)Section 23 (calculation of “chargeable overseas earnings”) is amended as follows.U.K.
(2)In subsection (3), for step 1 substitute— “Step 1 Identify—
(a)in the case of a tax year that is not a split year, the full amount of the overseas earnings for that year, and
(b)in the case of a split year, so much of the full amount of the overseas earnings for that year as is attributable to the UK part of the year.”
(3)In that subsection, in step 2, for “those earnings” substitute “ the earnings identified under step 1 ”.
(4)After that subsection insert—
“(4)Any attribution required for the purposes of step 1 or step 2 in subsection (3) is to be done on a just and reasonable basis.”
61(1)Section 24 (limit on chargeable overseas earnings where duties of associated employment performed in UK) is amended as follows.U.K.
(2)After subsection (2) insert—
“(2A)If the tax year is a split year as respects the employee, subsection (2) has effect as if for “the aggregate earnings for that year from all the employments concerned” there were substituted “ so much of the aggregate earnings for that year from all the employments concerned as is attributable to the UK part of that year ”.”
(3)After subsection (3) insert—
“(3A)Any attribution required for the purposes of subsection (2A) is to be done on a just and reasonable basis.”
62(1)Section 26 (foreign earnings for year when remittance basis applies and employee meets section 26A requirement) is amended as follows.U.K.
(2)In subsection (1), for the words from “if the general earnings” to the end substitute “if the general earnings meet all of the following conditions—
(a)they are neither—
(i)general earnings in respect of duties performed in the United Kingdom, nor
(ii)general earnings from overseas Crown employment subject to United Kingdom tax, and
(b)if the tax year is a split year as respects the employee, they are attributable to the UK part of the year.”
(3)After subsection (5) insert—
“(5A)Any attribution required for the purposes of subsection (1)(b) is to be done on a just and reasonable basis.”
(4)For subsection (6) substitute—
“(6)Section 15(1) does not apply to general earnings within subsection (1).”
63U.K.In section 232 (giving effect to mileage allowance relief), after subsection (6) insert—
“(6A)If the earnings from which a deduction allowed under this section is deductible include earnings that are “excluded” within the meaning of section 15(1A)—
(a)the amount of the deduction allowed is a proportion of the amount that would be allowed under this section if the tax year were not a split year, and
(b)that proportion is equal to the proportion that the part of the earnings that is not “excluded” bears to the total earnings.”
64(1)Section 329 (deduction from earnings not to exceed earnings) is amended as follows.U.K.
(2)After subsection (1) insert—
“(1A)If the earnings from which a deduction allowed under this Part is deductible include earnings that are “excluded” within the meaning of section 15(1A)—
(a)the amount of the deduction allowed is a proportion of the amount that would be allowed under this Part if the tax year were not a split year, and
(b)that proportion is equal to the proportion that the part of the earnings that is not “excluded” bears to the total earnings.”
(3)In subsection (2), after “those earnings” insert “ (or, in a case within subsection (1A), the part of those earnings that is not “excluded”) ”.
(4)In subsection (3), after “the earnings” insert “ (or, in a case within subsection (1A), the part of the earnings that is not “excluded”) ”.
65(1)Section 394 (charge on employer-financed retirement benefits) is amended as follows.U.K.
(2)In subsection (4C), omit “or” at the end of paragraph (b) and after that paragraph insert—
“(ba)an amount which would count as employment income of the employee or former employee under that Chapter but for the application of section 554Z5 (overlap with earlier relevant step), or”.
(3)In that subsection, for paragraph (c) substitute—
“(c)an amount which would be within paragraph (a), (b) or (ba) apart from—
(i)the employee or former employee having been non-UK resident for any tax year, or
(ii)any tax year having been a split year as respects the employee or former employee.”
66(1)Section 421E (income relating to securities: exclusions about residence etc) is amended as follows.U.K.
(2)For subsection (1) substitute—
“(1)Chapters 2, 3 and 4 do not apply in relation to employment-related securities if the acquisition occurs in a tax year that is not a split year as respects the employee and—
(a)the earnings from the employment for that tax year are not general earnings to which section 15, 22 or 26 applies (earnings for year when employee UK resident), or
(b)had there been any earnings from the employment for that tax year, they would not have been general earnings to which any of those sections applied.
(1A)Chapters 2, 3 and 4 do not apply in relation to employment-related securities if the acquisition occurs in the UK part of a tax year that is a split year as respects the employee and—
(a)the earnings from the employment attributable to that part of the year are not general earnings to which section 15, 22 or 26 applies, or
(b)had there been any earnings from the employment attributable to that part of the year, they would not have been general earnings to which any of those sections applied.
(1B)Chapters 2, 3 and 4 do not apply in relation to employment-related securities if the acquisition occurs in the overseas part of a tax year that is a split year as respects the employee.”
(3)After subsection (2) insert—
“(2A)But Chapters 3A to 3D do apply in relation to employment-related securities in relation to which they are disapplied by subsection (2) if—
(a)the acquisition takes place in the overseas part of a tax year that is a split year as respects the employee,
(b)the tax year is a split year because the circumstances of the case fall within Case 1, Case 2 or Case 3 as described in Part 3 of Schedule 45 to FA 2013 (split year treatment: cases involving actual or deemed departure from the United Kingdom), and
(c)had it not been a split year—
(i)the earnings from the employment for that tax year (or some of them) would have been general earnings to which section 15, 22 or 26 applied, or
(ii)if there had been any earnings from the employment for that tax year, they (or some of them) would have been general earnings to which any of those sections applied.”
67U.K.In section 474 (cases where Chapter 5 of Part 7 does not apply), for subsection (1) substitute—
“(1)This Chapter (apart from sections 473 and 483) does not apply in relation to an employment-related securities option if the acquisition occurs in a tax year that is not a split year as respects the employee and—
(a)the earnings from the employment are not general earnings to which section 15, 22 or 26 applies (earnings for year when employee UK resident), or
(b)had there been any earnings from the employment, they would not have been general earnings to which any of those sections applied.
(1A)This Chapter (apart from sections 473 and 483) does not apply in relation to an employment-related securities option if the acquisition occurs in the UK part of a tax year that is a split year as respects the employee and—
(a)the earnings from the employment attributable to that part of the year are not general earnings to which section 15, 22 or 26 applies (earnings for year when employee UK resident), or
(b)had there been any earnings from the employment attributable to that part of the year, they would not have been general earnings to which any of those sections applied.
(1B)This Chapter (apart from sections 473 and 483) does not apply in relation to an employment-related securities option if the acquisition occurs in the overseas part of a tax year that is a split year as respects the employee.”
68(1)Section 554Z4 (residence issues) is amended as follows.U.K.
(2)For subsections (3) to (5) substitute—
“(3)Subsection (4) applies if the value of the relevant step, or a part of it, is “for”—
(a)a tax year for which A is non-UK resident, or
(b)a tax year that is a split year as respects A.
(4)The value, or the part of it, is to be reduced—
(a)in a case within subsection (3)(a), by so much of the value, or the part of it, as is not in respect of UK duties, and
(b)in a case within subsection (3)(b), by so much of the value, or the part of it, as is both—
(i)attributable to the overseas part of the tax year, and
(ii)not in respect of UK duties.
(5)The extent to which—
(a)the value, or the part of it, is not in respect of UK duties, or
(b)so much of the value, or the part of it, as is attributable to the overseas part of the tax year is not in respect of UK duties,
is to be determined on a just and reasonable basis.”
(3)After subsection (5) insert—
“(5A)Any attribution required for the purposes of subsection (4)(b)(i) is to be done on a just and reasonable basis.
(5B)“UK duties” means duties performed in the United Kingdom.”
69U.K.In section 554Z6 (overlap with certain earnings), in subsection (1)(a), after “UK resident” insert “ (and, in the case of a tax year that is a split year as respects A, are not “excluded” by virtue of section 15(1A)(a) and (b)(i)) ”.
70U.K.In section 554Z9 (remittance basis: A is ordinarily UK resident), in subsection (5)—
(a)in paragraph (b), after “that income” insert “ (or of so much of it as is attributable to the UK part of the relevant tax year, if it was a split year as respects A) ”, and
(b)in paragraph (c), after “tax year” insert “ (or the UK part of it) ”.
71(1)Section 554Z10 (remittance basis: A is not ordinarily resident) is amended as follows.U.K.
(2)In subsection (1), for paragraph (a) substitute—
“(a)the value of the relevant step, or a part of it, is “for” a tax year (“the relevant tax year”) as determined under section 554Z4,”.
(3)For subsection (2) substitute—
“(2)The overseas portion of (as the case may be)—
(a)A's employment income by virtue of section 554Z2(1), or
(b)the relevant part of A's employment income by virtue of that section,
is “taxable specific income” in a tax year so far as the overseas portion is remitted to the United Kingdom in that year.”
(4)After that subsection insert—
“(2A)The overseas portion” of A's employment income by virtue of section 554Z2(1), or of the relevant part of that income, is so much of that income, or of the relevant part of it, as is not in respect of UK duties.
(2B)“UK duties” means duties performed in the United Kingdom.”
(5)In subsection (3), for “this purpose” substitute “ the purposes of this section ”.
(6)For subsection (4) substitute—
“(4)The extent to which—
(a)the employment income, or the relevant part of it, is not in respect of UK duties, or
(b)so much of the employment income, or of the relevant part of it, as is attributable to the UK part of the relevant tax year is not in respect of UK duties,
is to be determined on a just and reasonable basis.”