EIM31751 | The general rule for employees: expenses: expenses that are deductible where some or all of the duties are performed outside the UK: deductions from UK based earnings: example

In the tax year 2014 to 2015, an employee who was not resident in the UK performed part of their employment duties in the UK and part outside the UK. The employee worked for a total of 250 days in 2014/15, of which 50 were worked in the UK. Their total earnings from the employment were £50,000. The employee incurred expenses of £500 that qualify for relief under section 336 ITEPA 2003. Of this total, £200 was incurred in performance of their duties outside the UK.

The UK based earnings are taxable on receipt under section 27, see EIM40201. The UK based earnings are calculated in accordance with EIM40110. The remaining earnings are not chargeable to UK income tax.

Section 354 prevents a deduction for the £200 expenses incurred in performing duties outside the UK, see EIM31750. The practical effect is that no relief is permitted for expenses that are incurred in respect of earnings that are not taxable.

The employee’s net taxable earnings are computed as follows.

Earnings taxable on receipt under section 27 £50,000 × 50/250 = £10,000

Expenses deductible under section 354 £500 − £200 = £300

Net taxable earnings = £9,700