EIM40210 | Globally mobile employees: location of duties: earnings related to duties not performed

Section 38A

Section 38A ITEPA 2003 applies to certain general earnings which are for a tax year commencing on or after 6 April 2026, and which are treated as received on or after 6 April 2026.

Section 38A determines the extent to which general earnings that relate to duties that were not performed are to be treated as general earnings in respect of duties performed in the UK.

General earnings to which section 38A will apply

Section 38A specifies the types of general earnings to which it can apply:

• General earnings in respect of cancelled, moved or curtailed shifts

The statutory right to receive payments for cancelled, moved or curtailed shifts is provided for in the Employment Rights Act 2025 but has not yet been commenced, and will take effect from a date to be appointed by regulations. Section 221A ITEPA provides that payments made to employees for cancelled, moved or curtailed shifts are to be treated as earnings from the employment for the relevant tax year and are not earnings from the employment by virtue of any other provision.

“Relevant tax year” means the tax year in which the duties of the shift would have been performed if the shift had not been cancelled, moved or curtailed.

The duties not performed are those it is reasonable to assume would have been performed during the shift, but were not, due to the shift’s cancellation, movement or curtailment.

Section 221A comes into force on the first day that the duty to make the payments under section 27BP of the Employment Rights Act 1996 has effect.

• General earnings in respect of termination awards that do not benefit from the tax-free threshold under Section 403.

Section 402B provides that certain termination payments or benefits, such as post-employment notice period (PENP) and similar termination-related sums are treated as earnings from employment.

The duties not performed are those it is reasonable to assume would have been performed during the post-employment notice period, as defined by section 402E ITEPA 2003, if the employee’s employment had not been terminated until the end of that period.

For more information about termination payments awarded under s402B, please go to EIM13880. For more information about determining the post-employment notice period per section 402E, please go to EIM13890.

• General earnings which consist of a payment in lieu of notice to which Chapter 3 of Part 6 does not apply

A payment in lieu of notice (‘PILON’) that is contractual (or arises from the terms or contract of employment) is not a termination payment under Chapter3 of Part6, so the £30,000 exemption does not apply. This will earnings within section 62 ITEPA 2003.

The duties not performed are those it is reasonable to assume would have been performed during the notice period, if the employee’s employment had not been terminated until the end of that period.

• Any other general earnings in respect of duties that an employee does not perform other than any general earnings for a period of absence from employment

Effect of section 38A

If it is reasonable to assume that some or all of the duties that were not performed would have been performed in the UK, or any duties of employment performed during the tax year the general earnings are for are performed wholly or partly in the UK, then all of the general earnings which relate to the duties not performed are treated as being general earnings in respect of duties performed in the UK except as below.

If exceptionally, the employee can show that had the duties been performed, they would have been performed outside the UK, then the earnings which relate to those duties are not treated as being performed in the UK.

Any general earnings to which section 38A applies which are not treated as being in respect of duties performed in the UK are treated as general earnings in respect of duties performed outside the UK.

Example 1

A worker on a zero hours contract has a shift cancelled at short notice. The worker is entitled to a statutory cancellation payment of £60 under section 27BP of the Employment Rights Act 1996. The £60 is general earnings per section 221A and as the duties not performed would have been performed in the UK, section38A treats the shift cancellation payment as being in respect of duties performed in the UK

Example 2

An employee who performs all of their employment duties in the UK receives a termination award, part of which was a payment in lieu of notice (PILON). This payment is earnings within section 62 and as it is reasonable to assume that any duties performed during the notice period would have been performed in the UK, section 38A treats the PILON as being in respect of duties performed in the UK.

Example 3

An employee who performs all of their employment duties in the UK receives a termination award. There was no PILON within the award. The amount calculated as post-employment notice pay (PENP) is treated as earnings from the employment by section 402B. ss it is reasonable to assume that any duties performed during the post-employment notice period would have been performed in the UK, section 38A treats the PENP as being in respect of duties performed in the UK.

Duties that would have been performed overseas

General earnings to which section 38A applies, where it is reasonable to assume that

• some or all of the duties that were not performed would have been performed in the UK, or

• any duties of employment performed during the tax year the general earnings are for are performed wholly or partly in the UK,

are treated as being general earnings in respect of duties performed in the UK, unless the employee can demonstrate that they meet the exception in section 38A(4). To meet the exception, the employee must show that had the duties that were not performed been performed, those duties would performed outside the United Kingdom. Any general earnings which relate to duties which would have been performed outside the UK are treated as general earnings in respect of duties performed outside the UK.

Example 4

An employee who performs all of their employment duties remotely receives a termination award, part of which was a payment in lieu of notice (PILON). Up until the point the employment was terminated, they were UK resident and performed all their employment duties from their residence in the UK. Immediately following the termination of their employment, the employee relocates to France. There is nothing in the nature of their employment which would have prevented them from undertaking all of their employment duties remotely in France had they continued to perform duties during their notice period.

The PILON is earnings within section 62, but it is reasonable to assume that any duties performed during the notice period would not have been performed in the UK, so that section 38A treats the PILON as being in respect of duties performed outside the UK.

As the employee is eligible to claim split year treatment then the PILON is an amount of excluded earnings within section 15(1A) ITEPA 2003, as it is attributable to the overseas part of the tax year, and does not relate to duties performed in the UK. As a result it is not chargeable to UK income tax.