The UK Revenue (HMRC) said in the Autumn Statement that it was going to attack the “artificial use of dual contracts by non domiciles”. It has now published draft legislation which will prevent the future use of dual employment contracts in most cases. At present a remittance basis user who has an employment contract with a non-UK employer and performs all the duties of that employment outside the UK is taxable on the earnings from that employment on the remittance basis (even if, as will usually be the case, he also has another contract with the same or an associated employer in relation to duties in the UK).
Earnings arising from 6 April 2014 from the overseas contract under dual contract arrangements will be taxable on the arising basis where:
- an individual has both UK and overseas employment contracts with the same employer or with associated employers (broadly, companies in the same group);
- the UK and overseas employments are “related to each other”. Related is clearly intended to have a very wide meaning and employments are assumed to be related where, among other things, it is reasonable to suppose that the employee would not hold one employment without holding the other, the terms of one employment operate to any extent by reference to the other employment or if the employee is a director or senior employee of either employer or is one of the higher paid employees (whatever that means); and
- the tax rate charged on the overseas employment income (calculated on a tax credit basis) is less than 75% of the additional rate of tax for the tax year (currently 45%) - i.e. if the foreign tax is less than 33.75%.
HMRC have, for some time, been attacking dual contract arrangements on the basis that they do not “work” - i.e. that there are not, in reality, two separate employments but a single employment with duties inside and outside the UK. There must have been many arrangements which did work and HMRC is now counteracting such arrangements with legislation.