Dual employment contracts

I hear that it can be a common practice to have dual employment contracts: one in the UK, and the other abroad. What's this all about?

This is a practice that developed historically for high-earning UK resident but non-UK domiciled employees working partly in the UK and partly abroad. They would enter into dual employment contracts:

  • one with an overseas employer covering non-UK employment duties; and
  • another with a UK employer (within the same group) covering UK employment duties.

Overseas earnings under the non-UK employment contract would be outside the scope of UK taxation unless remitted to the UK because the employee would be taxed under the more favourable ‘remittance basis’.

Following growing scepticism and concerns about this tax advantage and possible artificiality of dual contracts arrangements, rule changes were introduced from 6 April 2014 which restricted the availability of the remittance basis. Ever since, overseas’ earnings under a non-UK employment contract are subject to UK income tax as they arise if certain conditions are present, including (a) the UK employer and foreign employer being the same or associated and (b) the UK and foreign employments are related.

Such restrictions do not, however, remove the availability of ‘Overseas Workday Relief’ to protect overseas’ earnings from UK taxation for the first three years of UK tax residence. Dual contracts have therefore become less popular over the years, but they can still be appropriate in the right circumstances.

For more information or advice, please contact Alfred Liu, Senior Associate, in our Private Client team.

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