As detailed in our recent blog post, HMRC have targeted the use of dual contracts by non-domiciled high earners. The new legislation is now in force and it is expected to bring in £245 million over the next four years.

There were a couple of tweaks from its prior incarnation so to be clear, the new rules apply where the following four conditions are satisfied:

  • the taxpayer has both a UK and an overseas employment; and
  • the UK employer and overseas employer are ‘associated’ (associated being widely defined); and
  • the UK employment and overseas employment are ‘related’ (it will be extremely difficult to fall outside of this definition); and
  • the overseas rate of tax on the overseas income is less than 65% of the UK’s 45% tax rate i.e. taxed at less than 29.25%.

If all four conditions are satisfied, the overseas income will be subject to tax in the UK as it arises, rather than non-doms being able to use the remittance basis to keep non UK earnings outside of UK tax. Relief for any foreign tax will be deducted at source.

The new rules will not apply where:

  • There is a nominal directorship and the individual (including associates) owns less than 5% of the company’s ordinary share capital
  • Dual roles are held for regulatory/legal purposes
  • Employment income was “earned” before 2014/15
  • Overseas Workday Relief is available
  • There is no tax avoidance motive

It is still unclear why the new rules were necessary and it remains to be seen the impact they will have.