Overseas Workday Relief explained

Overseas Workday Relief is a tax relief available to UK Non-Doms utilising the remittance basis of taxation who work abroad during the tax year. It effectively enables a non-dom to legitimately avoid paying tax on earnings from a UK employment when duties are performed wholly or partly overseas.

Typically, anybody who is tax-resident in the UK and has UK employment income will be required to pay tax on all such employment income.

However, many non-doms working in the UK are often required to travel and work outside the UK as part of their normal employment. If they are claiming the remittance basis of taxation, were considered a UK non-resident for the previous three tax years, and are now considered a UK tax resident, it is possible to claim tax relief on employment income earned abroad using Overseas Workday Relief.

Overseas Workday Relief is a very valuable tax relief and, which makes it is important to apply the rules correctly to optimise the tax relief and also to avoid being penalised for not making a correct and valid claim.

This article provides an overview of Overseas Workday Relief which will help someone understand if they may be eligible and how they may benefit from it. However, this article must not be used in isolation as non-dom tax matters can be complex and you should always seek advice from a trusted UK tax specialist before making any decisions.

Overseas Workday Relief eligibility criteria

In order to be able to claim Overseas Workday Relief, you will need to meet the following criteria:

• Be classed as a Non-Dom in the UK and be utilising the remittance basis of taxation.
• Be considered a non-resident of the UK for the 3 previous tax years but be considered a UK tax resident in the year you are claiming the tax relief.
• Perform some or all your work duties outside of the UK.
• Pay foreign earned income into an eligible non-UK bank account and not remit the earnings into the UK.
• Keep accurate records of your movements and work records to provide evidence you have not remitted any foreign earned funds into the UK.

Where to pay foreign earnings

One of the key criteria to avoid paying tax on your foreign earned income is to ensure the money earned is paid directly into an eligible non-UK bank account which meets the criteria to be treated a qualifying bank account when making your claim.

If you don’t already have a non-UK bank account, one option is to open a qualifying offshore account with a UK high street bank, such as HSBC, Barclays or Santander which is based in Guernsey, Jersey of the Isle of Man and behaves as a UK account.

To be automatically “eligible” to be used for the tax relief the account should be held in your own name and contain less than £10 at the beginning of the tax year.

To keep things simple, ideally the account should only ever have employment income credited to it so that it qualifies as a special mixed fund.   

Calculating tax relief and reporting foreign earned income

As Overseas Workday Relief is only available to non-doms who are also a UK tax resident, it is important to first establish your tax residence status for the tax year. This is achieved using the Statutory Residence Test and a tax specialist will be able to help you plan your time to either achieve UK tax residence or not based on which status is most suitable for you.

Once you have determined your tax residence status and you are considered a UK tax resident, it is important to start tracking the number of days you have worked outside the UK.

While all tax-resident non-doms are eligible for Overseas Workday Relief, the real benefits are for non-doms earning in the highest tax band (over £125,000 per year) who subsequently work for 10% or more of the tax year outside the UK. 

If someone met this basic criteria, £12,500 of their income would be exempt from UK tax, saving them £5,625 (i.e. 45% of £12,500).   

Most of the time we wouldn’t anticipate the employment income being taxed in the overseas country where services are performed. However, this depends on your specific circumstances, so be sure to know and understand the tax rules in that jurisdiction which are specific to you.

In terms of reporting the income to claim the tax relief, this is all done via your UK Self-Assessment Tax Return and requires specialist advice to ensure you are making disclosures with reference to best practice.

Keeping records to prove you were working outside the UK

In order to claim Overseas Workday Relief, you will be required to prove that you conducted work outside the UK for a UK employer. This means you will need to keep records of the days you worked overseas together with supporting evidence, such as travel documents and copies of your work calendar.

As the UK is no-longer part of the EU, travelling anywhere outside the UK will require a passport stamp so proving you were not in the UK is easier than before Brexit, but you will still need to prove it was for work purposes and that you were conducting work for your UK employer outside of the UK.

Getting help to claim Overseas Workday Relief

Due to the complexities around non-doms, the Remittance Basis of taxation and Overseas Workday Relief it is highly recommended that people wishing to make use of the schemes seek advice before making decisions that could inhibit their ability to claim tax relief.

A UK tax specialist will be able to advise you on the most tax efficient strategy for working in the UK as well as help you plan your time and help you keep suitable records to ensure you can benefit from Overseas Workday Relief.

Using our free introduction service will enable you to connect with a trusted UK tax specialist who will offer you an initial free consultation to discuss your situation and help you understand whether you may be eligible for tax relief.

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