UK Employment Arrangements: UK Publishes Proposed Tax Measures Against Dual Contracts

Sullivan & Cromwell LLP - February 5, 2014

The UK government has published the draft legislation announced in December’s Autumn Statement to “end the abuse of dual contracts”. Dual contracts have in particular been used by employees resident, but not domiciled, in the United Kingdom to benefit from the UK’s remittance basis of taxation for their income from overseas duties, while also working in the UK for a related employer.

Under the proposals, where:

  • the employee holds separate employments inside and outside the UK;
  • the employers are the same or “associated” with each other;
  • the UK employment and the relevant employment are “related”; and
  • the credit that the UK would allow for foreign tax on the income is less than 75% of the UK’s top rate of tax for employment income (currently 45%),

the employee will be taxed as the income arises, not when it is remitted to the UK.

The new rules would apply from 6 April 2014 onwards.

The proposals are almost certain to become law, but the details may change. Employers and employees operating dual contract arrangements should monitor the proposals as they develop up to 6 April and beyond.