Commentary on Sections Glossary Part 2: Employment income: charge to tax Section 23: Calculation of “chargeable overseas earnings”
93.This section sets out what overseas earnings are and how to calculate “chargeable overseas earnings”. It derives from the description of “foreign emoluments” set out in section 192 of ICTA.
94.Section 192(5) of ICTA says that the amount of the excepted emoluments is the amount remaining after any capital allowance and after any deductions under a series of listed provisions. Those listed provisions do not include all the provisions under which deductions could be allowed if one were simply computing an amount of taxable income. It is not clear why some provisions are mentioned and others not.
95.Section 192(5) has therefore been rewritten in section 23(3) of the Act to allow a person’s “overseas earnings” to be reduced by any deductions. See Change 3 in Annex 1. An example may serve to illustrate the effect of this change:
96.Suppose a taxpayer has foreign emoluments (overseas earnings) of £1,000, and deductions within the section 192(5) list of £200 plus other deductions of £100.
97.Under section 192(5) of ICTA the amount of foreign emoluments excluded from Case I would be £800, leaving £200 chargeable under Case I against which £200 of the taxpayer’s total £300 deductions can be set. The net result is Case I charge = Nil, Case III charge = £800.
98.Under the rewritten legislation the amount of chargeable overseas earnings within section 22 would be £700, leaving £300 within section 21 against which all of the taxpayer’s total £300 deductions can be set. The net result is section 21 charge = Nil, section 22 charge = £700.
99.The outcome is clearly in the taxpayer’s favour.