New Guidance on Dual Contracts

If you employ or engage staff overseas then it’s important you know how HMRC are now approaching dual contract arrangements.

What are dual contracts arrangements?
A dual contract arrangement is often used for employees who work in and outside the UK, under two separate contracts of employment, and who may also have foreign domicile for UK tax purposes. Under this type of arrangement, the payment made for work performed outside the UK under the overseas contract is regarded as overseas earnings, which do not attract liability for tax in the UK.




When are payments taxable in the UK?
HMRC has stated that duties carried out in the UK which are the same or similar to those normally performed overseas are not 'merely incidental' to the overseas duties, and will attract a UK tax liability. This is the case even if the duty is only performed for a very short time. Examples of these types of duties include responding to a telephone call or emails from an overseas client whilst in the UK. Modern technology nowadays enables many employees to work remotely from their place of work so an employee with dual contract arrangements may find it difficult to avoid being treated as if they perform overseas work while in the UK. Duties which are considered incidental to the overseas contract of employment could include making travel arrangements for example.

HMRC states that if employees perform substantive duties such as answering phone calls or sending emails relating to the overseas contract, then all earnings from the overseas contract will be liable for UK tax.

What happens if HMRC make an enquiry?
If an enquiry is carried out into a dual contract arrangement, HMRC confirmed it may require access to the following documents for the relevant period:

• Diaries
• Emails
• Expenses claims and supporting receipts
• Telephone records and client files

All documentation should be retained for two years according to HMRC.

What can employers do to protect themselves?
It is important for the employee to keep detailed records of all work activities under a dual contract arrangement. Otherwise the employer may be liable for substantial PAYE and NIC costs. Dual contract arrangements are worthwhile when there are significant tax savings to be made for foreign domiciled workers but from an employer’s perspective, it would be wise to consider obtaining a full tax and NIC indemnity from the employee before entering into the contract in the first instance.

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