The Government has published draft legislation significantly limiting the use of dual contracts from 6 April 2014.


UK tax residents are, in principle, taxable on their worldwide employment income.

Short-term UK residents (who have not been UK resident in the three previous tax years and are not UK domiciled) are able not to pay UK tax on their overseas earnings if they do not bring the income to the UK. This is under what is known as overseas workday relief. There is no need here for dual contracts – which are separate contracts and employers for UK and overseas duties – though they can help.

Longer-term UK residents, however, can only avoid a liability on overseas employment income if they have dual contracts. Through having separate arrangements for their UK and overseas duties (and separate employers), non-UK domiciled individuals who work both in the UK and overseas are able to ensure that overseas employment income is not subject to UK income tax unless the income is brought to the UK: If the income is kept overseas, no UK income tax arises.

Groups with an employee working in one or more countries have often used these arrangements, though even under existing rules, the separation of the employment duties and employer has become increasingly difficult in practice when working cross-border. 

Draft Legislation

The Government announced in December 2013 that it would be clamping down on the artificial use of 'dual contracts' for longer-term UK residents. The Government has now published drafted legislation which makes offshore employment income in a dual contract arrangement taxable in the UK when certain conditions are met.

What is Caught?

For the dual contract arrangements to be caught by the new anti-avoidance rules, the following conditions have to be met:

  • An individual has a UK employment and one or more foreign employments
  • The UK employer and the offshore employer are either the same entity or are associated entities (broadly in the same group)   
  • The UK employment and the offshore employment are “related” (see below) and  
  • The foreign tax rate that applies to the remuneration from the offshore employment is less than 75 percent of the UK additional rate (currently this is 45 percent, and 75 percent of this rate is 33.75 percent).

When is Employment “Related”?

Genuinely separate arrangements will not be caught, but many group employment arrangements structured using dual contracts now appear highly vulnerable.

The legislation lists a number of factors which will result in employments being related:

  • Where one employment operates by reference to the other employment
  • The duties performed in both employments are essentially the same (irrespective of the location in which those duties are performed)
  • The performance of the duties for one employment is dependent on the performance of duties of the other employment
  • The employee is a director of either employer, or is otherwise a senior employee or one of the highest earning employees of either employer
  • The duties of the two employments involve, wholly or partly, the provision of goods or services to the same customers or clients.

It is important to note that these factors are not exhaustive. Accordingly, HMRC may argue that employments are also related in other circumstances.

When do the New Rules apply?

The new rules will apply to income arising on or after 6 April 2014, so apply very shortly.


Although the legislation is currently in draft form, it is intended to take effect from 6 April 2014. Any use of dual contracts for non-UK domiciled individuals should therefore be reviewed, if, broadly, there are two or more group employers and one is in a low-tax jurisdiction and double taxation provisions in treaties may make the position even more complicated.  Dual contracts now appear significantly more risky in most of the cases, in which they have been used for longer-term residents but they may still sometimes be appropriate.

For a link to the Government proposals, please click here.