Revenue Tax Briefing

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Revenue Tax Briefing Issue 36, June 1999

Foreign Earnings Deduction

Amendment to Section 823 TCA 1997

The foreign earnings deduction was introduced with effect from the tax year 1994/95. It provides for a deduction from employment income, proportionate to time spent on working assignments abroad, other than in the UK, by non-public sector resident employees. It is focused on those spending substantial periods working abroad in a tax year. To qualify for relief an employee must spend at least 90 qualifying days abroad in a tax year or in a continuous period of 12 months straddling two tax years. A further condition stipulates that each period of absence must be for a minimum of 14 days at a time.

Finance Act 1999 Amendment

Section 21 Finance Act 1999, has made significant changes to the definition of the specified amount, which determines the amount of the deduction available under Section 823 TCA 1999. The amendment ensures that the base for the calculation of the foreign earnings deduction is essentially the employee.s earnings for the year, net of pension contributions. The change applies to income accruing to an individual on or after 10 March 1999.

The income base on which the deduction is calculated excludes the following:

  • Amounts represented by general benefits-in-kind
  • The value of the benefit-in-kind in respect of a car
  • Amounts in respect of preferential loans
  • Severance payments
  • Amounts in respect of restrictive covenants
  • Amounts arising from the exercise of share options.

In addition, the income on which the calculation is to be made must be net of superannuation contributions.

Separate Calculations

The amendment adds text to the relieving subsection to put beyond doubt the requirement for separate specified amount calculations where an individual has more than one foreign employment in a year. (However, it does not affect the individual.s right to amalgamate the qualifying days from different employments for the purposes of meeting the 14 or 90 day rules). The foreign earnings deduction in relation to an office or employment is the lesser of the specified amount or the income, profits or gains from that employment.


Mary spends 50 qualifying days working abroad for Company A early in a tax year. Having changed employment in June, Mary subsequently spends 80 qualifying days working abroad for Company B. Earnings for the year are as follows

Salary from Company A £5,000
Salary from Company B £35,000

As the number of qualifying days are 130 and thus exceed 90 for the year, Mary can claim the foreign earnings deduction as follows;

Employment with Company A


X £40,000

= £5,479


Employment with Company B


X £40,000



As the calculation in respect of the employment with Company A results in an amount that exceeds the income from that employment, the deduction is limited to the amount of the income i.e. £5,000. The total deduction for the year is therefore £13,767.