What is Crown employment for the purposes of section 28 of the Income Tax (Earnings and Pensions) Act 2003?

Crown employment means employment under the Crown that is public in nature and where the earnings are paid out of the public revenue of the United Kingdom, Wales, Scotland or Northern Ireland. This covers civil servants, diplomats, members of the armed forces, and similar government employees serving domestically or overseas.

Are overseas Crown employees subject to UK tax on their earnings?

Yes, as a default position under section 28, general earnings from overseas Crown employment are treated as subject to UK tax. This means Crown employees working abroad generally remain within the UK tax net, unlike many private sector employees whose overseas earnings may be taxed differently depending on residence status.

Can HMRC exempt overseas Crown employees from UK tax?

Yes, HMRC have the power to make an order removing certain categories of overseas Crown employment earnings from the UK tax charge under sections 25(2) and 27(2). This power is typically exercised where international treaty obligations make exemption appropriate, such as for locally engaged, lower-paid staff employed overseas by the Crown.

What factors can an HMRC exemption order for overseas Crown employment take into account?

An exemption order may reference the employee's residence or nationality, whether they were recruited inside or outside the UK, the nature of the post, the rate of pay, and other applicable terms and conditions. The list is not exhaustive, and HMRC retain general discretion over relevant factors.

Income Tax (Earnings and Pensions) Act 2003 section 28

Meaning of "general earnings from overseas Crown employment subject to UK tax"

Section 28 defines what counts as "general earnings from overseas Crown employment subject to UK tax" for the purposes of the residence-based charging rules in sections 25 to 27.

Crown employment means public employment under the Crown where earnings are paid from UK public revenue (including that of Wales, Scotland or Northern Ireland)
General earnings from overseas Crown employment are earnings from such employment for duties carried out outside the UK, and are treated as subject to UK tax unless specifically exempted by an HMRC order
HMRC may exempt certain categories of employee or employment from the UK tax charge, particularly where international treaty obligations make this appropriate
An exemption order may take account of factors such as the employee's residence or nationality, where they were recruited, and the nature and terms of the post

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