Dual Contracts of Employment: Planning for UK and Overseas Income

For internationally mobile executives who work partly in the UK and partly overseas, how employment income is structured and documented can have significant tax consequences. The concept of "dual contracts" — separate employment agreements with different legal entities covering UK and overseas duties respectively — was historically used by non-domiciled individuals to prevent overseas employment income from being subject to UK tax. Changes to the remittance basis rules and anti-avoidance legislation introduced since 2014 have substantially curtailed this planning, but dual contracts remain relevant in legitimate commercial structures and the line between compliant and non-compliant arrangements is important to understand.

What Are Dual Contracts?

A dual contract arrangement is where an individual holds two (or more) separate employment contracts:

1. A UK contract with a UK employer, covering duties performed in the UK, paying UK-source income subject to UK PAYE and NIC
2. An overseas contract with an overseas employer (often in the same group), covering duties performed overseas, paying overseas-source income

Under the remittance basis (pre-April 2025), a non-domiciled UK resident who received overseas employment income under the overseas contract and did not remit that income to the UK paid no UK income tax on it. The dual contract structure separated the income streams, enabling the overseas earnings to remain outside UK tax provided they were kept offshore.

The Legislative Clampdown: Section 24 Finance Act 2014

The government introduced targeted anti-avoidance legislation in Finance Act 2014 (section 24 FA 2014, which inserted section 24A into ITEPA 2003) specifically to tackle artificial dual contract arrangements. The legislation applies where:

• An individual has two or more employment contracts
• The contracts are with connected employers (broadly, employers in the same group)
• The overseas contract is connected to the UK duties in some way
• The arrangement results in income that would otherwise have been subject to UK income tax being converted into overseas employment income

Where the legislation applies, the overseas employment income is treated as if it were UK employment income and subject to UK income tax (and potentially NIC) in full, regardless of whether it is remitted to the UK.

What the Anti-Avoidance Targets

The anti-avoidance legislation is aimed at arrangements where:

• The overseas employment is not genuinely separate from the UK employment
• The overseas duties are not genuinely separate and distinct from the UK duties
• The overseas employer is a connected entity in the same group
• The structure's purpose is to shelter income from UK tax through the remittance basis

HMRC published guidance indicating that the legislation catches arrangements where the overseas duties are merely a re-labelling of activities that would otherwise be UK duties, or where the division between contracts is artificial and driven by tax rather than genuine commercial considerations.

What Is NOT Caught

The legislation does not catch all dual contract arrangements. Where the following conditions are genuinely met, a dual contract can be maintained without triggering the anti-avoidance:

1. Genuine separate employment: The overseas employer is not connected to the UK employer (i.e., the individual has a genuine second job with an independent entity)

2. Genuinely separate duties: The overseas contract covers duties that are genuinely distinct from the UK duties — different roles, different responsibilities, not just the same job split across two contracts

3. Independent commercial justification: The overseas employment exists for genuine commercial reasons (the overseas company needs the skills of the individual for its operations, not simply to redirect income offshore)

4. Non-connected employers: The overseas employer is not in the same group, not controlled by the same person, and has no arrangement with the UK employer regarding the individual's services

In practice, this means that an executive who genuinely holds a board position with a truly independent overseas company — unconnected to their UK employer — can legitimately receive overseas directors' fees under a separate contract, which may be taxable only in the overseas jurisdiction (subject to the double tax treaty) and not subject to UK income tax (or, post-April 2025, subject only to UK tax on the UK-workday proportion under the standard employment income rules).

The Post-April 2025 Position: FIG and Dual Contracts

With the abolition of the remittance basis and the introduction of the FIG regime from April 2025, the strategic rationale for dual contracts has shifted significantly. Under the FIG regime:

• New arrivals to the UK (qualifying individuals within their first four tax years) are exempt from UK tax on all non-UK income and gains, regardless of remittance
• Overseas employment income in FIG years is therefore exempt from UK income tax even if the individual has a single employment contract with a UK employer (provided the duties are genuinely performed overseas)
• The need to structure overseas income through a separate contract has therefore largely disappeared for FIG-eligible individuals

However, for individuals outside the FIG period (UK residents in their fifth year or later), the standard arising basis applies. These individuals pay UK income tax on worldwide income. A dual contract may still be relevant if:

• The overseas employer is genuinely unconnected to the UK employer
• The duties are genuinely separate
• The double tax treaty allocates taxing rights to the overseas jurisdiction

In this scenario, the overseas employment income is subject to overseas tax but may be exempt from or credit-relieved against UK tax.

Practical Scenarios

Scenario 1 — Legitimate dual contract: A UK-resident investment banker is employed by a UK bank (UK contract, UK duties). She also sits on the advisory board of an independent family-owned company in Hong Kong (overseas contract, Hong Kong duties, paid in Hong Kong). The two employers are unconnected. The overseas income may be taxable only in Hong Kong under the treaty (subject to the UK-Hong Kong treaty's employment article and the number of UK workdays spent on the Hong Kong role). This is a genuine dual arrangement and is not caught by the anti-avoidance.

Scenario 2 — Potentially caught arrangement: A UK-resident executive is employed under two contracts with companies in the same multinational group — one UK contract for "UK business development" and one BVI contract for "international strategic advisory." Both roles involve the same client relationships and business activity. The BVI company has no genuine operations. This arrangement is likely caught by the section 24A anti-avoidance, and the BVI income is treated as UK employment income.

Scenario 3 — FIG-eligible individual: A newly arrived UK resident (year 2 of UK residence) has both a UK contract with a UK company and an overseas contract with an unconnected overseas company. Under the FIG regime, all overseas employment income is exempt from UK tax regardless of structure. The dual contract adds complexity without material tax benefit in the FIG period.

Interaction with Transfer Pricing and PE Risk

Where a multinational group operates dual contracts with a connected overseas employer, transfer pricing rules apply to the intercompany arrangements. If the UK individual's UK employer is effectively "lending" the individual's services to the overseas company, the fee charged between entities for those services must be at arm's length. Additionally, if the individual's overseas activities constitute a permanent establishment of the UK employer, the PE rules may attribute profits to the UK rather than overseas.

How Global Investments Can Help

Global Investments advises internationally mobile executives and multinational employers on the current state of dual contract planning, including the section 24A anti-avoidance analysis, the impact of the FIG regime on prior strategies, and the design of genuinely compliant employment structures for individuals with genuine international roles. We review existing arrangements for compliance risk and advise on restructuring where needed. This guide reflects the position as of 2026; the rules and HMRC practice evolve and personalised advice is essential.