Legislation – Finance Act 2026

at the end of paragraph (c) insert “and which have been reduced by a claim for relief under section 414 (reduction in other cases of foreign service)”;

(b)

in subsection (2), for “(1)(a) or (b)” substitute “(1)”;

(c)

omit subsection (2A);

(d)

in subsection (3), for “Subsections (2) and (2A) apply” substitute “Subsection (2) applies”.

(3)

In section 38 (earnings for period of absence from employment)—

(a)

in subsection (1), for “This section” substitute “Subsection (2)”;

(b)

after subsection (2) insert—

“(3)

If and to the extent that general earnings for a period of absence from an employment are not treated for the purposes of this Chapter as general earnings in respect of duties performed in the United Kingdom, the general earnings are to be treated for the purposes of this Chapter as general earnings in respect of duties performed outside the United Kingdom.

(4)

For the purposes of this section references to “general earnings for a period of absence” do not include any general earnings to which section 221A (cancelled, moved or curtailed shift) applies (see section 38A).”

(4)

After section 38 (earnings for period of absence from employment) insert—

“38AEarnings relating to duties not performed

(1)

This section applies for determining the extent to which general earnings that relate to duties that were not performed are to be treated for the purposes of this Chapter as general earnings in respect of duties performed in the United Kingdom.

(2)

For the purposes of this section—

(a)

“general earnings” means an amount of general earnings specified in the first column of the table, and

(b)

the “duties that were not performed”, in relation to general earnings, means the duties specified in the corresponding entry in the second column of the table.

General earnings

Duties that were not performed

General earnings to which section 221A (cancelled, moved or curtailed shift) applies

The duties that it is reasonable to assume would have been performed during the shift but were not performed because of the shift’s cancellation, movement or curtailment

General earnings to which section 402B (termination payments etc) applies

The duties that it is reasonable to assume would have been performed during the post-employment notice period as defined by section 402E if the employee’s employment had not been terminated until the end of that period

General earnings which consist of a payment in lieu of notice to which Chapter 3 of Part 6 (termination payments etc). does not apply

The duties that it is reasonable to assume would have been performed during the notice period if the employee’s employment had not been terminated until the end of that period

Any other general earnings in respect of duties that an employee does not perform other than any general earnings for a period of absence from employment

The duties that the employee does not perform

(3)

Subsection (4) applies to the general earnings from an employment for a tax year if—

(a)

it is reasonable to assume that some or all of the duties that were not performed would have been performed in the United Kingdom, or

(b)

any duties of the employment performed during that tax year are performed wholly or partly in the United Kingdom.

(4)

The general earnings are to be treated for the purposes of this Chapter as general earnings in respect of duties performed in the United Kingdom except in so far as, had the duties that were not performed been performed, general earnings in respect of those duties would have been general earnings for duties performed outside the United Kingdom.

(5)

If and to the extent that the general earnings are not treated for the purposes of this Chapter as general earnings in respect of duties performed in the United Kingdom, the general earnings are to be treated for the purposes of this Chapter as general earnings in respect of duties performed outside the United Kingdom.”

General earnings	Duties that were not performed
General earnings to which section 221A (cancelled, moved or curtailed shift) applies	The duties that it is reasonable to assume would have been performed during the shift but were not performed because of the shift’s cancellation, movement or curtailment
General earnings to which section 402B (termination payments etc) applies	The duties that it is reasonable to assume would have been performed during the post-employment notice period as defined by section 402E if the employee’s employment had not been terminated until the end of that period
General earnings which consist of a payment in lieu of notice to which Chapter 3 of Part 6 (termination payments etc). does not apply	The duties that it is reasonable to assume would have been performed during the notice period if the employee’s employment had not been terminated until the end of that period
Any other general earnings in respect of duties that an employee does not perform other than any general earnings for a period of absence from employment	The duties that the employee does not perform

(5)

In section 41Y (location of employment duties), in subsection (1), for “applies” substitute “and section 38A (earnings in respect of duties not performed) apply”.

(6)

In section 402B (termination awards not benefiting from threshold to be treated as earnings), omit subsection (1)(b) (and the “but” before it).

(7)

The amendments made by this section have effect in relation to general earnings that are, for the purposes of Chapter 4 or 5 of Part 2 of ITEPA 2003—

(a)

for tax years 2026-27 and subsequent tax years, and

(b)

treated as received on or after 6 April 2026.