Hundreds of teachers recruited for overseas jobs every year will have their income slashed as a result of the Government’s new tax rules. It could therefore be far more difficult to attract British teachers to work abroad, recruiting agencies say.

The Treasury has abolished the Foreign Earnings Deduction, which allowed British workers who spent 365 days out of the country to avoid tax on their earnings during that period. The move is designed to hit wealthy expats and pop stars who exploit the current rules by failing to pay tax anywhere. But it will also affect teachers, particularly those on contracts of less than two years (see box).

The new ruling is retrospective, which means that even teachers who started short-term contracts last year will have to pay tax on their earnings after March 17, 1998.

Companies that recruit teachers for overseas work are dismayed by the Government’s action. “It has already had a strong impact on recruitment, ” says Cleo Bowen of the Centre for British Teachers, which sends about 80 teachers abroad every year.

Recruitment consultants say that it will now be difficult to find teachers to work in the Gulf States and some African countries, where the climate and difficult working conditions used to be offset by a tax-free salary.

“The more savage the environment is, the more important the tax concessions are,” says Colin Adams, director of the British Consultants’ Bureau. “If you can teach in a cosy place in the shires, you are not going to want a job in an arid part of Africa for the same money.”

Cleo Bowen warns that teachers will expect their employers to make up the financial shortfall caused by the new tax regulations. Yet this could price British teachers out of the market for foreign jobs, says Colin Adams.

According to the British Consultants’ Bureau, the UK’s 11 main economic competitors, including the US, have all retained the Foreign Earnings Deduction. Mr Adams is also concerned that many organisations employing teachers seem unaware of the tax changes.

Chris Graham, director of English Worldwide which sends about 40 teachers a year to some of the less attractive destinations, says: “We may see a proliferation of teachers turning themselves into off-shore companies to get round the rules.”

However, Mr Graham says the changes are justified. “Many people in education feel it’s quite responsible to pay tax, as most of these teachers will be coming back to retire here.”

HOW THE NEW TAX RULES WILL AFFECT TEACHERS

* Teachers with contracts of less than 24 months will generally be classified as being “resident” in the UK and therefore subject to UK tax laws. To qualify for “non-resident” status, an employee must work abroad for a full tax year(from April to April) but most contracts run from September or January.

* Teachers working abroad can spend 62 days in the UK during each tax year without having to pay tax. But they will not be allowed to top up their income during the summer holidays in the UK. If they do any work in the UK during their contract abroad, their whole income will be subject to UK tax.

* Teachers who are paying tax in the country where they are working will generally be exempt from UK tax, providing the taxation levels are the same and the country has signed a double taxation agreement with the UK.