The following information was prepared by HW Fisher & Company, a firm of chartered accountants in the UK. It has been reproduced here with permission for the benefit of those readers of the Alinga Market Update who are affected by UK taxation regulations.
Internationally Mobile Workers: Summary Of Recent Changes
HW Fisher & Company, UK
There have been a number of developments in recent months which have the potential to impact internationally mobile workers in the UK. This note highlights some of the more important points.
50 percent tax rate
A new top income tax rate of 50 percent is due to be introduced from April 2010 for all individuals with UK taxable income in excess of £150,000. Where the employer pays the individuals UK liability under a tax equalization scheme this will result in increased tax costs for the employer.
Such increased costs mean that it is now of even greater importance that assignments are structured efficiently to ensure maximum tax relief can be claimed for the assignment costs and where applicable, non UK duties.
Subject to commercial considerations employers may move to rewarding staff with certain share based incentives as an alternative to cash remuneration which can assist both in cash flow and, provided structured correctly, could reduce the overall tax burden.
HMRC interpretation on ordinarily resident status
Individuals who are resident, but not ordinarily resident (RNOR) in the UK do not pay UK tax on income from employment performed outside the UK where the salary in respect of those duties is paid and retained indefinitely offshore. An individual would typically be treated as RNOR where, upon arrival in the UK, they had no intention of remaining here for greater than three years. Historically the individual would only become resident and ordinarily resident (ROR) if they were still in the UK on the 6 April following the third anniversary, or if a change of intention was earlier they would be ROR from the 6 April immediately before the intention changed.
Following two recent court case victories, HM Revenue & Customs (HMRC) has changed its guidance on the issues of UK tax residence and ordinary residence. The most important change is that an individual is likely to be treated as ROR from the 6th April immediately before the third anniversary of their arrival to the UK.
Claiming the 'remittance basis' of taxation and loss of personal allowance
In general, a taxpayer who claims the remittance basis of taxation will only pay UK tax on income or gains that are attributable to the UK. Any overseas income or gains would only be liable to UK tax if remitted to the UK.
Effective from 6 April 2008, individuals who wish to claim the remittance basis of taxation, either because they are RNOR or not domiciled in the UK will be penalised by losing their entitlement to personal allowances where their non-UK source income and gains exceed £2,000 per tax year.
Where individuals have been in the UK for less than seven out of the previous nine tax years the cost of claiming the remittance basis is the loss of the personal allowance (currently £6,475) and the loss of the capital gains annual exemption (£10,100). However, for individuals who have been in the UK for at least seven out of the nine previous years, who wish to be taxed on the remittance basis, there will be a remittance basis charge (RBC) of £30,000 each year in addition to the loss of the allowances. Such individuals can avoid the RBC and the automatic loss of allowances for any tax year by electing to pay UK tax on all overseas income and gains that year.
Where an individual claims the remittance basis and pays the relevant charge, care must be taken to ensure that their overseas accounts are structured correctly. Failure to do so could result in significant unexpected tax liabilities.
It is worth noting that from April 2010 all individuals whether or not UK domiciled will have their personal allowance restricted by £1 for every £2 of income over £100,000. This is regardless of a claim for the remittance basis.
Overseas mixed funds
HMRC have introduced Statement of Practice 01/09 to clarify the rules for RNOR employees claiming relief from UK taxation on non UK duties. This statement results in a relaxation of the strict offshore remittance rules for ‘mixed accounts’ provided that the strict conditions are met. Very broadly, it is essential that the said account is held in the employees own name and is only in receipt of employment income from that single employment. Excluding the remuneration from non-UK duties from taxation can significantly reduce the UK tax burden. It is essential that the appropriate accounts are set up and managed to ensure that maximum relief can be claimed. It is recommended that these accounts are set up prior to arrival in the UK, where feasible.
Lease premiums anti avoidance
Until recently it was possible in certain circumstances, to reduce the tax cost of employer provided accommodation by entering into short-term leasing arrangements which provided for the payment of an ‘up front’ premium. The Finance Bill 2009 has amended the taxation treatment for lease premiums to include both the 'premium' and the 'rent' when calculating the benefit in kind, which is liable to tax. The new rules will apply to arrangements entered into or extended on or after 22 April 2009.
Short Term Business Visitor (STBV) arrangements
From 6 April 2009 HMRC has confirmed that it will follow the Organisation for Economic Cooperation and Development guidance on day counting. In short, any day during which the STBV is present in the UK (no matter how briefly) will count as a day of residence when calculating the 183 day period. Further details on the operation of STBV arrangements are available on request.
Pensions for high income individuals
HMRC have confirmed that from April 2011 tax relief will be restricted on pension contributions for individuals with an annual income greater than £150,00. Anti-forestalling provisions are effective from 22 April 2009 to stop taxpayers making significant contributions prior to the new rules talking effect.
Penalties for late returns
A new penalty regime will be introduced in relation to late filing of tax returns, although the dates of implementation have not yet been finalised.
The key elements of these are as follows:
- A fixed penalty of £100 payable immediately after the filing due date whether or not the tax has been paid.
- Daily penalties of £10 per day, for a maximum of 90 days for returns that are more than three months late.
- Additional penalty of five percent for prolonged delays.
- Higher penalties of 70 percent of the tax due where the failure continues after 12 months and information has been deliberately withheld.
The increased penalty burden means it is now crucial that tax returns are submitted on time.
For more information on the impact of UK taxation on you or your business please contact:
T +44 (0)20 7380 4976
T +44 (0)20 7874 7832
11-15 William Road
London NW1 3ER
- Whilst every care has been taken to ensure the accuracy of the content of this publication, it is intended for general guidance only. July 2009.
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