With the numbers of individuals moving to the UK increasing, and the tax rules changing so dramatically for mobile employees, it is now more important than ever to ensure that all mobile employees have access to professional tax advice at the outset of their assignment.
This applies to their employer as well because HM Revenue and Customs (HMRC) audits are increasing for both self assessment tax returns for mobile employees as well as payroll audits for the employer. These audits focus on issues such as payroll compliance, stock, benefits and, of course, the topical Short Term Business Visitors.
Short Term Business Visitors (STBV)
A company has an automatic PAYE (Pay As You Earn) tax withholding obligation for individuals on short term business trips, even where the trip is for only one day, unless the workday is incidental to the overseas duties or they are exempt under a treaty. The PAYE obligation for the company exists if the individual’s employer has a place of business in the UK (or host UK employer) and the duties are said to benefit the UK entity.
An Appendix 4 Agreement should be submitted to request advanced approval for PAYE exemption for any STBV meeting certain criteria. These criteria can be found in the detailed discussion provided by following the link at the end of this newsletter. A report must then be filed by 31st May following the end of the tax year, listing all individuals who have fallen within the agreement, and detailing certain information for each. The level of detail depends on the number of days each individual has spent in the UK.
Changes to current rules
There have been some changes to the STBV agreement which will apply retrospectively from April 2013. HMRC will no longer allow the employer to assess whether PAYE will apply for an individual and determine whether there is a requirement to withhold PAYE. The STBV agreement must be held for any business visitors that are not captured on UK payroll. Failure to do so will result in potential penalties and exposure to PAYE audit.
Recommendations
It is our recommendation that all UK companies consider whether they should have a STBV in place now; if they have any overseas visitors then they should now consider this mandatory. In addition, we strongly recommend that each company ensures that it has a method of tracking overseas business visitors. Whilst there is no set method required, there must be a method in place, such as a signing in book, corporate travel agent reporting or online calendar. The minimum requirements for the tracking system can be found in the detailed discussion provided by following the link at the end of this newsletter.
Statutory Residency Test
HMRC introduced a Statutory Residency Test from April 2013 which changed the way that an individual’s tax residency was determined. Before April 2013, it was necessary to rely on a combination of HMRC guidelines and case law; now the rules have been formalized in statute.
There are now three tests to work through to determine residency status, namely “automatic non residency”, “automatic residency” and “UK ties” tests. When completing each test it is necessary to consider each year separately and work through the tests from the top down. Once you can answer “yes” to one of the tests, this determines your residency position for that tax year. The specific requirements for each test can be found in the detailed discussion provided by following the link at the end of this newsletter.
Split Year Concession
Split year residency will continue (where the tax year is split into a resident and non resident part) in five circumstances under the Statutory Residency Test:
- An individual is resident in the UK, starts full time work overseas and was UK resident in the previous tax year (there are certain additional restrictions that will apply including a restriction on the number of days that can be spent back in the UK during the split portion of the year under the third automatic non residency test)
- The partner of someone who starts full time work overseas that joins the partner to live together overseas (there are certain additional restrictions that will apply)
- An individual leaves the UK to live abroad, spends less than 16 days in the UK, become resident in another country within 6 months and only has one home (or homes) in another country
- An individual comes to live or work full time in the UK and is non resident for the previous tax year (certain additional conditions will apply)
- An individual starts to have a home in the UK (certain additional conditions will apply)
For all of the above conditions for the residency test and split year test there are many conditions at each step and each has a lengthy definition and explanation that requires additional review for each individual circumstance. The rules are extremely complex and, therefore, we strongly recommend obtaining professional UK tax advice before moving to the UK.
Overseas Workdays
The concept of Ordinary Residence has now been abolished and the overseas workday relief that used to be available to individuals who could claim “not ordinary resident” status has now been defined in statute. This allows any non domiciled individual moving to the UK (with some restrictions on prior UK residency) to claim overseas workday relief for the year of arrival in the UK and the following two tax years. The relief allows an exemption from UK tax for earnings relating to days spent working outside of the UK.
Payments into non UK bank accounts
One of the main conditions is that the proceeds from earnings relating to non UK workdays must be paid outside of the UK. Individuals must also ensure that the exempt amount has not been remitted to the UK. From April 2013 HMRC introduced a Special Mixed Funds Rule which allows the individual to calculate the remittances to the UK an annual basis, which is intended to reduce administration and minimise the formerly complex rules on the order of any remittances.
Nominating a Qualifying Account
For any mobile employees moving to the UK on or after 6 April 2013, the employment income must be paid into a ‘Qualifying Account’ in order to be able to make an overseas workday claim and benefit from the Special Mixed Fund Rules (if the account is not qualifying, the relief is still possible, but is subject to the highly complex normal mixed fund rules requiring analysis of each and every remittance). This is where pre-assignment planning is so vital. In order to be considered as a Qualifying Account the account must meet a number of conditions. These conditions can be found in the detailed discussion provided by following the link at the end of this newsletter.
Implementing a Capital Gains Tax Charge on Non Residents
The 2013 Autumn Statement extended the reach of UK capital gains tax to include disposals of UK residential property by non residents of the UK. Currently any sale of a UK property by a non resident individual would be outside the scope of capital gains tax at the point of sale, provided that the individual was either non resident when the property was purchased, or spends at least five full tax years outside of the UK.
Under the new proposals, any gain on UK property made after April 2015 by a non resident of the UK would be liable to a capital gains tax charge - regardless of tax residency. There are still a few months left before the proposed changes are implemented, and the exact scope is still under debate, so any individuals to whom this new rule may effect have time to review their options and decide whether any action may be required.
Dual Contracts
Also announced in the Autumn Statement was the removal of the ‘artificial use of dual contracts by non domiciles’. The current rules allow for a non domicile to have separate contracts of employment with a UK and non UK employer and use the remittance basis of taxation to provide UK tax exemption on earnings relating to the overseas contract.
From April 2014 the earnings (including salary, security income and income provided through third parties) from the overseas employment will be taxable in the UK on the arising basis if one of the following applies:
- There is an employment with both the UK and overseas employer (same or associated employer or employments are ‘related’)
- Tax charged on the overseas portion is less than 75% of the additional rate of tax for the year in the UK (45%).
HMRC papers suggest that they expect the new measures to bring in more than £60 million per year over the next four years, however they also suggest that the measure will only impact around 350 non domiciled individuals who they believe are currently using an ‘artificial tax arrangement’.
For additional detailed discussion regarding the topics highlighted in this newsletter, please follow this link: http://www.gtn.com/newsletters/GTN Newsletter_Extended_UK Mobility Tax Update.pdf
If you have any questions please feel free to contact Richard at rwattsjoyce@globaltaxnetwork.co.uk or +44(0)207 100 2126 or Joanne at jkerr@globaltaxnetwork.co.uk
The information provided is for general guidance only, and should not be utilized in lieu of obtaining professional advice.