Expatriate taxation - CIOT - The Chartered Institute of Taxation

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CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION The UK FTC could be: a) Average rate of 2,750/100,000 ie 2.75% b) Average rate of 23,570/100.000 ie 23.75% c) Top slice rate of 30% d) Top slice rate of restricted to taxes actually paid on doubly taxed income ie 2,750/10,000 ie 27.5%. 7.24 One can easily imagine the additional complexities caused by considering all the factors together, but resolving them into an easily understood and applied methodology has been beyond the wit of most, including me. Proposal 7.25 In view of the complexity involved, this is the perfect topic for a working party to be drawn up to produce a simple working solution that is acceptable to HMRC. Peter Ashby 34 6.2.07
CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION 8 Issue 8: Garden leave and holiday pay 8.1 These are relatively modest issues, and the obvious question is whether these two items are taxable in the UK when paid after departure from the UK or upon a termination in the UK. Applicable law 8.2 The main charging section is ITEPA 2003 section 62. ITEPA sections 21 and 22 apply the concept of “chargeable overseas earnings for non-UK domiciliaries”. Section 21 provides that the full amount of any general earnings for a tax year in which the employee is resident and ordinarily resident are taxable, unless they are exempted from being charged under section 21 (on an arising basis) and are instead charged under section 22 (on a receipts basis). Section 23 provides the calculation of what is taxed under section 22, leaving the rest to be taxed under section 21. Finally, section 24 provides the anti-avoidance legislation against dual contracts. 8.3 Most R/OR expatriates have a single contract and thus, where there are UK and non-UK duties in the same contract, the whole of the earnings is taxed in the UK. 8.4 ITEPA section 25 applies to expatriates who are not ordinarily resident, and has the specific wording that the general earnings which are taxed in the UK on an arising basis are those which are “in respect of duties performed in the United Kingdom”. This expression is not defined in law, but there is a Statement of Practice which sets out the HMRC interpretation of this expression (SP 5/84). It is time for a fresh look at this, and undoubtedly this would be done as part of the HMRC review of residence and domicile. Current practice 8.5 Ordinarily resident employees not domiciled in the UK. Garden leave 8.6 Garden leave is broadly a payment to an employee to represent his earnings for the balance of his employment from when notice is given to the date of cessation of employment, notwithstanding the fact that he will actually perform no duties of the employment. The amount of the garden leave payment is determined by the level of current earnings and the time spent on garden leave. In effect, it is earnings for the garden leave period, but not earnings for duties performed in that period as there are none. It has nothing to do with the length of service, although in practice it is related to the seniority of the person. 8.7 If the garden leave time period is spent in the UK, then the earnings are clearly UK-based, regardless of when the payment is made. Peter Ashby 35 6.2.07
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Expatriate taxation - CIOT - The Chartered Institute of Taxation

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