Expatriate taxation - CIOT - The Chartered Institute of Taxation

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CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION Proposal 12.17 It appears that the current review on residence and domicile has become frozen, as at the time of writing, as HMRC are still open to further contributions as part of their consultation process two years after the consultation period opened. It is therefore unlikely that there will be any revision to IR20, or the current rules or impasse. 12.18 HMRC should at least confirm that Tax Bulletin 52 can be relied upon and that, if someone does work full time overseas, and is absent for a complete tax year, and they meet the counting test, they will be not resident. 12.19 Further guidance needs to be provided on the meaning of full time and incidental duties, by way of examples, so that a taxpayer can determine whether his occasional duties in the UK are also incidental duties in the UK. ADDENDUM Since completing this chapter, the case of Mr Gaines-Cooper (see above) was held to suggest that a taxpayer could not rely on IR20, and in particular the counting of days to ignore days of arrival and departure. Whilst this is just a Commissioners’ case, meaning it could go the next three Courts before we have a final decision, it does show the difficulty of determining issues for expatriates. The counting of days ignoring arrival and departure has been a practice for many years. This case merely reaffirms the need for certainty from the legislators. Peter Ashby 48 6.2.07
CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION Issue 13: Modified PAYE 13.1 The issue here is the operation of PAYE and NIC for expatriates 13.2 The operation in the UK of PAYE and, where applicable, NIC presents difficulties for employers, for a variety of reasons. Tax Bulletin 81 brings in revised rules for “Modified PAYE” from 6 April 2006 or 2007 (see: http://www.hmrc.gov.uk/bulletins/tb81). This is effectively a relaxed set of rules for employers of expatriates working in the UK provided the employee is fully equalised on his general earnings. The eligible employees are stated to be as follows. 13.3 The revised procedures make it clear that the arrangement does not apply to employees who are resident, ordinarily resident and domiciled in the UK. Neither does the arrangement apply to employees who are equalised on only part of their earnings. For an employee to be included, the employer must equalise liability to UK Income Tax on all general earnings subject to the rules in ITEPA 2003 Chapter 5 Part 2 applying to employees resident, ordinarily resident or domiciled outside the UK. Broadly, this includes all cash earnings from the employment and all non-cash benefits treated as earnings. There is no requirement for the employer to equalise liability on specific employment income, ie amounts that count as employment income such as termination payments and gains on the exercise of share options. Employers must apply PAYE in accordance with the relevant statutory provisions and regulations to any non-equalised employment income of an employee covered by the arrangement. Applicable law 13.4 HMRC are permitted by Regulation 141 Income Tax (PAYE) Regulations 2003 to declare any case subject to special arrangements where HMRC are of the opinion that the deduction of tax by reference to the tax tables is impracticable. 13.5 It is accepted that because expatriates: a) are employed by an employer in a different jurisdiction; b) are usually on a foreign payroll; c) are often subject to withholding taxes in that jurisdiction; d) have their records kept in the annual cycle set by the foreign jurisdiction; e) have employer information systems designed to be compliant with that foreign jurisdiction; f) are paid in a foreign currency whose value fluctuates daily; and g) may be compensated in ways that do not require the information to be collected in the home location, eg tax favoured share schemes or foreign equivalent to dispensations, then the strict operation of PAYE is virtually impossible. Therefore, HMRC are permitted to make a special arrangement. There are no legislative restrictions on this other than the general requirement for HMRC to use their care and management to collect taxes. This care and management function is now found in Commissioners for Revenue and Customs Act 2005 section 51(3). Peter Ashby 49 6.2.07
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Expatriate taxation - CIOT - The Chartered Institute of Taxation

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