Expatriate taxation - CIOT - The Chartered Institute of Taxation

CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION
13.6 The fact that some employees are “in” and some are “out” of “modified PAYE”
creates problems for employers and employees alike.
13.7 There are expatriates who were originally from the UK who come back to
work here for a period. If they become ordinarily resident and have not shed
their domicile (a notoriously difficult thing to achieve), then they must go onto
the domestic payroll.
13.8 If any part of their earnings is not tax equalised, then they must go onto the
domestic payroll.
13.9 Finally, even if you are eligible for inclusion on a modified PAYE scheme for
your general income, you are required to be subject to the normal PAYE rules
on any equity-based employment income, which begs the question as to how
you can have a person on two payrolls simultaneously with one employer.
13.10 Many employers will have a “Modified PAYE” scheme for eligible employees,
and are required to have a separate scheme for ineligible employees.
13.11 The problem for employees is that modified PAYE enables the employer to
provide the P11D by 31 January. If you are outside modified PAYE, the
employer is almost bound to fail to complete the P11D correctly, as there
simply will have been insufficient time.
Proposal
13.12 Whilst there is no doubting that HMRC have already made great strides in
relaxing the rules for PAYE for expatriates, there is no doubt they could go
further and include all expatriates on a Modified PAYE scheme. Provided the
employer has agreed to indemnify HMRC against any loss of tax, HMRC
would appear to be complying with the legislation, maximising their tax
collection and providing a good service to both expatriate employers and
employees.
13.13 I am aware of the concerns that such a carte blanche for expatriates may be
too great a step to take. The reasons are usually that the system may be
open to abuse, and that it may be too beneficial to expatriates.
13.14 All systems are open to abuse. I am not aware of a 100% compliance record
for domestic PAYE systems (in fact the opposite is much more likely).
However, the indemnity given to HMRC by the UK employer provides a
significant counter to any abuse.
13.15 Likewise, the fact that Modified PAYE is so relaxed as compared to the
existing PAYE rules probably says more about the PAYE rules themselves. If
Modified PAYE were to be applied by all employers to all employees, and it
provided better compliance and more tax, then it should be seriously
considered for all employees.
Peter Ashby 50 6.2.07