JOINT EXPATRIATE FORUM ON TAX AND NICS: 11 June 2020

Dial-in 11:00 – 12:45 HMRC attendees: Chair & Deputy Director CPCE: Lauren Court Acting Chair: Steven Wood Secretariat: Will Spencer Employer Duties: Michael Dillon-Tang Operations: Elizabeth Nenna, Dawn Cummins CS&TD, Business, Assets and International: Lawrence Houghton, Marie Swift CS&TD, Individuals Policy, Technical: Raj Nayyar, Diane Maddison, Keith Humble MEETING NOTE

1. Introductions

1.1 HMRC welcomed everyone to the meeting and acknowledged that it has been a very

difficult few weeks since the last meeting. The pandemic lockdown has made it an

unprecedented time of challenges for agents, employers, and HMRC alike.

1.2 HMRC acknowledged that everyone’s circumstances will be very different to the norm,

but thought it was important to go ahead with the meeting and touch base with the Forum

during these difficult times.

1.3 The next Forum dates are provisionally Wednesday 23 September and Thursday

10 December. Placeholder calendar invites will be sent out shortly, and it seems likely that

these will be dial-ins also.

1.4 HMRC introduced its attendees, including Lauren Court who was attending her first

Forum. Lauren explained she is Deputy Director of Charities, Public Bodies and Complex

Employment and that she was delighted to join the call to hear about the ongoing expatriate

work and issues, especially given the current uncertain times.

2. Co-Chair

2.1 HMRC announced that Steve Wade of Ernst & Young will be taking up the Co-Chair role.

Steve is a long-standing member of the Forum, and HMRC are very much looking forward to

working with him. There is a meeting scheduled next week with Steve to discuss how the

role will work, and how it can improve the running of the Forum and the collaboration

between HMRC and the external Forum members.

3. NIC (Q37)

3.1 HMRC said it recognises that the resolution of this question has taken longer than all

would want. A Policy colleague was in attendance to give an update on the steps HMRC are

going to be taking to involve the Forum in discussions going forward.

3.2 HMRC gave some context to the reasons why it has taken some time to move this issue

forward. NICs has been a very busy and high-profile area, with Brexit, Covid-19, the

Employment Allowance, the apprentice levy, and the introduction of Class 1A NICs on

termination payments, being amongst the issues which have taken up a lot of time and

resource. However, HMRC is keen to work with the Forum and to issue appropriate

guidance as soon as it can.

3.3 HMRC recapped the two main areas which it is looking to provide clarity for: the Q37

issue – approach to NICs for Internationally mobile employees in relation to payments

taxable under s62 (say cash bonuses), and the issue of double charges (which can also

relate to Employment Related Securities).

3.4 In regard to double charges, the HMRC view is that regulations introduced in 2015 have

significantly reduced the incidence of double charging, and all incidences of double charging

could only be avoided if all countries adopted the same apportionment approach in their

respective domestic legislation. However, HMRC appreciates it is still an issue that the

Forum wants clarity on.

3.5 HMRC advised that, as the Forum members feel that HMRC have taken an inconsistent

approach to these cases, it is keen to understand what is happening in practice. HMRC

would therefore like to obtain information from Forum members regarding the numbers of

clients using an ‘all or nothing’ approach against those who are operating an ‘apportionment’

approach. This will help HMRC to better understand the impacts of the decisions it makes

going forward.

Questions

Q – One of the points I previously made was that the law was changed on securities options

in 2015, especially because it did not at that stage allow for apportionment, and HMRC was

minded to move to an apportionment basis for share options only. It sounds to me as if your

current view is a complete reversal of that position. I think it would be helpful if we could

have a separate NIC call to discuss your rationale for taking the current view because our

biggest challenge is that if our clients do not understand why you have taken your current

view, they cannot have any confidence in switching across to it.

A – It would be helpful to have a greater understanding of the impact on your clients. The

correspondence you sent on this previously will be taken into consideration. Once the replies

to HMRC’s forthcoming questions have been received, HMRC can then look at the handling

strategy to take this forward, including setting up a call if that is the most appropriate way of

dealing with the issues.

Q – You mentioned cash bonuses, I assume that would also apply in relation to termination

payments for individuals employed by a UK Company but who don’t work in the UK

currently, and might well be covered under foreign social security with which we have a

totalisation agreement. Can you confirm you would be looking to charge UK NIC on the UK

proportion of a termination payment paid some years after they have left the UK and become

subject to a foreign social security scheme?

A – This is part of the broader work we want to look at, to review HMRC’s past practices and

clarify the position going forward. We want to consider the evidence further regarding how

employers are currently applying NICs to different payments including termination payments.

Q – In regard to double charges, surely you need to look first at all the countries with which

we have a totalisation agreement and if there anything in the agreement that confirms who

gets primary charge? I suggest HMRC looks at that prior to considering it in terms of third

countries with which we do not have a totalisation agreement.

A – Thank you, that is a reasonable point that we will consider further.

Q – I slightly digress from the previous two callers’ views, in that I am of the view that

HMRC’s position has been two things at once. My view is that there has not been a set

position in the past, and therefore it isn’t a question of moving your position, it’s more a

question of what is your position? I don’t think we can continue to have such uncertainty

about that, and, we need to consider whether the legislation is fit for purpose in the future, or

whether it requires changing. However, first we require a clear statement of HMRC’s

position.

A – Thank you. We do recognise that there have been different interpretations by different

parts of HMRC. We want to review this and to ensure a consistent approach going forward.

Q – Does HMRC believe there needs to be a change in legislation to allow for apportionment

for NIC on bonuses and such income? When does this come into force? Does HMRC accept

that, at the moment, this apportionment of NIC does not apply, and therefore this is a

problem for the future. Is the anticipation that the NIC apportionment would follow the tax

earnings period?

A – Thank you, we will consider these points in our review.

Q – If a change in law is not required, then this could be retrospective and so there may be

disclosures to make. This issue has been going on a long time, too long to not have certainty

on what the law is, or HMRC’s interpretation of it.

A – From a compliance perspective, on the International team for a number of years we

have been advising that apportionment is the correct approach in relation to s62 earnings.

We have seen employers and agents using the all or nothing approach, but also employers

and agents who apply apportionment. Regarding retrospective action, my view is that if an

employer has looked at the legislation and taken a reasonable approach, then I cannot see

HMRC taking any retrospective action.

[POST MEETING NOTE: In line with discussions at previous forums the context of this

answer is concerned with whether HMRC will take a reasonable position with regards to past

periods where an employer has taken a view on reading of the legislation and HMRC

guidance/interactions. The overarching point being that if an employer has been applying the

all or nothing approach in a reasonable manner then HMRC would likely not look to take

action in relation to prior periods. The caveat here is that each case is to be looked at on its

own facts until such a time as HMRC clarify the wider position in published guidance.]

Q – I echo previous comments about the need for a subgroup. Also, there might be a

question about resources. Speaking for the CIOT, we fully understand that HMRC is

stretched at this time, and if there is anything we can do to help HMRC in garnering those

resources, then we’d be very happy to do so. Also, if we can help in any way to clarify where

the issues arise, including discussing the ERS position in relation to the need for that

legislation versus the view at the time that NIC wasn’t apportionable. To conclude a

subgroup would be very helpful.

A – Thank you, your comments are very much appreciated and will be passed to the

technical team.

4. Covid-19 related queries

4.1 HMRC advised that as most of the issues arising over the last 3 months have been

either related to or arising because of the pandemic, it thought it important to dedicate a

large section of the agenda to these items.

4.2 HMRC proposed to outline the main issues as it sees them, and advise where solutions

have been found, or where work is still ongoing. HMRC acknowledged there are other

smaller issues which have been forwarded, and that these have been escalated through

HMRC’s channels, and answers for all these queries are currently being sought.

4.3 HMRC advised that a few issues have been quick to resolve, but many have taken much

longer unfortunately, and that is due to issues cutting across the whole of HMRC, requiring

input from specialist teams such as our technical, policy, and communications colleagues.

4.4 HMRC said that it would like to know today if there was anything that it had missed or if

there were any issues for agents and employers that HMRC might not yet know about. Also,

HMRC was interested to know what the Forum thought it had done well during lockdown,

and what it had not done well.

5. Statutory Residence Test (SRT)

5.1 HMRC advised that there have been several SRT related queries. The first few were

around the impact of the pandemic on travel to and from the UK, and whether days in the UK

can be disregarded due to exceptional circumstances. As a result, the guidance at

RDRM11005 was updated regarding Covid-19.

5.2 Several other related queries were raised by Forum members, and these have all been

escalated to the technical team. An FAQ document has been put together, and it is hoped

that this will answer a lot of queries. The document is currently working its way through

internal governance, and HMRC are hoping to provide this to Forum members very soon.

Questions

Q – The FAQ document would be very valuable to us, but the sooner it can be released the

better for everyone, so that clarity can stop multiple queries continuing to arise.

A – The FAQ is expected imminently.

Q – I am eagerly awaiting the FAQ document, but can any insight be given at this point? Is

there going to be any movement from HMRC on the 60 days for exceptional circumstances,

particularly given we are in June now? For people this year, still stranded in the UK, that is a

key question. Also, regarding full-time work abroad, are HMRC are reviewing any

concessions where an individual is remote working in the UK and has gone over the 30

workdays?

A – The 60 days is a statutory rule. We have no latitude to impact that, and there is nothing

in line to amend the legislation in respect to that at the moment. The same applies to

working in the UK for 31 or more days. Discretion can be exercised with exceptional

circumstances, however as statutory issues are not within our gift, it would be a ministerial

consideration. There are also no plans to change the legislation in respect of a ‘significant

break’.

Q – Firstly, we raised queries via one of the other forums, and my understanding is that

statutory issues will not be covered in the FAQ document, and it was also my understanding

that these issues were being raised with ministers? Secondly, when the FAQs are released

will you let us have these as I presume they may not be published on gov.uk? Will we be

able to post them on our own websites?

A – There are no plans to change the legislation in respect of the 60 days and UK workdays,

and we think the SRT is written broadly enough to accommodate people having to stay in

the UK a little bit longer. We are only at the start of the tax year, and so people have the rest

of the year to plan their presence here. It is unlikely to be published on gov.uk, but we will

share it with the Forum, and you are welcome to share it wider, but please make it clear that

it is HMRC’s view at that point in time. If there are any terms and conditions attached to the

FAQs, they should be made explicitly clear upfront.

Q – I understand the position regarding the legislation, but I don’t agree that the SRT is

flexible enough to deal with the current situation. Other countries have gone quite a bit

further than the UK, and I think ministers need to consider how the SRT works for certain

people, and what should and shouldn’t be taxed. I do think there needs to be some

representation made to ministers, and there seems to be confusion around whether that has

happened or not. It seems unlikely HMRC would go to ministers if it thought the current

legislation was flexible enough. I’m grateful for the FAQs, but are you saying that we should

go direct to ministers if we think further flexibility is required, or should we come through

you?

A – HMRC implements the policy, we don’t make the policy, so you would need to go to

Treasury for that.

Q – I would echo the comments of the last caller in relation to policy matters. We have seen

a very helpful accommodation in relation to homeworking, for example reimbursement of

expenses where a change of law was required to allow employees to get reimbursement for

home equipment without a tax charge. People are facing difficulties due to Covid, being

trapped in places they are not normally based. There are numbers of fiscs around the world

that have felt in the circumstances that some changes to legislation were required. If we can

help in terms of any representations that need to be made, then we would be happy to do

this.

A – Thank you for your comments.

Q – There is an emergence of cases where people came back to the UK and became stuck

in the UK, and the employer is now looking at making them redundant. The difficulty which I

think will arise is one of a potential cashflow issue for these people, where perhaps they

would have expected to have working overseas still, paying tax overseas, but they

potentially become tax resident in the UK, say from the start of the current tax year, and end

up having to pay tax on their earnings in the UK rather than overseas, where perhaps

they’ve been withheld, so it is going to cause some cashflow difficulties for them, and

possibly some additional tax. I wonder if the hard line of the approach to the legislation is

going to have quite an impact on some people’s cash position going forward?

A – Thank you for raising this point. This will be escalated to the Technical Team for

consideration.

6. S690 & s41ZA

6.1 HMRC advised that these two issues have been raised several times by different Forum

members, and that work is ongoing to produce guidance regarding the approach for both

during the pandemic. Again, the guidance is imminent and HMRC are expecting it shortly.

HMRC appreciates that it has been a long time since these queries were first logged with us,

but the issues cut across many stakeholders across HMRC and so have taken time to work

through.

6.2 HMRC advised that PAYE81545 has been updated very recently in relation to s690 and

Covid-19.

Questions

Q – In regard to taxable visits to the UK, STBV Special Arrangements previously allowed

30 workdays, and this has been increased to 60 workdays. Will the guidance cover these

schemes in terms of whether there will be any relaxation to apply for more days?

A – Our understanding is that Special Arrangement schemes themselves will not be referred

to directly in the guidance, however the population of individuals which can qualify for

inclusion in a Special Arrangement will be covered by the guidance. Whether or not an

individual can qualify for inclusion in a Special Arrangement should be able to be deduced

from the guidance.

7. NIC queries

7.1 Several queries have been received and are being considered by our NIC Technical

Team and Policy colleagues. These include queries around A1/S1 coverage, the 52-week

exemption, and how these are affected by the lockdown period, closed borders etc. All these

queries have been logged and are currently being considered, and it is hoped that we should

be in a position to answer these soon.

8. Deadline extensions and Contacting HMRC

8.1 HMRC acknowledged that the expat population has several niche arrangements or

appendices which may be outside of Real Time Information (RTI) in some cases and have

their own filing deadlines. HMRC received several queries about these deadlines, and it did

manage to secure some extensions, namely:

• Appendix 4 (Short Term Business Visitor Arrangement) extended from 31 May to

31 July.

• Appendix 7A & 7B NIC Settlement Returns (NSRs) extended from

31 March to 31 May.

• Appendix 8 (Short Term Business Visitors) applications for moving from a Special

Arrangement to Appendix 8 – deadline for applications extended from

6 April to 13 July. (Originally 17 July, but the project team has now amended to 13

July).

• STBV Special Arrangement (PAYE81949) which is being replaced by Appendix 8 from 2020-21 onwards. The deadline for the month 12 FPS for 2019-20 has been extended from 19 April to 31 May.

8.2 HMRC accepts that some of these extensions were granted later in the day than we had

hoped, but we do hope that they assisted Forum members and their clients.

8.3 HMRC advised that it has been looking at deadlines for all customers across HMRC in

light of the Covid-19 crisis. While some deadlines for niche populations such as ours have

been extended, other deadlines have not been extended. HMRC have been encouraging

taxpayers to file on time where possible, if they are able to do so. If filing is not possible

because of Covid-19, then HMRC has been pointing taxpayers to the guidance regarding

reasonable excuse. This guidance has been updated in relation to Covid-19, advising that

HMRC will consider Coronavirus as a reasonable excuse for missing some tax obligations. If

anyone has been affected by Coronavirus, they should mention that as part of their appeal,

and we will look at each on a case by case basis.

8.4 HMRC advised that some Forum members have asked if the final month’s RTI filing date

for Appendix 6 modified PAYE schemes will be extended. HMRC confirmed that it will not be

extended, so if employers are struggling because of Coronavirus they should consider the

reasonable excuse guidance if they believe it applies and mention that as part of any appeal.

8.5 HMRC explained that contacting HMRC has been one of the most voluminous queries it

has received during lockdown – how agents, employers, and individual customers can

communicate with and contact HMRC during this period.

8.6 HMRC acknowledged it is a particular problem for returns and other correspondence

which are expected to be submitted on paper through the postal system, rather than

electronically. It is a HMRC-wide issue, not just confined to the Expat population.

8.7 These issues are being looked at by HMRC fully across the board for every customer

population. For the Expat customers HMRC advised it has been able to put some short-term

solutions in place, however it is important to stress that some of these solutions may be

temporary. For the time being the following have been put in place and communicated

previously to assist agents and their clients:

• A new mailbox - Contactexpat@hmrc.gov.uk – has been set up by our Operations

Team in Bootle. This was set up as an alternative to, and to support the Expat

Helpline, which we acknowledge has had long delays since lockdown. The mailbox

can be used for Appendix 4 reports and Appendix 7A NICs Settlement Returns for

the inbound customer population.

• A temporary mailbox - nsrappendix7b@hmrc.gov.uk – to enable employers to file

Appendix 7B NICs Settlement Returns for the outbound population. The delay in

setting this up was because we had to liaise with different teams in HMRC, as not

dealt with by Bootle.

• A further mailbox – stbvappendix8referrals@hmrc.gov.uk – was set up for Appendix

8 applications.

9. Coronavirus Job Retention Scheme (CJRS)

9.1 HMRC advised it has received several queries regarding whether or not expatriate

employees would qualify under the scheme.

9.2 HMRC acknowledged that it did take time to be clarified but confirmed it was able to

notify Forum members on 22nd May that a claim could be made for inbound expats if the

conditions of the scheme are met. HMRC said it has received a follow up query regarding

outbound expatriates, and it is understood that an answer is due to be provided soon.

10. AOB

10.1 HMRC advised that there are some action points from the last Forum, and that it is still

working through these, but the Covid-19 related queries have had to take priority during this

time.

10.2 HMRC apologised for the minutes of the last Forum not yet being published online,

however these have been shared previously with Forum members. Covid-19 related updates

on gov.uk have taken priority, but it is hoped that the minutes will be published soon.

Questions

Q – In relation to HMRC’s requirement to obtain a foreign certificate of residence for the

purposes of withholding taxes, particularly in regard to UK pensions. The US process for

claiming a certificate of residence is currently closed as a result of Covid-19, but we are

seeing cases where individuals are starting to take pension contributions. Is there any

relaxation during the Covid period to prevent UK tax withholding in the absence of a foreign

certificate of residence? Perhaps other documentation i.e. copies of returns might be

provided?

A – Thank you for letting us know that the facility in the US is no longer available. HMRC will

need to have a look if it can accept alternatives to certificates of residence. We will flag this

up with the appropriate people within HMRC.

Q – The vast majority of Americans in the UK will be entitled to an economic impact payment

from the US if they haven’t already received it. It is $1,200 per individual and $500 for

children. I am aware that one individual has had correspondence confirming that HMRC

would not view these payments as subject to UK tax, but the basis for this is not entirely

clear. Is it possible to get published confirmation? This is likely to affect over 100,000 people

in the UK.

A – You are correct that the answer we provided was that the economic impact payments

are not taxable as income in the UK. I can confirm that is the case, however I cannot provide

the rationale on the call today. We will consider if we need to publish the answer wider to

reach customers from the US who are not represented by a Forum agent.

Q – The technical reason why the US Stimulus payments are not taxable in the UK is that

they are an advance refund of 2020 US taxes, and US tax refunds are not taxable in the UK.

A – Thank you for advising us of this reasoning.

Q – Has HMRC had any discussions with overseas tax authorities in regard to the approach

they are taking? I am aware of a few cases where the overseas tax authorities don’t seem to

be allowing foreign tax credits for UK taxes on UK workdays, so we want to gain an

understanding of the communications HMRC have been having on a more global level.

A – We will escalate this question internally.

Q – Now some countries have started relaxing their travel restrictions, it would be helpful if

you could provide some examples of when the exceptional circumstances stop applying,

depending on when the travel restrictions change.

A – This might be covered by the forthcoming FAQ, however if not then we will ask a

specialist to consider this.

Q – In a few cases we have needed to amend a prior year tax return, typically where the

return has been prepared as split year on the basis they will be working full time overseas in

2019-20. Where the individual hasn’t met the full time working overseas test in 2019-20, it is

typically because they came back to the UK at the start of March, working in the UK over 30

days. We would appreciate guidance for these circumstances. In some cases it may be that

the individual qualifies for another split year case for 2018-19, but if not they may need to

make a treaty claim, whether or not that is the most practical action to take?

A – Like the previous question, this might be covered by the forthcoming FAQ, however if

not then we will ask a specialist to consider this.

Q – We have international clients who are commuters, for example spending 4 days a week

in Germany, 1 day a week in the UK, and weekends in the UK, and they will be treaty

resident in the UK. Germany and other counties in Europe are taking the approach that if,

say, you typically work in Germany, even though now homeworking in the UK due to

lockdown, that income stays taxable in Germany. They have agreed that with France,

Austria, Switzerland already. Some clients may end up in a situation where Germany says

they are taxable, and under UK rules are also taxable as working in the UK on those days. If

Germany are treating as taxable there, they won’t give a credit, so individuals may end up

double taxed.

A – Thank you for advising us of this. We will escalate this issue internally.

Q – I have clients who a furloughed at the moment, but again are commuters. The may be

receiving payments under the job retention scheme, and are now physically in Ireland

because that it where they live at weekends; Mondays to Fridays they may be in the UK.

What agreements have been made about those payments? There are also cases which are

the reverse i.e. payments from the Irish equivalent job retention scheme. For those

individuals in the UK, how are those payments going to be taxed? It needs to be resolved as

to who has the right to tax them.

A – We can flag this up with the specialists. Please can you put the details in writing to us so

that we can ensure the correct details are passed on.

End of meeting

HM Revenue & Customs Joint Forum on expatriate tax and National Insurance contributions Q & A Log: introduction These logs contain answers prepared by HM Revenue & Customs (HMRC) staff in response to questions raised by members of the Forum.

Where possible these answers will refer to guidance published elsewhere. The responses given in these logs are not expected to be comprehensive or

provide a definitive answer in every case. If you have a specific query about a particular case you should contact HMRC in the normal way.

HMRC base these answers on the law as it stood at date of publication and will incorporate answers given into the appropriate guidance manuals where

necessary. HMRC will publish amended or supplementary guidance if there is a change in the law or in the department's interpretation of it. HMRC may give

earlier notice of such changes through a Revenue & Customs Brief or press release. Taxpayers and their advisors should check that the answers given in this

log have not been superseded by amended or supplementary guidance.

Subject to those qualifications readers may assume the answers apply in the normal case; but where HMRC considers that there is, or may have been,

avoidance of tax the answers will not necessarily apply.

Neither this log nor its publication affects any right of appeal a taxpayer may have.

Expats Forum: Q & A Log

No Question Answer

1. P Interest charges on postponed payments on account

HMRC’s systems are applying late interest charges to individuals on

modified payrolls who have postponed payments on account which

later become due. Can this be stopped from happening?

Payments on account should not be reduced, in modified cases, via the tax return. The self-assessment system cannot recognise modified cases and consequently the normal rules are applied. The correct way to reduce payments on account is to write to HMRC separately, providing the customer’s name and UTR and request that the payments on account are reduced. UPDATE 27/07/2018 We are aware of the guidance contained within the Modified PAYE agreement

(PAYE82002) which, at the time was correct. In the past, before internet filing, when

self-assessment tax returns were processed, HMRC were able to remove payments on

account where the return indicated it was a Modified PAYE case. With the

advancement of online filing, fewer returns are manually processed and as such

HMRC no longer have the chance to remove payments on account in appropriate

cases.

No Question Answer

Accountants are now invited to submit lists of Modified cases where the current self-assessment tax return shows tax owing so that we can correctly remove the payments on account for the following year and ensure that they have not been re-instated for the previous year.

2. Foreign Pension Contributions

Where there is an excess charge on pensions, the tax due can either

be paid by the individual as part of their SA payment, or they can

request that the funds are paid by the pension trustees out of the

pension pot. Can this be done where there is an overseas pension

such as a 401K?

Guidance on this point is contained within the Pensions Tax Manual and can be found

here:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm113310

3. Appendix 4 returns

Can Appendix 4 returns still be filed electronically via the mailbox?

ptimcoperations.technicalsupportteam@hmrc.gsi.gov.uk

Unfortunately, Appendix 4 returns can no longer be filed via the mailbox. The available methods for filing are either via the postal system or via shared workspace.

4. Exchange rates

Given the sharp decline in the pound after June 2016; it would be

helpful to have guidelines from HMRC as to when it might be

appropriate to use an exchange rate that is different from HMRC’s

published official average exchange rate.

HMRC publishes average monthly exchange rates as a guide but customers and their advisors are welcome to use actual daily rates were appropriate for transactions. HMRC may however challenge customers on the rates used and so it would be prudent to keep a record of the rates and dates involved should evidence be required.

5. SA109- Personal allowances for non-residents and dual residents

The question relates to the following text contained within the SA109:

In respect of Iceland and Croatia the wording of the treaty in each respective country

would prevent a non-resident national from claiming personal allowances but they

would still be entitled to claim personal allowances as a member of the EEA. This is

shown in the DT digest.

No Question Answer

Box 15 If you are entitled to claim personal allowances as a non-

resident because of the terms of a Double Taxation Agreement

Put ‘X’ in box 15 if you’re claiming personal allowances as a non-

resident, under the terms of a

Double Taxation Agreement (DTA), and you meet one of the

following conditions:

• you’re a national of Bulgaria, Israel and Jamaica

• you’re a national and a resident of Argentina, Australia, Azerbaijan,

Bangladesh, Belarus, Bolivia, Bosnia-Herzegovina, Botswana,

Canada, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland,

France, Gambia, India, Indonesia, Italy, Ivory Coast (Cote d’Ivoire),

Japan, Jordan, Kazakhstan, Korea (Republic of), Latvia, Lesotho,

Lithuania, Malaysia, Malta, Montenegro, Morocco, New Zealand,

Nigeria, Norway, Oman, Pakistan, Papua New Guinea, Philippines,

Romania, Russian Federation, Serbia, Slovak Republic (Slovakia),

Slovenia, South Africa, Spain, Sri Lanka, Sudan, Switzerland, Taiwan,

Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey,

Turkmenistan, Uganda, Ukraine, Uzbekistan, Venezuela, Vietnam or

Zimbabwe

• you’re a resident of Austria, Barbados, Belgium, Burma, Fiji,

Greece, Ireland, Kenya, Luxembourg, Mauritius, Namibia,

Netherlands, Portugal, Swaziland, Sweden, Switzerland or Zambia

The three countries concerned are China, Croatia and Iceland, and

other than for Croatia, where a new treaty is in force, there is no

obvious reason why personal allowances should no longer be

claimable under the treaty. Can you provide clarification on this?

In respect of China, the SA109 was incorrect to include China when the treaty was

amended since 6 April 2014. Again please see the DT digest.

No Question Answer

6. Employee of UK company who is based overseas, but visits the

UK

We have recently received several queries from different UK

companies regarding the National Insurance position in relation to

employees who are based overseas and usually perform their work

duties in a country which is outside the EU and does not have a

reciprocal social security agreement with the UK (for example, South

Africa). However, these employees are required to visit the UK for a

small number of days each year (between 10 and 30 workdays per

annum).

Based on our understanding of the facts, all of the employees

concerned are not ordinarily resident in the UK. This is because they

continue to live overseas, together with their family, and maintain a

home overseas, and merely stay in hotels in the UK when required to

stay overnight for work purposes. However, we understand the 52

week exemption under regulation 145(2) of Social Security

(Contributions) Regulations 2001 would not apply, as they are

employed by a company with a place of business in the UK.

In accordance with our review of the applicable legislation and the

publication Tax Bulletin 79, we understand that there is no liability to

pay Class 1 National Insurance unless there is an employed earners

employment (or employment treated as employed earners

employment) here in the UK. Accordingly, an individual is defined as

an "employed earner" by Section 2(1)(a) of the Social Security

Contributions and Benefits Act, which states:

Each case must be considered on its own facts however, Regulation 145 of the SSCR

sets out, for the purposes of section 1(6) of the Social Security Contributions and

Benefits Act 1992, the conditions as to residence or presence in Great Britain or

Northern Ireland for the purposes of liability or entitlement to pay National Insurance

contributions. Regulation 145(2) of the SSCR also provides for a limited exemption

from paying Class 1 NICs (for up to 52 weeks) for workers coming to work in the UK for

a time from a country outside of the European Economic Area (EEA), or with whom

there is no reciprocal agreement on social security - in other words those coming to the

UK from somewhere we categorise as being a “rest of the world” country.

In order for the exemption at regulation 145 (2) of the SSCR to apply, all of the

following conditions must be met:

• The person is not ordinarily resident in the UK, and

• The person is not ordinarily employed in the UK, and

• In pursuance of employment which is mainly employment outside the UK by an employer whose place of business is outside the UK, and

• The person is employed in the UK for a time

From the information provided, the employees referred to would not meet all of the

above criteria for the exemption in regulation 145 (2) of the SSCR to apply. In

particular, whilst working in the UK they are not pursuing employment which is mainly

employment outside the UK by an employer whose place of business is outside the

UK. In fact, whilst back in the UK working they are actually working in the UK for their

UK employer. As such, the exemption provided by regulation 145(2) would not

apply. Furthermore, whilst in the UK they will be ‘present’ in the UK for the purposes of

regulation 145(1)(a) SSCR which provides that a liability for primary (employee) Class

1 NICs will arise on any earnings they receive. The UK employer, having its place of

business here, would also have a liability for secondary Class 1 NICs on those

earnings under regulation 145(1)(b) SSCR.

No Question Answer

… “employed earner” means a person who is gainfully employed in

Great Britain either under a contract of service, or in an office

(including elective office) with general earnings…

As such, in order to confirm whether a liability to Class 1 National

Insurance is applicable, we have concluded it is necessary to

determine whether such employees fulfil the criteria of being 'gainfully

employed in Great Britain' under their UK employment contract. We

understand this phrase is not defined in legislation, and therefore

takes its ordinary meaning.

A view as to the meaning is expressed in Tax Bulletin 79 (which,

although archived, is not marked as superseded), as follows:

An employed earner is defined in Section 2(1)(a) as a

"person who is gainfully employed in Great Britain either under a

contract of service, or in an office (including elective office) with

general earnings chargeable to income tax under ITEPA 2003".

This requires that employment duties take place here. However, this is

wide enough to allow for some temporary or incidental duties of the

employment to be performed outside the UK, if the UK is the place

where the employment duties are usually performed.

No Question Answer

Based on above interpretation provided in Tax Bulletin 79, we

understand that the employees concerned would be 'gainfully

employed in Great Britain' only when the employment duties physically

take place in the UK and are usually performed here. In this regard,

any temporary or incidental duties performed in the UK would be

ignored.

In addition, the employees concerned would not be captured by reg.

146, as they are not ordinarily resident in the UK and therefore cannot

be treated as performing an employed earner's employment here.

Therefore, we should be grateful if you could confirm our opinion that

the employees concerned would not be liable to pay Class 1 National

Insurance on their earnings from the UK company.

We are currently looking for general guidance on this matter, so we

can better advise our clients, but appreciate that specific queries

would have to be reviewed on a case by case basis depending on the

exact facts involved.

7. EYUs for modified PAYE schemes

It has been stated that EYUs should not be submitted for modified

PAYE schemes, but any inaccuracies should be addressed via the

Self-Assessment Tax Return.

Where the individual is not within an EP Appendix 7A arrangement then using an EYU

to amend the NIC figure (but not the PAYE tax) will be acceptable. However if they are

in an EP7A agreement then the following will apply:-

• If an underpayment is identified after the submission of the NSR we agree to write to HMRC to make a disclosure of any further NIC due.

No Question Answer

Could HMRC confirm if this is still the case where the taxpayer is

within UK NIC? If NIC is due, what is the best way to proceed, since

the NIC can’t be addressed on the return?

• If an overpayment is identified after the submission of the NSR we agree to write to HMRC to make a NIC refund claim.

8. Form P85 leaving the UK

In the past form P85 has been used in advance of an expat leaving

the UK for the purposes of generating an NT code where appropriate,

to be in place by the time the individual leaves. We note that the form

has recently been updated to say that it should only be used “when

you have left” whereas the previous version also stated it could be

used “when you are leaving”.

Can form P85 still be submitted in advance of departure to request an

NT code?

HMRC’s operations team have confirmed that normally form P85 would be rejected if

there is still a continuing source of UK income. However, if the customer is leaving to

work full time abroad for a UK employer for a period of at least a complete tax year, the

form P85 can be completed to enable to customer to receive code NT.

9. Individuals claiming FTCs with no other Self-assessment criteria

We have recently had some conflicting advice from HMRC in relation

to the claiming of FTCs for groups of individuals with no other Self-

Assessment criteria. These were relatively low paid employees and

the Appendix 5 net of foreign tax credit relief scheme was not used.

For one client, HMRC processed individual repayment claims without

tax returns but HMRC has confirmed that Self-Assessment tax returns

must be sent in response to a similar request on behalf of another

client. In both cases, the employees were entitled to relief for

relatively small amounts of foreign tax paid on earnings which were

also fully taxed in the UK via RTI. Most claims were for no more than a

A claim to Foreign Tax Credit Relief is not one of the SA criteria, the criteria for SA is

someone having any foreign income other than dividends of £300 or less. For

Appendix 5 employees, however, though they might carry out the duties of their

employment abroad their earnings are paid in the UK through a UK payroll to a UK

resident so we don’t interpret them as being foreign income. We won’t, therefore, put

someone in SA just because they are in an Appendix 5 arrangement. If they don’t

meet the SA criteria for any other reason we will give them Foreign Tax Credit Relief

through the NPS calculation.

No Question Answer

few hundred pounds and relevant data/ repayment mandates were

provided. Please let us whether HMRC is willing to continue to

consider claims without returns in these circumstances and if so the

information which should be supplied as part of the claim.

10. Post-employment notice pay in terminations after 5 April 2018

The query that I raised yesterday is confirmation of HMRC's views on

the period for which PENP general earnings is earned, for the

purposes of the ITEPA 2003 sections that assess general earnings.

FA (2) 2017 s 5(2) imported the s 402B PENP into the ITEPA 2003 s

7(5) list of amounts treated as general earnings (in sub-para (ca)). In

HMRC's view, is the PENP earned for assessment purposes by

reference to the period for which it is calculated as set out in the

ITEPA 2003 s 402E rules?

As another Forum attendee mentioned, HMRC's views would also be

appreciated on the meaning of basic pay in s 402D(1) for PENP

calculation in expatriate employee situations (in particular, tax-

equalised individuals).

PENP is ‘for’ the year it is received, unless the employment is not held in that year in

which case s17 or s30 ITEPA will apply. In practice, this means that PENP will always

be ‘for’ the year of termination.

If the year of termination is a split year, PENP may be within s15 or it may be excluded

earnings if it is attributable to the overseas part of the split year. Employers should

decide to what extent PENP is attributable to the overseas part of the split year by

considering where the employee would have worked during the period of notice, in line

with Paragraph 2.6 of the commentary to the OECD model.

For a tax-equalised employee, basic pay will be the total of:

• The net amount of pay stipulated by the employment contract or assignment agreement

• Any gross-ups on basic pay

• Any gross-ups on disregarded amounts (e.g. allowances)

11. Apprenticeship Levy

The FAQs recently shared with Forum members confirmed that where

NIC is paid under a modified arrangement, in the same way that a true

As you are aware, if an employer has an Appendix 7A/7B scheme they account

for NICs as usual in the tax year, using a best estimate of all earnings that are subject

to Class 1 secondary NICs to check if they need to pay the Apprenticeship Levy. If so,

they will submit an EPS each month using these estimated figures.

No Question Answer

up via a NSR may be needed for NIC, a corresponding adjustment will

be needed to the apprenticeship levy.

I understand that an EPS (Employer Payment Summary) will be used

to report the difference in the levy and any balancing payment due in

respect of the levy will be made to the PAYE account. I would not

expect this payment to be subject to an interest charge, provided that

any apprenticeship levy due was paid by the deadline for the NSR

return (which is 31 January after the end of the tax year to which it

relates), but I should be grateful if HMRC could confirm this.

Assuming that no interest charge is due, will HMRC’s systems be able

to identify apprenticeship levy payments made in this way, so as to

inhibit any interest charges that might otherwise be calculated

automatically?

At the end of the tax year, an employer will also need to:

• check their estimated pay bill against the actual figure for the tax year

• submit an additional EPS to correct any difference and pay any Apprenticeship Levy owed

I can confirm that following the updated EPS submission the apprenticeship levy

payment will not be subject to an interest charge, provided that it is paid by the

deadline for the NSR return (31 March, after the end of the tax year to which it relates).

Interest on any payment outstanding at 31 March will be charged from the previous 19

April.

Interest that should not have been charged will be cancelled by HMRC when we

process the NSR and so it would be useful to know the amount of the additional

apprenticeship levy and the submission date of the EPS when you submit the

NSR.

Where the NSR and EPS are sent to us before 31 March, and interest has been

charged automatically on the apprenticeship levy payment you should write to

National Insurance Contributions and Employers Office

HM Revenue and Customs

BX9 1BX

United Kingdom

As you are aware, the deferred filing date of 31 March is a concession and can only

apply if the NSR and EPS are received by that date. If not, penalties are due from the

original filing date.

No Question Answer

12. PAYE 82000- Trial period

I refer to PAYE 82000 which includes the following. The last

sentence highlighted states that this relaxation is for a trial

period. Please can you confirm that this trial period is continuing

without a specific end date being set?

“Notes: Definitions

• Where used in this arrangement, the term remuneration has its widest possible meaning and includes salary, wages, benefits, allowances and expenses

• Where an employee otherwise falling within this arrangement receives remuneration borne by companies in different countries then

1. Remuneration not ultimately borne in the UK - falls within this agreement

2. Remuneration ultimately borne in the UK - does not fall within this agreement unless the presence in the UK is for 59 days or less and those days do not form part of a longer period (see below) or HMRC Office has agreed a dispensation for it. It is therefore possible for an employee falling within this arrangement to also have a PAYE liability. If otherwise appropriate this PAYE liability can be met using modified PAYE procedures as described in EP Appendix 6, PAYE82002

• ‘Ultimately borne’ means the company finally bearing the cost after all recharging of any nature

The trial period is continuing with no specific end date. HMRC will continue to monitor

the position and will endeavour to liaise with Forum members before any further

changes are made.

No Question Answer

Although employee remuneration ultimately borne by the UK

Company (except in b above) is not normally covered by this particular

arrangement, the OECD commentary provides examples of situations

where the UK Company would not be regarded as the economic

employer and treaty exemption may therefore apply, including where

the employee is present for 60 days or more. Employers may request

agreement from HMRC for specified circumstances where these

arrangements may be applied and PAYE deductions need not be

made. Failing such agreements, a separate claim for treaty relief

should be made by the employee. This further relaxation is initially for

a trial period and may be withdrawn.”

13. Empl

STBVs- Guernsey and Greece

I refer to the specific tax treaties of Guernsey and Greece which have

the following as an employment article:

“Paragraph 7 (1) An individual who is a resident of the United Kingdom shall be exempt from Guernsey tax on profits or remuneration in respect of personal (including professional) services performed within Guernsey in any year of charge if-- (a) he is present within Guernsey for a period not exceeding in the aggregate 183 days during that year, and (b) the services are performed for or on behalf of a person resident in the United Kingdom, and (c) the profits or remuneration are subject to United Kingdom tax. (2) An individual who is a resident of Guernsey shall be exempt from United Kingdom tax on profits or remuneration in respect of personal (including professional) services performed within the United Kingdom in any year of assessment if—

Whereas an overseas subsidiary of a UK Company is a separate legal entity and is

regarded as a ‘person’ within the meaning of a Double Taxation Convention, that is not

the case for an overseas Branch of the UK Company. The Branch is not a separate

legal entity and is not resident in the other country. It is merely part of a UK resident

Company that carries out the business of the UK Company in that country.

Under the circumstances we do not consider the wording of either the UK/Guernsey or

UK/Greece DTAs provide any different treatment from the general rule that STBVs

from overseas Branches of UK Companies do not satisfy the conditions for exemption

from UK tax under the terms of the Employment Income Articles within DTAs.

No Question Answer

(a) he is present within the United Kingdom for a period or periods not exceeding in the aggregate 183 days during that year, and (b) the services are performed for or on behalf of a person resident in Guernsey, and (c) the profits or remuneration are subject to Guernsey tax.

(3) The provisions of this paragraph shall not apply to the profits or

remuneration of public entertainers such as stage, motion picture

or radio artists, musicians and athletes.”

This suggests to me that an employee who is a resident of Guernsey,

employed in Guernsey by a branch of English company situated in

Guernsey where the branch pays tax in Guernsey, would not pay tax

in England on days worked in England, as long as the presence in

England (and UK) is no more than 183 days in the tax year. That is,

this seems to be an exception to the general rule that overseas

branches of UK companies are excluded from STBV arrangements.

Please can this be confirmed or otherwise clarified?

14. Personal Allowances after March 2019

At the moment, UK nationals who are non-resident are entitled to

personal allowances by virtue of being nationals of an EEA state

(s56(3) ITA 2007). When the UK leaves the EU, UK nationals who are

not UK tax resident will cease to qualify automatically for personal

allowances, unless some change in law is intended. Can HMRC

comment, please, on whether the current intention is that UK nationals

will continue to qualify for personal allowances whether or not they are

UK tax resident after March 2019, or if the position remains uncertain?

An updated version of this question has been answered in the separate EU Exit Q&A

log.

No Question Answer

15. Voluntary ITSA individual and partnership returns and the Patel

tribunal decision

Most professional firms filing SA tax returns on behalf of expatriate

employees will, unless they know that a notice formally requiring the

submission of a return has been issued, include a litany on the form

asking HMRC to treat the return for all purposes of the Taxes Acts as

if made in response to such a notice. There may also be instances

where no notice to file has been issued, and a return form is filed

without such a litany.

It has long been HMRC’s practice to accept these voluntary ITSA

individual and partnership returns on the same basis as returns

received pursuant to a s8 TMA1970 notice, where the clear intention

of the person submitting the return is that it should be treated as such.

The recent first tier tribunal decision in Patel ([2018] UKFTT 0185

(TC)) suggests that this acceptance may be beyond HMRC’s care and

management powers, although as a tribunal decision only it does not

represent a binding precedent.

Is HMRC intending to appeal against the Patel decision, please?

Regardless of the answer to that question, please can HMRC confirm,

pending any precedent decision, that it will continue to accept

unsolicited tax returns as being made under s8 TMA 1970, regardless

of whether any appropriate form of words continues to be included as

described above?

We are aware of the decision in Patel and Patel but do not agree with the First Tier Tribunal’s findings. Notwithstanding that decision, members of the forum may be assured that HMRC will continue to apply our longstanding policy and continue to accept voluntary tax returns from our customers as individuals, partnerships or businesses, as if they had been received under formal notice.

No Question Answer

16. UKIBSTBVs and P85s

Employers are showing a desire to dedicate increased resource to the

challenging topic of UK inbound short term business visitors

("UKIBSTBVs") that do not qualify for treaty exemption (or the annual

PAYE scheme), but are still seeing operational obstacles that deter

these efforts. Employers are facing a mounting challenge successfully taking out of

self-assessment tax-equalized UKIBSTBVs who visit the UK during a

given tax year, but then not again for some time - potentially ever -

such that penalties accrue ad infinitum, with little realistic prospect of

the individual engaging with the existing mechanisms, often as their

only connection to the UK was the short period of work. For significant groups of companies, this can equate to tens, if not

hundreds of individuals each year, so mobilising the completion of per-

person P85s (for example) represents a hugely onerous mechanism. What options do HMRC see for employers here?

Expat

deregistration form.docx

One option that we have is for the attached form to be completed by the individual. We

are happy to receive these via the shared workspace. The customer’s SA record can

then be updated to show that they no longer require an SA return.

I believe this to be the best course of action.

17. Taxation of superannuation contributions in the UK

We understand that in certain circumstances employer contributions to

an overseas pension scheme for an individual resident in the UK are

treated as non-taxable. For example, under a Double Tax Treaty

(‘DTT’) or if Migrant Member Relief (‘MMR’) has been granted.

In the position that neither of the above apply we would consider the

exemption under s307 ITEPA 2003. However, on the basis that

S307 ITEPA 2003 is used for schemes which provide benefits on retirement or

death. If the funds can be accessed on other occasions, it will not be compliant with

the requirements of section 307 and the exemption afforded by that section will not

apply and the contribution will be treated as taxable. HMRC acknowledges not all

overseas schemes are the same and therefore each individual scheme will be

considered in the context of our understanding as stated above.

On the assumption that the contribution is treated as taxable, its value will be an amount of general earnings of the employee in the year the contribution is made. It is unclear whether the forum query relates to tax relief being due in the UK or in an overseas territory. We cannot comment on whether the tax charged in the UK is

No Question Answer

superannuation funds can be accessed at times other than on death

or retirement we assume that this exemption would not apply

(https://www.ato.gov.au/individuals/super/accessing-your-super/early-

access-to-your-super/).

Based on the above, if MMR has not been applied for, there is no

relief under the DTT and s307 does not apply we come to the

conclusion that employer contributions to such a superannuation

scheme would be treated as taxable in the UK.

We would like to confirm that this is also HMRC’s understanding? We

have heard through contact with other professional advisers that there

was an implied acceptance from HMRC that employer contributions to

a superannuation scheme would be exempt from a charge to UK

income tax, however, there is no guidance to this effect in HMRC’s

manuals.

If employer contributions are taxable, we would also like to confirm

that foreign tax credits are able to be claimed in respect of the 15%

tax withheld upon payment of contributions into the fund (on the

assumption that this is considered to be a tax on the individual).

available as a credit overseas. This should be checked with the relevant overseas tax authority. If it is decided that the employer contribution is taxable in the overseas country (and

also in the UK), then the tax charged overseas would form part of the Foreign Tax

Credit Relief that would be available to offset against any tax charged in the UK for the

overseas employment.

18. Canadian RRSPs

Does HMRC regard an RRSP as an “overseas pension scheme”

under FA 2004 s150? Does the treatment set out in the IM1622 with

regard to an RRSP still apply?

The response provided on 27/11/06 above remains appropriate for periods prior to 6th

April 2017. Subsequent to this date, HMRC consider that if the funds accrue in an

RRSP or RRIF then we will tax them in the UK as a foreign pension. This change in

approach regarding lump sums stems from the introduction of taxation of lump sums to

UK residents from all foreign pension schemes introduced in FA 2017.

No Question Answer

If an RRSP is not an overseas pension scheme, is the group version

of it an employer-financed retirement benefits scheme for the

purposes of s393A ITEPA?

Does HMRC have any further comments re RRSPs?

Answer

On the basis of the limited information HMRC has about such

schemes it would appear likely that a RRSP would be an “overseas

pension scheme” under s150(7). However, HMRC cannot say

definitively that it is.

Under FA 2004 and associated regulations it is up to the scheme

manager of a RRSP to notify HMRC that it is an “overseas pension

scheme” in order for it to be either a “qualifying overseas pension

scheme” under para 5 of schedule 33 or a “qualifying recognised

overseas pension scheme” under s169. The onus is therefore on the

scheme manager to consider all of the information available to him to

satisfy himself that it is a “pension scheme” which meets the

requirements of an “overseas pension scheme” specified in SI

2006/206.

There is guidance on those SI 2006/206 requirements in the

Registered Pension Schemes Manual at 13101070-85. They relate to

If the funds have accrued in an RRSP or RRIF since 6 April 2017 they may be liable to

tax in the UK (as a pension) and therefore from a treaty perspective we would rely on

the conditions set out in the Pensions article of the UK/Canada Tax treaty. Prior to 6

April 2017 our position outlined in the guidance at DT4605.

No Question Answer

the regulation and tax recognition of the pension scheme in the

country in which it is established.

HMRC is reviewing the application of IM1622 to a RRSP.

We do not consider that an RRSP comes within the definition of an

employer financed retirement benefits scheme set out in s393A

ITEPA. This states that this phrase means “a scheme for the provision

of relevant benefits to or in respect of employees or former employees

of an employer”. The RRSP appears to be a type of scheme entered

into and funded by the employee and the connection with “an

employer” implicit in s393A is lacking in these arrangements.

HMRC does not have any further comments on RRSPs.

19. Appendix 6 payroll

Guidance has been issued that Earlier Year Updates (EYUs) should

not generally be used for EP Appendix 6 payrolls. The references

seem to be for individuals who have been included in the

arrangements, but needing to make amendments to the submissions

made. Where there is a case that an individual has not been included

in the Payroll for the year and should have been (eg ‘failed STBV’ type

employees), what is the best action to take to correct the position?

The EYU still seems a reasonable route to take to ensure that some

payroll reporting is undertaken and PAYE is paid across at the earliest

point, with the final position still reconciled via a tax return, but this

HMRC does not consider EYUs to be appropriate for Modified PAYE/NICs schemes.

This is also the case in situations where individuals were not included in the Modified

payroll but should have been – i.e. using your example of ‘failed’ STBVs. Under the

terms of the Modified PAYE arrangements (PAYE82002) any additional tax found to be

due should be accounted for via the individual’s self-assessment tax return – please

refer to section 18 of the agreement. Alternatively a disclosure can be made and these

should be sent to HMRC using the following address:

eddisclosures.international@hmrc.gsi.gov.uk

No Question Answer

would seem to disagree with the guidance on first view. If that were

the case, what would be the recommended alternative?

20. Termination payments and DTAs

Now that foreign service relief is gone from termination payments to

UK residents can we re-confirm whether HMRC’s standard view is that

these are subject to employment income article of the treaty (and

hence eligible for FTC offset) rather than the other income article and

only taxed in country of residence (I assume this hasn’t been an issue

since the OECD change back in 2014 but was beforehand). However

how will the issue of any conflicting domestic and treaty sourcing

periods be resolved?

A termination payment may comprise several elements, and these may be treated

differently under UK tax legislation and/or international treaties. Paragraphs 2.4 to 2.16

of the OECD commentary on Article 15 explain how some of the more common

elements should be treated.

Paragraph 2.7 says that a severance or redundancy payment required by contract or

statute should be considered to be remuneration covered by Article 15 for the 12

months prior to the date of termination.

Paragraph 2.8 says that a compensatory payment should be treated like the

remuneration that the damages replace.

In most cases, an “ex-gratia” termination payment will represent compensation for the

loss of future earnings from the employment. In accordance with Paragraph 2.8 of the

commentary, we consider that such a payment should be attributed to the state where

the employee would have worked if not for the termination, using a similar method to

that described in Paragraph 2.6 (concerning PILONs). In most cases this will be the

last location where the employee worked for a substantial period of time before the

employment was terminated.

HMRC would suggest the following approach:

1. Identify amounts for which the commentary mandates a particular treatment, such as:

• Arrears of earnings (para 2.4)

No Question Answer

• Accrued holiday (para 2.5)

• Payments in lieu of notice (para 2.6)

• Statutory redundancy pay and similar (para 2.7)

• Consideration for restrictive undertakings (para 2.9)

2. Calculate PENP, which should be attributed to the state where notice would have been worked in line with Paragraph 2.6.

3. Attribute any remaining (ex-gratia) payment to the state(s) where the employee would have worked in future, as described above.

Where there is a conflict, relief should be given via Foreign Tax Credit Relief in the first

instance.

For further information please see the minutes of the Termination sub-group meeting

held on 25 February 2020.

21. Professional Employment Organisations (PEOs)

Re the use of PEOs by other organisations which seem to ignore the

issues of Permanent Establishment – is there a plan on HMRC’s part

to review these structures at the present time?

PEOs are not currently within our area of responsibility but we will look into it and

provide a response where possible.

22. Short-Term Business Visitor Agreements and the 60 day rule

The STBVA refers to the ‘60 day rule’ and stipulates that it must not

be “part of an actual or anticipated longer period of 60 days or more,

which need not be continuous and must take into account past visits

and expected future return visits to the UK”. Tax Bulletin 68 has been

Please see the copy of the archived Tax Bulletin 68 below. Let me know if there are

any further questions.

No Question Answer

archived and I don’t recall it giving any guidance examples. Other than

apply some common sense to the situation, there is no guidance as to

how long you would need to look back/forward to count the additional

days. Some clarification would be good.

TB 68 - STBV 60 day

rule.docx

23. NIC- US/UK Stocks

In respect of the UK NIC that is payable on stock vests for a person

that leaves the UK to go and work/live in the US and who are non-

resident in the UK at the point of vest/exercise.

Under normal rules, we would expect to source the gain on vest

between the period grant to vest, dependent upon where the individual

was paying social security during the period. However, it has come to

our attention that a ruling has been obtained by a client in respect of

the social security payable where there is potentially a double charge

because US law requires that 100% of the earnings is charged to

social security.

This ruling allows the income gain to be taxed 100% in the US with no

apportionment required and therefore no UK NIC is payable despite

the fact the individual was subject to UK NIC at some point during the

period grant to vest.

Please can you confirm whether an application for such a ruling has to

be made on an individual basis or whether it can be done on a

company basis (applied to all relevant employees) or does HMRC

accept that no UK NIC is chargeable when an employee is living in the

US at vest and paying US social security in full on the vest.

In regards to the double charge this is still something which is under consideration by

our NIC technical colleagues.

For the time being HMRC guidance in NIM06915 states that where a double charge

has occurred (in either an EEA or RA country and the USA is a RA country) then

customers should write to HMRC International Caseworker at NIC&EO - see the

attached link: Class 1 NICs: Employment Related Securities (ERS): Internationally

Mobile Employees (IMEs): the Double Charge - HMRC

Full details of each individual particular case would have to be referred to NIC

International Caseworker as outlined in the guidance link above.

No Question Answer

24. The dividend allowance and the interaction with tax treaty rate

caps

Many double tax treaties allow the UK to tax treaty non-residents on

UK source dividend income but subject to a cap that is expressed as a

maximum permitted percentage tax rate (typically the rate is 15%).

24.1 - Please can HMRC confirm how the treaty cap should be applied

in the case of a treaty non-resident individual who has UK source

dividend income in excess of £5,000?

We believe there are two possible approaches. Either:

a. the treaty cap applies to the total UK source dividend income paid,

so for example, someone with £15,000 of dividends paying £3,250 UK

tax (being 32.5% on £10,000) is subject to a treaty

cap of £2,250 (being 15% of £15,000 and assuming a 15% treaty cap

rate applies); or

b. the treaty cap applies to only the UK source dividend income that is

chargeable to UK tax at more than 0%, so in the same example the

15% treaty cap would limit the UK tax to £1,500

(being 15% of the £10,000 UK dividend income remaining after

deducting the £5,000 dividend allowance).

In cases where the treaty non-resident individual is UK resident under

SRT they may receive a combination of UK source dividend income

and non-UK source dividend income.

Non-UK resident individuals with UK source income can be taxed in two ways. Under

the normal rules, they are subject to income tax on dividends in the same way as UK

residents. The first £5,000 of dividends is tax free. The balance will be subject to tax

but will be restricted in accordance with the treaty which limits the rate of tax to be

applied.

Alternatively, non-UK residents can use the special rules in ITA 2007, s 811 to s 814. These limit the non-resident’s UK income tax liability to tax paid at source on investment and pension income. In particular, no UK tax is payable on dividends from UK companies because the tax credit is treated as paid at source. All other UK income, such as employment income, is taxed in full, but no personal allowance can be claimed (assuming a claim for personal allowances is available).

If the treaty provides full relief on dividends then they will be exempt and will not be

brought into the computation The dividend allowance will still be available to use

against other dividends.

No Question Answer

24.2 - Assuming the non-UK source dividend income is exempt from

UK tax under the treaty, do HMRC accept that it does not use up any

dividend allowance because it is not included in “net income” as

calculated at Step 2 s23 ITA 2007 (ITA)? If that is correct, can we

assume that the existence of treaty exempt non-UK source dividend

income would not change the way the treaty cap applies to the UK

source dividend income?

25. The remittance basis

(25.1) If a non-UK domiciled, UK resident individual receives income

for the tax year that is exempt under a treaty, can HMRC confirm that

the treaty exempt income is ignored for the purpose of the £2,000 test

in s809D ITA?

(25.2) If a non-UK domiciled, UK resident individual has total UK

source savings income for the tax year of less than £1,000, and/or

total UK source dividend income for the tax year of less than £5,000,

can HMRC confirm that income be ignored for the purpose of the test

at ss809E(1)(c) ITA?

(25.3) If an employer pays an expense reimbursement into a Special

Mixed Fund, and the expense reimbursement is exempt under Part 4

ITEPA 2003 (ITEPA), can HMRC confirm that the payment is not a

breach of the deposit rule as defined by s809RC ITA?

(25.1) We are unable to give a blanket response to this as it will depend on the nature

of the income and the terms of the relevant treaty. Each case would need to be

considered on its individual facts.

(25.2) We can confirm that this income can be ignored for the purposes of S809E(1)(c)

ITA.

(25.3) We can confirm that a payment of an exempt expense into a Special Mixed fund

will not be a breach of the deposit rule.

No Question Answer

26. PAYE for tax equalised UK outbound assignees who remain UK

treaty resident

It is not that unusual for a UK employee to be sent on an overseas

assignment but, for various reasons, the employee remains UK treaty

resident. Normally this means that the UK employer must continue to

operate PAYE withholding. If the employee is tax equalised for the

assignment period, so they are contractually entitled to an amount of

net pay after deduction of hypothetical tax, it can be difficult for the

employer to operate the PAYE correctly.

PAYE is problematic for an employee who is tax equalised because

the amount of PAYE calculated using the normal tax code approach is

unlikely to match the final UK tax liability as determined following

the tax reconciliation at the end of the tax year. These issues usually

arise for a UK inbound assignee and are managed by using an

Appendix 6 modified payroll. The issues are the same in the case of a

UK outbound tax equalised assignee who happens to remain UK

treaty resident and subject to PAYE but with the possible additional

complexity of also requiring an appendix 5 net of tax agreement.

(26.1) Would HMRC allow the employer to include such individuals on

an Appendix 6 modified payroll for the period they are on assignment

and are tax equalised? If HMRC would not allow this, how should the

employer manage the PAYE issues?

HMRC guidance at PAYE81900 states that the Modified PAYE arrangement can only

be used for employees assigned to work in the UK from abroad who are tax equalised.

If employees of a UK employer are seconded abroad and their particular

circumstances mean they continue to be liable to UK tax so the issue of a NT tax code

is not appropriate, the employer is obliged to continue to deduct tax under PAYE.

If your question relates to a particular case, please provide HMRC with the full facts

and details including a more detailed explanation of the specific nature of the

difficulties. Please also state how and where the employees are paid.

No Question Answer

27. S9A enquiries

(27.1) Please can HMRC allow a minimum period of six weeks for a

reply to an enquiry letter before issuing a Schedule 36 notice?

The process to prepare and issue a reply might typically take about

four weeks but post room delays often mean that a letter is not

actually received until two weeks after the date shown on the letter.

We have seen HMRC setting four week deadlines for a reply which

becomes a two week period once the letter is received and then

Schedule 36 notices are being issued. In our view six weeks is a

reasonable amount of time to allow for a reply and it strikes a fair

balance between HMRCs desire to progress the enquiry and the

advisers/taxpayers need to gather and review the information, and

then to draft, discuss and finalise the reply.

(27.2) Please can we discuss the HMRC approach to checking the

calculation of overseas workdays? In cases where the employee is not

able to produce documentary evidence to prove that a day spent

overseas was a workday, HMRC usually just expect to treat that day

as non-working day. We are finding that this is the case even where

the employee confirms in writing that it was in fact a workday, has a

plausible explanation and has a valid reason for not being able to

produce evidence. In such cases we will usually advise our clients not

to concede the point. However, this results in a stand-off that is a

waste of time for everyone concerned. The following example

illustrates the point:

(27.1):

Typically, a 40-day response time is given in our letters. HMRC have recently had a big

push on elapsed time targets and there has been more of a focus on the use of

information powers. HMRC is making a more effective use of information powers and

training is regularly given to caseworkers. Caseworkers are encouraged to pick up the

phone and speak to agents before issuing notices to attempt to solve any issues

agents and their customers are having in responding. As long as times can be agreed

and expectations set, there should be no surprises for the agent if a notice is issued, or

if a caseworker is willing to offer an extension.

(27.2):

HMRC would consider each case on its own merits, but we do expect taxpayers to

keep quality records to demonstrate where they are and what they are doing on each

day to support their claims.

No Question Answer

► The taxpayer had ceased the employment in question and was

unable to access any emails or other employer records that would

normally have been accepted by HMRC as evidence of an overseas

workday. The former employer’s data policy meant that the taxpayer

was unable to retain paper copies of evidence.

► The taxpayer had been on a two week business trip and had

worked on both weekend days whilst overseas. He provided HMRC

with a full explanation of the work undertaken on the weekend days in

question (approximately 4 hours per day). The nature of the role and

the location of the business trip supported the taxpayer’s explanation.

HMRC initially refused to accept that either weekend day was a

workday. After further rounds of correspondence HMRC said that they

would accept one of the two weekend days as a workday. Reluctantly

the taxpayer agreed to this as a compromise in order to draw the

enquiry to a close. In our view this was not a fair outcome because,

assuming the taxpayer was being truthful (and we saw no reason to

suspect otherwise), we would argue that the correct position was to

treat both weekend days as workdays.

HMRC seem to accept documentary evidence as a matter of course

whilst rejecting the taxpayers written explanations out of hand. A more

pragmatic and rounded approach would be welcomed to recognise

that the date on an email or other document is not conclusive

evidence of when the work was performed, and a written explanation

from the taxpayer has value as evidence assuming it is plausible and

reasonable.

No Question Answer

28. Section 690 agreements

In the spirit of the Making Tax Digital agenda, and to allow employers

to get PAYE withholding to more closely match the likely UK income

tax liability, we would like HMRC to consider making certain

modifications to procedures around s690 agreements.

(28.1) Can HMRC allow employers to operate PAYE on the basis of a

s690 percentage in advance of an actual s690 notice being issued,

provided the employer submits the s690 request to HMRC within a

reasonable time period following the date of the first payment? We

would suggest a two month period would be reasonable. Where the

percentage used is not the percentage later agreed by HMRC the

employer could be obliged to correct the position in the next PAYE

period following receipt of the notice from HMRC.

(28.2) Can HMRC allow employers to adjust the s690 percentage

unilaterally during the tax year to more accurately reflect the

employee’s actual work pattern? The employer could be obliged to

provide HMRC with written confirmation of the adjusted final

percentage following the end of the tax year.

(28.3) Would HMRC consider formalising informal s690 type

arrangements as a mechanism to allow employers to provide a form of

foreign tax credit relief via the payroll? We would envisage this

arrangement applying in a scenario where an employee is subject to

UK tax on 100% of earnings but is also subject to foreign tax on

overseas workdays at a rate that is equal to or greater than the

(28.1) An application for a direction under Section 690 ITEPA 2003 must be sent to

HMRC to operate PAYE on a particular percentage of an employee’s earnings. If an

employer does not make an application under S690, then unless the employee is

within an EP Appendix 6 arrangement, they must operate PAYE on all payments made

to the employee for work done both in and outside the UK.

(28.2) The agreed s690 percentage cannot be adjusted unilaterally during the tax year

without HMRC’s agreement. If the employee’s work pattern drastically changes during

the year then the office which approved the initial direction should be contacted. This

should be done as soon as it becomes apparent that there are any changes to the

employee’s circumstances that could affect the limited operation of PAYE that has

been agreed.

(28.3) We are aware of a number of queries in relation to informal s690 arrangements

where an employer has problems with operating an Appendix 5. We are currently

looking into this.

No Question Answer

marginal UK tax rate. In that scenario, it is a simpler alternative to

using an Appendix 5 agreement. Although HMRC occasionally allow

such an approach it would be helpful if HMRC would amend their

internal guidance to allow the employer by agreement with HMRC not

to operate PAYE on the percentage of earnings charged to the foreign

tax and in respect of which the employee will be able to claim a full

foreign tax credit. In other words, the employer would be authorised to

not withhold PAYE in circumstances where that PAYE is reasonably

expected to be refunded to the employee anyway.

We do believe that these proposals would allow employers to be more

compliant, whilst reducing employer and HMRC administration. HMRC

could reserve the right to collect additional PAYE from the employer in

cases where the arrangements are found to have resulted in an

underpayment of PAYE and the employer ought reasonably to have

corrected the position before the end of the tax year. That would

incentivise the employer to adopt a cautious approach and to take

steps to ensure as far as possible that the PAYE is accurately

reflecting the likely UK tax liability on the earnings.

29. Appendix 5

Appendix 5 can apply in respect of a tax equalised UK outbound

assignee. The amount subject to UK PAYE should include the foreign

withholding tax paid by the employer net of the anticipated foreign tax

credit, with any excess being subject to a UK gross-up. The wording of

the agreement says that Appendix 5 “is not available if an overseas

deduction is borne by the employer”. We understand that, for obvious

reasons, this statement applies in cases where the employer pays

“payroll charges” which are considered an employer liability.

Unfortunately the statement can be read as suggesting that Appendix

(29.1) We do not think that the guidance needs amending but can confirm that

Appendix 5 can apply in respect of a tax equalised UK outbound assignees.

(29.2) Yes, the Appendix 5 can be used to reduce the PAYE on a payment made after

termination of employment, assuming the foreign tax is levied by reference to duties

performed during the period the employee was working in that country.

No Question Answer

5 cannot apply if the employee is tax equalised. This unclear wording

results in unnecessary discussion with HMRC which would not arise if

the guidance is clearer.

(29.1) Will HMRC please amend the wording of the Appendix 5

agreement to make it clear that it can apply in respect of a tax

equalised employee and thereby reduce the administrative burden?

(29.2) Can HMRC confirm that Appendix 5 be used to reduce the

PAYE on a payment made after termination of employment, assuming

the foreign tax is levied by reference to duties performed during

the period the employee was working in that country? This is more of

an issue now that foreign service relief has been abolished.

30. UK host employer obligations in relation to trailing income

payments

At the Forum meeting on 28 February 2018 a question was raised that

related to the PAYE obligations of a UK host employer in respect of

trailing income payments. I have expanded on this in the series of

questions below.

In the questions below the term “specific employment income” is as

defined in s7 ITEPA and the terms “taxable earnings” and “taxable

specific income” are as defined in s10 ITEPA. Where I have referred

to specific employment income as being taxable specific income

“because of” a period I mean, in the context of charges arising under

Part 7 or Part 7A ITEPA, the periods of UK residence or UK duties by

Questions 30.1 – 30.4 are currently being considered.

No Question Answer

reason of which a UK charge arises. Please see Q7.4 below in

relation to charges under Part 6 ITEPA.

(30.1) Where a UK person has had a PAYE obligation under s689 (the

“UK host”) in respect of an individual who has worked for the UK host

for a period, does that UK host have a PAYE obligation in relation to

taxable earnings of that individual received in a later period (when the

individual is no longer working for the UK host)? For the purpose of

this question assume that only part of the earnings paid are taxable

earnings for the period the individual was working for the UK host.

(30.2) Does the answer to Q7.1 change if instead of receiving taxable

earnings in the later tax year the individual receives specific

employment income where only part of that income is taxable specific

income because of the period the individual was working for the UK

host?

(30.3) To what extent does a UK host have an obligation under s689

ITEPA to operate PAYE in respect of taxable specific income received

in the period the individual is working for the UK host (“the period”)?

Please can the answer to this question address two scenarios:

► The first scenario is where some, but not all, of the specific

employment income is taxable specific income because of the period.

► The second scenario is where none of the specific employment

income is taxable specific income because of the period.

No Question Answer

In both cases HMRC should assume that there is an element of

specific employment income received in the period that is taxable

specific income because of an earlier time when the individual was

either UK resident or working in the UK but not working for the UK

host.

(30.4) Does HMRC agree that under UK domestic law the charges

arising under Part 6 ITEPA 2003 do not arise in respect of work

performed in any specific period, and for that reason a UK host cannot

have any PAYE obligations under s689 ITEPA in connection with such

charges?

31. Appendix 4 and the meaning of “remuneration ultimately borne in

the UK”

Do HMRC agree that a recharge, or series of recharges, whereby a

cost is ultimately borne in the UK, is only relevant for Appendix 4

purposes if that cost can be linked to both the specific employee’s

remuneration (as defined in Appendix 4) and the period that the

employee in question spent working in the UK? If HMRC do not agree,

please can you explain why a cost borne in the UK that cannot be

linked to both of these factors would be relevant to the question of

whether treaty exemption is available (and therefore to the application

of Appendix 4)?

PAYE82000 defines ‘Ultimately Borne’ as the company finally bearing the cost of the

employees work in the UK after all recharging of any nature. This could either be by a

direct recharge or as part of a management charge made by the non-resident

employer.

If the formal employer charges the UK employer an amount that represents the

remuneration, employment benefits and other employment costs for their time in the

UK then this could be considered a direct recharge and therefore ultimately borne in

the UK.

If the formal employer charges the UK employer an amount, or a series of amounts,

representing a management charge that includes an employees’ remuneration relevant

to their time in the UK then this could be considered being ultimately borne in the UK.

Where costs borne in the UK are not specifically linked to any of the above factors

employers still need to consider whether under the domestic laws of the State of

Source the services rendered in that State are provided in an employment relationship.

No Question Answer

HMRC considers that where an employee works in the business of a United Kingdom

company and that company obtains the benefits and bears any risks in relation to the

work undertaken by the employee then that company is likely to be treated as their

employer.

This is highlighted within the OECD commentary in Example 4 from 8.22:

‘8.22 Example 4: Gco is a company resident of State G. It carries on the business of

filling temporary business needs for highly specialised personnel. Hco is a company

resident of State H which provides engineering services on building sites. In order to

complete one of its contracts in State H, Hco needs an engineer for a period of five

months. It contacts Gco for that purpose. Gco recruits X, an engineer resident of State

X, and hires him under a five month employment contract. Under a separate contract

between Gco and Hco, Gco agrees to provide the services of X to Hco during that

period. Under these contracts, Gco will pay X’s remuneration, social contributions,

travel expenses and other employment benefits and charges.

8.23 In that case, X provides engineering services while Gco is in the business of filling

short-term business needs. By their nature the services rendered by X are not an

integral part of the business activities of his formal employer. These services are,

however, an integral part of the business activities of Hco, an engineering firm. In light

of the factors in paragraphs 8.13 and 8.14, State H could therefore consider that,

under the approach described above, the exception of paragraph 2 of Article 15 would

not apply with respect to the remuneration for the services of the engineer that will be

rendered in that State.’

No Question Answer

32. Employment-related securities

(32.1) Please can HMRC confirm that employers do not need to report

to HMRC on the annual employment-related securities return any

‘chargeable events’ under Part 7 ITEPA where the chargeable

amount is nil (this might be because the formula in Part 7 ITEPA

produces a nil amount or because the sourcing under Chapter 5B,

Part 2 ITEPA treats the whole amount as foreign)?

(32.2) Do HMRC agree that a s431 ITEPA election can be made by an

employee who is subject to UK tax on earnings from the employment

for the tax year even if the employee is eligible to claim treaty

exemption in the UK for all of those earnings? Does HMRC also agree

that any amount of the earnings under s62 arising on the acquisition of

the securities that is taxable earnings, can also be exempt from UK

tax under the treaty assuming they are earnings for a period when the

employee was eligible for treaty exemption?

(32.3) Where restricted securities cease to be subject to a risk of

forfeiture (so they have “vested”) before the employee first performs

UK duties and where the employee has not previously been UK

resident since the date of acquisition, but the restricted securities

remain subject to a sale restriction (so they are still restricted for the

purpose of Chapter 2, Part 7 ITEPA), will HMRC allow one of the just

and reasonable override provisions under Chapter 5B, Part 2 ITEPA

to be used as a basis for not charging any amounts to UK income tax

on subsequent chargeable events (either on disposal or when the sale

restrictions lift)?

(32.1) Chargeable events, defined within S421K Part 7 ITEPA, need to be reported to

HMRC with the exception of events where the sourcing under Chapter 5B Part 2

ITEPA treats the whole amount as foreign ie an employee was NR over the entire

period with no UK duties. To be clear, events where the formula within Part 7 ITEPA

results in a chargeable amount of NIL still need to be reported.

(32.2) In these circumstances, where an employee is regarded as treaty exempt in the

UK for all of their employment earnings, HMRC agree that an election under Section

431 Part 7 ITEPA can be made. It follows that the resulting Section 62 charge arising

on the acquisition of the restricted securities, subject to that S431 election, can be

exempt from UK tax where the employee is treaty resident elsewhere.

(32.3) In this scenario we presumably have UK duties during the intervening period

between the forfeiture restriction being lifted and the sale restriction being

lifted/disposal. The formula within S428 Part 7 ITEPA should be used taking into

account any amount that was charged to non-UK income tax in respect of the

acquisition of the restricted securities as prescribed within S428(7)(bb). The legislation

within Chapter 5B Part 2 ITEPA should then be followed which will take into account

the non-UK duties period during the relevant period ie acquisition to date sale

restriction lifted/disposal.

No Question Answer

(32.4) Do HMRC accept that in the scenario set out in Q9.3 above, if

the vesting took place when the employee was treaty resident in

another country then then the UK employment tax charges on

chargeable events that occur after vesting should be capable of

exemption under the treaty? This would be based on the OECD

guidance position that employee share awards are earned during the

period between grant and vest.

(32.4) The scenario outlined in 32.3 above relates to restricted securities. Our

domestic legislation within S41G (2) Part 2 ITEPA, which refers to charges that arise

under Chapter 2 Part 7 ITEPA, states that the relevant period begins with the date of

acquisition and ends with the day of the chargeable event. When looking at charges

that arise under Chapter 5 Part 7 ITEPA, our domestic legislation within S41G (8)

states that the relevant period begins with the day of acquisition and ends with the day

of the chargeable event or if earlier the day the relevant securities option vests. This is

in line with the OECD principles outlined in TB76.

33. EFRBS and RNUKS

In this section EFRBS means Employer Financed Retirement Benefit

Scheme as defined by s393A

ITEPA 2003 and RNUKS means Relevant Non-UK Scheme as

defined by Schedule 34 FA 2004.

(33.1) EIM74510 says: “payment of a relevant lump sum is excluded

from being a relevant step under Chapter 2 of Part 7A by section 554S

(see EIM45610); the charge to tax under Part 9 ITEPA 2003 takes

precedence”. The manual does not mention ss574A(1)(b) ITEPA

which says a payment that is a relevant step under Chapter 2 of Part

7A is not a relevant lump sum. It seems that s554S and

ss574A(1)(b) are circular. Assuming the EIM is correct and Part 9

takes priority then please can HMRC explain why the wording at

ss574A(1)(b) is needed or what it does?

As these questions are very specific, responses in respect of 33.1 to 33.10 have been

sent directly to the Forum member who raised them.

No Question Answer

(33.2) Do HMRC agree that if EIM74510 is correct, lump sum

payments from overseas EFRBS to UK residents are now always

taxable under Part 9 ITEPA as foreign pension income unless the

lump sum is paid in the overseas part of a split year or the lump sum

is paid from an RNUKS and a member payment charge applies (see

Q10.10 below)? If so, do HMRC agree that the effect of the lump sum

being taxable under Part 9 ITEPA as foreign pension income is as

follows:

► The lump sum is not subject to PAYE.

► The lump sum is eligible for full or partial foreign service exemption

for the pre 6 April 2017 value.

► Up to 25% could be tax free in cases where the EFRBS is an

Overseas Pension Scheme (OPS).

► The full payment could be taxable on the remittance basis (to the

extent it is not exempt).

(33.3) Please can HMRC confirm if the following analysis is correct?

Please consider the following scenario:

No Question Answer

► A lump sum is paid from an overseas EFRBS and the lump sum is

fully exempt from a charge under Part 7A because s554W ITEPA

applies;

► The entitlement to the lump sum accrued during a period that

included some foreign service (as

defined in s395B ITEPA); and

► The lump sum is paid in the overseas part of a split year so the

charge under Part 9 (s574A ITEPA)

does not apply and instead a charge arises under s394 ITEPA.

Our analysis of this scenario is that no foreign service exemption is

allowed because the new

ss395B(1)(ca) ITEPA says that s395B does not apply to payments

from 6 April 2017 onwards if the member is UK resident at any time

during the tax year. Therefore, our conclusion is that the lump sum in

this scenario is fully taxable in the UK unless a treaty blocks the

charge.

(33.4) If the analysis in Q33.3 above is correct, is the law intended to

work this way? If so, in that scenario why is the UK tax liability greater

for a payment in the overseas part of a split year compared to the

same payment received in the UK part (where the grandfathering

provisions in s574A mean that a foreign service exemption for the pre

6 April 2017 period applies, as well as the remittance basis for the rest

of the period)?

No Question Answer

(33.5) This question, and Q33.6, Q33.7 and Q33.8 below, relate to

Part 7A ITEPA charges on EFRB Slump sum payments and the

operation of ss554Z4(7) to (10) ITEPA. Subject to the answer to

Q33.1above, these questions may only be relevant in the context of a

UK EFRBS. We understand that the purpose of the amendments to

ss554Z4 ITEPA 2003 that took effect from 6 April 2017 is to remove

the ability to source lump sum payments of relevant benefits from an

EFRBS as foreign where the recipient is UK resident, so that the full

amount of such payments is charged to tax as employment income

under Part 7A. We understand that the grandfathering rule at

ss554Z4(9) is intended to protect foreign sourcing that had accrued

prior to 6 April 2017. Please can HMRC confirm how the extent to

which a lump sum is in respect of “rights which accrued before 6 April

2017” (for the purpose of ss554Z4(9) ITEPA) should be determined?

(33.6) For a defined contribution arrangement, if there are no

contributions paid after 6 April 2017 would HMRC accept that all of the

rights under the scheme accrued before that date?

(33.7) Would HMRC accept that a deferred member of a defined

benefit or cash balance arrangement does not typically accrue new

rights under the scheme, so if they were a deferred member before 6

April 2017 it is likely that all of the rights under the scheme accrued

before that date?

(33.8) Can HMRC confirm that our understanding of the formula at

ss554Z4(9) and the results generated are correct based on the

following two example scenarios?

No Question Answer

In both scenarios please assume that the lump sum payment is

received in 2018/19 in the overseas part of a split year so that

ss554Z4(9) applies regardless of the answer to Q33.1 above.

Scenario 1:

► The employee accrues lump sum rights evenly under an EFRBS

between 6 April 2013 and 5 April

2018 (5 years).

► The employee is not UK resident and has no UK duties between 6

April 2013 and 5 April 2017 (4 years).

► The employee is UK resident with 100% UK duties in 2017/18.

► The employee receives a £100,000 lump sum distribution in

2018/19 representing all of the rights

under the EFRBS.

Our analysis:

► The lump sum is taxable under Part 7A.

► Under ss554Z4(9) the reduction under ss554Z4(4) is limited as

follows:

► R (£80,000) x A (£80,000) / LS (£100,000) = £64,000

No Question Answer

Scenario 2:

► The employee accrues lump sum rights evenly under an EFRBS

between 6 April 2013 and 5 April 2018 (5 years).

► The employee is UK resident and has 100% UK duties between 6

April 2013 and 5 April 2017 (4 years).

► The employee is not UK resident and has no UK duties in 2017/18.

► The employee receives a £100,000 lump sum distribution in

2018/19 representing all of the rights

under the EFRBS.

Our analysis:

► The lump sum is taxable under Part 7A.

► Under ss554Z4(9) the reduction under ss554Z4(4) is limited as

follows:

► R (£20,000) x (A) £80,000 / (LS) £100,000 = £16,000

If the analysis in these two scenarios is correct it is a surprising

outcome as this is not how we would

expect grandfathering to operate. In scenario 1, as the employee

accrued 80% of the lump sum rights

prior to 6 April 2017 and had been non-UK resident with 100% non-UK

duties prior to that date, we

would have expected 80% (£80,000) of the lump sum to be excluded

from UK tax and not the £64,000 calculated above. In scenario 2, the

No Question Answer

employee had 100% UK duties prior to 6 April 2017 so we would not

expect any of the lump sum to be excluded from UK tax, but our

calculation shows that £16,000 would be excluded.

(33.9) The grandfathering rule in ss574A(3) and (6) ITEPA uses

slightly different wording to the rule in ss554Z4(8) and (9) referred to

in Q10.5 and 10.8 above. In s574A the reference is to “the value

immediately before 6 April 2017 of the rights then accrued…” whereas

s554Z4 just refers to “rights which accrued before 6 April 2017”. Is this

subtly different wording intended to refer to a different thing?

Specifically, we are wondering if perhaps the reference to “the value

immediately before 6 April 2017 of the rights then accrued” is intended

to mean that any investment growth under a defined contribution

arrangement after 6 April 2017 would be excluded from the

grandfathering under s574A even if there are no contributions to the

scheme after that date? Would inflation related increases for deferred

members of defined benefit or cash balance schemes be considered

value accruing after 6 April 2017 so that such members are not fully

grandfathered from charges under s574A?

(33.10) A payment is not a relevant lump sum under s574A ITEPA if

the lump sum payment is made

under a RNUKS unless the “the effect of paragraphs 1 to 7 of

Schedule 34 to FA 2004 is that the

member payment provisions do not apply in relation to the payment”.

It will be common for a lump sum payment from an RNUKS to be

subject to the member payment provisions on part but not all of the

payment (because the member payment provisions only apply

charges up to the level of the UK tax relieved funds or relevant

transfer funds). If a lump sum payment is partly subject to a member

No Question Answer

payment charge under Schedule 34 FA 2004 does the whole payment

fall outside the scope of s574A or do we treat it as being two separate

payments and apply s574A to the amount that is not subject to the

member payment charges? The law only refers to “the payment” and

makes no explicit provision for treating single payments as if they

were two separate payments. We note that s554W ITEPA, for

example, makes explicit provision for treating a payment as being two

separate relevant steps for Part 7A purposes but there is no

equivalent wording in s574A.

(33.11) Please can HMRC provide commentary on when and to what

extent a payment from an EFRBS would be considered earnings for

income tax purposes under s62 ITEPA (if at all). In answering this

question please can HMRC deal separately with funded and unfunded

EFRBS arrangements? For this purpose, by unfunded we mean a

scheme where the employer merely promises to pay benefits to the

scheme member in retirement from the employer’s general funds.

Ignore, for the purpose of this question, the fact that the EFRBS

payment might also be taxable as specific employment income or as

pension income (as that is addressed in Q33.12 below).

(33.12) If a payment is earnings under s62 ITEPA would HMRC

accept that a charge cannot arise on that payment under Part 9

ITEPA? If HMRC do not accept this, please explain on what basis a

charge under Part 9 ITEPA would take priority and whether a charge

could arise under Part 2 and Part 9 if neither Part would tax the

payment in full (we assume that HMRC would not expect there to be a

double charge, but please let us know if this assumption is wrong)?

Would this answer change if only part of the payment of earnings was

taxable income under Part 2 ITEPA? Would the answer change if

none of the payment of earnings was taxable income under Part 2

ITEPA? If the payment of earnings is paid from a funded EFRBS,

33.11 to 33.12 have been logged, however we do not envisage being able to provide a

response.

No Question Answer

would HMRC agree that if a charge does not arise under Part 9 ITEPA

then a charge arises under Part 7A ITEPA as well as Part 2 ITEPA? In

that scenario, we know there are provisions to prevent a double

charge arising, but can HMRC confirm that the UK liability would be on

the higher of the taxable amounts produced by Part 2 and Part 7A

respectively?

(33.13) In the Q&A log answers that are attached to the published

minutes of the Expat Forum meeting held on 8 July 2015, HMRC said

that there is no NIC due on payments from an EFRBS from 6 April

2015 onwards where the member has reached age 55 and is no

longer providing any personal services to the employer group,

provided the payment would be an authorised payment if it had been

paid under a UK registered pension scheme. Specifically, it was

confirmed that this would include a payment that meets the definition

of an Uncrystallised Funds Pension Lump Sum (UFPLS). It is not clear

from the law how HMRC have arrived at this conclusion because the

NIC disregard as it applies to lump sums does not appear to extend to

a UFPLS. Please can HMRC confirm which section of the law brings a

UFPLS within the scope of the NIC disregard? Please can HMRC also

confirm whether the amount of a UFPLS to which the NIC disregard

can apply is limited by reference to the lifetime allowance and, if so, is

it by reference to the standard lifetime allowance or to the actual

amount of lifetime allowance available to the specific member at the

date of payment?

(33.14) Do HMRC agree that the law at paragraph 6 of Schedule 34

FA 2004 allows member payment charges to be reduced by the

amount of any foreign tax paid on the same payment regardless of

whether the individual could have, but chose not to, use a double tax

treaty to reclaim that foreign tax?

(33.13) HMRC technical colleagues share your view and don’t consider that an UFPLS

type sum is within the NICs disregards. They will be updating notes to this effect

shortly.

33.14 to 33.17 have been logged, however we do not envisage being able to provide a

response.

No Question Answer

(33.15) How do HMRC expect the foreign tax offset rule for member

payment charges referred to in

Q33.14 above to be applied? Would HMRC apply the same approach

to determine the amount of

foreign tax that can be offset as would be taken for claiming a foreign

tax credit, but treating the payment for this purpose as being entirely

from a source in the other country?

(33.16) Where an individual changes employment within a country it is

fairly common for pension savings to be transferred to the new

employer’s equivalent scheme in the same country (as is often the

case in the UK). Sometimes this is mandated by law or by the rules of

the transferring scheme. If the scheme making the transfer is an

RNUKS and the receiving scheme is not a QROPS then an

unauthorised payment charge arises in the UK (unless the individual

has been non-UK resident for a sufficient period). Usually no credit

can ever be claimed in the UK or overseas for the unauthorised

payment charge and it is not normally possible for the charge to be

paid out of the scheme funds. This scenario seems particularly unfair

and is surely not the intent of the law. It can in some cases lead to

significant financial hardship for the individual concerned. Please can

HMRC consider what action, if any, might be taken to alleviate this

issue? Perhaps transfers between schemes of broadly the same tax

status in the same country could be treated as if they were

‘authorised’ payments from a UK perspective in the same way as a

transfer between UK registered pension schemes would be?

Alternatively or in addition, would HMRC consider allowing an

applicable double tax treaty to be used to block the UK unauthorised

payment charge on such a transfer where there is no tax avoidance

motive? This issue can arise in the context of a number of different

No Question Answer

countries but we know it to be a particular issue in the context of

transfers between US 401K schemes and US IRA schemes.

(33.17) Do HMRC accept that a scheme which is unfunded (so

represents merely a promise from the employer to the employee to

pay benefits in retirement from the employer’s general funds), and in

respect of which no contributions are paid, cannot be an RNUKS as

defined in Schedule 34 FA 2004?

34. The tapered annual allowance and treaty exempt income

Please can HMRC confirm that income excluded from the charge to

UK income tax because of a claim made under a double tax treaty

does not count towards the calculation of threshold income and

adjusted income for the purposes of the tapered annual allowance

rules for pensions? Both of those income definitions are based around

the definition of ‘net income’ as calculated at step 2 of s23 ITA 2007. I

understand that where relief under a double tax treaty is claimed and

the relief applies by way of an exemption from UK income tax, the

effect of TIOPA 2010 is to remove that income from the amounts of

income that are charged to UK income tax such that the income is not

brought into the UK income tax calculation at step 1 of s23 ITA 2007.

This question is currently being considered.

No Question Answer

35. Removing individuals from self-assessment (SA)

What is HMRCs current process for stopping SA returns being issued

to a former UK inbound assignee for a tax year after the UK

assignment has ended?

Expat

deregistration form.docx

The attached form to be completed by the individual. We are happy to receive these

via the shared workspace. The customer’s SA record can then be updated to show

that they no longer require an SA return.

36. Applying the UK:UAE double tax treaty

(36.1) At the Forum meeting on 28 February 2018 a question was

raised about the application of the UK:UAE double tax treaty to

employment income received when the treaty is in force but that is

sourced, for treaty purposes, to the period before the treaty came into

force. HMRC promised to provide an answer to this question in writing

so I am including it here so it can be captured on the issues log and to

add the following related questions.

(36.2) Does the answer to Q36.1 depend on whether the employment

income in question is wholly or only partially sourced to the period

before the treaty came into force? If the sourcing period spans the

date the treaty came into force, can the treaty apply to the amount

sourced after that date?

(36.3) Do the answers to Q36.1 and Q36.2 change depending on the

type of employment income? For example, is the answer different for

a cash bonus compared to a share option exercise or a termination

payment?

The previous answer has been removed. These issues are currently being clarified,

and a revised answer will be forwarded to forum members as soon as possible.

No Question Answer

37. National Insurance contributions (NIC)

(37.1) Can a payment of earnings that has been earned over a period,

during only part of which the employee was chargeable to NIC on the

earnings from the employment, be sourced for NIC liability purposes

so that only the amounts earned during the NIC chargeable period

give rise to a NIC liability?

(37.2) Please can HMRC explain how hypothetical tax and tax

equalisation reconciliation payments should be correctly treated for

NIC purposes?

(37.3) Would HMRC consider allowing NIC settlement payments for

tax equalised employees to be paid via the self-assessment process?

(37.1) Where a payment of earnings is earned over a period and for part of that period

the employee was UK insured and for part of that period the employee was insured

under another social security scheme, HMRC accepts that the UK NICs liability can be

limited to the part of the period during which the employee was UK insured.

(37.2) Clarification is being sought, and a revised answer will be provided as soon as

possible.

(37.3) The SA system works for employees only and any NIC settlements would

inevitably include secondary NIC which relates to the employer. Any adjustments to SA

would cost millions of pounds and would not provide a comprehensive settlement

process.

38. Termination Payments

We frequently come across scenarios where an employer’s policy

(sometimes driven by local labour laws) provides for a payment to be

made on termination of employment by the employer calculated by

reference to the total service in the employment. The amount payable

might be subject to an overall cap or a maximum service period. This

is a bit like UK statutory redundancy but the payments are not limited

to redundancy cases and are often payable where the employer

decides to terminate the employment for any reason (usually with an

exception for cases of misconduct). The payments are not made if the

employee chooses to resign so they are by no means guaranteed.

Paragraph 2.7 of the OECD Commentary on Article 15 says that a severance or

redundancy payment that is required by contract or statute “…should be considered to

be remuneration covered by the Article for the last 12 months of employment, allocated

on a pro-rated basis to where the employment was exercised during that period.”

HMRC would therefore expect these payments to be sourced based on the last 12

months of employment, regardless of whether they fall to be taxed as s62 earnings or

as specific employment income under s401-s403.

For further information please see the minutes of the Termination sub-group meeting

held on 25 February 2020.

No Question Answer

Our question is how HMRC would expect to source such payments for

the purposes of the employment income article under a double tax

treaty? A related question is how HMRC would expect to source the

payment under UK domestic law?

In most cases we would expect these payments to be considered

contractual and, therefore, taxable as earnings in the UK, but we

would look to the OECD guidance on severance payments to

determine treaty sourcing. Would HMRC expect to source these

payments across the whole period of employment in respect of which

the quantum of the payment is calculated? Or would HMRC take the

view that although the payments are calculated by reference to the

length of service they are not in fact earned unless and until the

employer chooses to terminate the employment, so that they are

earnings for the final tax year of employment only? For treaty

purposes, does this common scenario fall into the OECD default “last

12 months” sourcing rule or is this the type of payment where the

relevant facts and circumstances point to the longer alternative

sourcing period?

39. Bermuda Payroll Tax

Is Bermuda Payroll Tax an admissible income tax for UK foreign tax

relief purposes? It is not covered in the HMRC Double Taxation

Manual.

As there is no tax treaty with Bermuda, unilateral relief will be available.

No Question Answer

40. Benchmark travel & subsistence rates

Clause 10 of the Finance Bill makes the benchmark rates statutory

from 6 April 2019 (ITEPA 2003, s 289A(2A)). HMRC has confirmed

that the benchmark rates can be used up to 30 September 2018.

Can we have HMRC's confirmation that the benchmark rates now

apply up to 5 April 2019 please?

The overseas benchmark rates are in tables accessed from the link "tables" in the

penultimate line of the first paragraph of EIM05255 in the HMRC Employment Income

Manual. There are tables up to 5 April 2019 and also from 6 April 2019.

41. Tax-exempt employer-provided pension benefits

Clause 11 of the Finance Bill adds charities to the beneficiaries that

can receive a lump sum from a tax-exempt employer-provided

pension arrangement within ITEPA 2003, s 307(2). The current

legislation and the Finance Bill Explanatory Notes (page 24, para 5)

indicate that this means a registered = a UK charity.

Can the employer-provided benefit of a non-UK ('overseas') pension

arrangement be exempt under revised s 307(2) where the benefit is

given to a charity that is registered or otherwise approved outside the

UK?

We are unable to provide a direct response to this question. The relevant specialists

have recommended making a non-statutory clearance request.

No Question Answer

42. Eligibility for SOFA status (Status of Forces Agreement)

My query relates to a client that needs to source a UK role at short

notice. The role will be covered by/eligible for SOFA status.

They have identified 2 individuals that are right for the role. One of

them is a current US national/US resident who would be brought to

the UK for the project.

The second individual is someone who is another US national, but he

is already present in the UK. He is someone who is here on an

assignment, and is currently regarded as a tax resident in the UK

(having been here for a few years).

The question they have is that will SOFA status apply, as normal, to

the individual that is already here in the UK? In other words will this

individual be regarded as not UK resident under the SOFA status from

the date of the SOFA stamp/the date at which he commences the

project role until the date this ends or he returns to the US at the

conclusion of the project.

The tax treatment of this individual is determined by the Agreement regarding the Status of Forces of Parties to the North Atlantic Treaty (“NATOSOFA”) (Treaty Series No.3, 1955).

Article I(a) defines a Visiting Force as the personnel of land, sea or air armed services of one Contracting Party while in the other Contracting Party in connection with their official duties.

Article I(b) defines a Civilian Component as the civilian personnel accompanying a Visiting Force who are in the employ of the armed service and who are not stateless persons, nor nationals of any state which is not a party to the North Atlantic Treaty, nor nationals of, nor ordinarily resident in, the State in which the force is located.

If the individual is a member of the armed forces then they are within Art 1(a) since they would be “in the Contracting Party in connection with their official duties.” If they are a Civilian Component, they would not be in I(b) if they were ordinarily resident in the UK. Ordinary residence for NATSOFA purposes does not have the same meaning as the tax meaning, so in this instance we take it that the individual is ordinarily resident in the UK, since they are already in the UK “on an assignment, and is currently regarded as a tax resident in the UK (having been here for a few years).”

The exemption from taxation of salary under Art X(1) will not apply because they continue to be resident in the UK because they are not here solely by being a member of the force or civilian component. They were here already. An individual employed by a private company contracted to work on a defence contract (known sometimes as a “tech-rep”) is not a member of the “civilian component” for the purposes of NATOSOFA. The emoluments paid to him by the company which employs him for duties performed in the UK are liable to UK tax in accordance with the normal rules, as modified by the terms of the UK/US double taxation convention. If the individual is a civilian who does not possess UK nationality but who is ordinarily

resident in the UK (and are not therefore members of the civilian component), they

may nevertheless qualify for exemption in respect of their earnings if they qualify as an

“official agent of a foreign government” under Section 301 ITEPA 2003. Sub-section 5

defines this as a person who is not a consul, but is employed on the staff or a

consulate or an official department or agency of a foreign state. It does not apply to a

No Question Answer

department or agency which carries on a trade, business or other undertaking for the

purposes of profit.

43. Amendment to question 8 of the Expat Forum Q&A log dated 8

July 2015.

8. PENSIONS

Q1. Pensions 1. Are there any plans to amend the NIC Regulations,

specifically SI 2001/1004 Schedule 3 Part VI, to bring the NIC

disregards up to date for pension’s flexi-access from April?

This affects in particular EFRBS schemes, including non-UK schemes

that provide benefits on the same basis as a registered pension

scheme. There is currently no provision for an uncrystallised funds

lump sum to be disregarded, and I think other changes are required.

Original answer

The disregard in Part VI of Schedule 3 of SI 2001/1004 relates to authorised

payments, specifically lump sums permitted by the lump sum rule (as per section

164(1) (b) of Finance Act 2004). Authorised payments such as the uncrystallised funds

pension lump sum will fall within this category and so are already covered by the

disregard.

Revised answer

The NICs disregard at Part VI of Schedule 3 of Social Security (Contributions)

Regulations 2001 applies to lump sums permitted by the lump sum rule (section 164(1)

(b) of Finance Act 2004), which also meet any of the lump sum conditions contained in

paragraph 10(5). This means a lump sum must be either a pension commencement

lump sum or a serious ill-health lump sum. These types of payment are usually free of

income tax (assuming the member has not reached age 75). There is no intention to

disregard an uncrystallised fund pension lump sum.

44. Scottish Rate of Income Tax

We are finding that HMRC are amending tax returns which are filled

as Scottish tax payers back to the rest of the UK rate. Can you let us

know the circumstances when this occurs so that we can look out for

future cases?

The question of whether or not an individual is liable to Scottish Rate of Income tax is normally determined by the length of time that an individual has lived in Scotland in the year. https://www.gov.uk/guidance/work-out-if-youll-pay-the-scottish-rate-of-income-tax

Whether or not an individual is classed by the Self-Assessment system as being a Scottish Taxpayer goes from the address on the record, and when that address is effective from. If the address on the record is not, and has never been, in Scotland then the system will not regard the individual as being a Scottish taxpayer. Also, if the

No Question Answer

start date on which an individual moved to Scotland, or moved out of Scotland, is not correct, then their liability to Scottish rates may be incorrect.

We are aware of cases where returns have been filed online showing that the individual is classed as a Scottish taxpayer, however the address information on our systems does not support this, and in these cases the returns are being automatically corrected. It is therefore vital that individuals & agents supply the correct address, and the correct effective from date for that address, to enable HMRC to maintain correct records of who should be classed as Scottish Taxpayer.

Agents/employers often use the employer’s address, instead of the address at which the individual is living in the UK. Whilst in the past this has not caused a problem, following the introduction of the Scottish Rates it can be an issue.

To confirm - rather than using the current address, the system does take into account the address history. It is therefore crucial that this system shows accurate dates of address changes.

45. Requirement to complete an SA Return

Statutory directors have been removed from the HMRC guidance

which lists who is required to complete an SA Tax Return. Is this

removal an error?

The Agent Update from Dec ‘18/Jan ’19 explains (on page 2) that in certain situations

company directors do not need to complete a tax return.

46. Obtaining A1 certificates

We have been advised of a 19 week turnaround time for A1

applications. Can this be looked into?

Although outside of the Expat team’s remit, your concerns over delays have been

raised within the appropriate channels. The processing team acknowledges that there

is a significant backlog/delay for A1’s, and they are working hard to find a solution for

this.

No Question Answer

47. Obtaining a UTR

Can anything be done to resolve the difficulties in obtaining a UTR

when the individual does not have a NINO and/or there is no RTI

information available?

A suggested letter has now been created (see below) which members can use in this

situation. The Operations team have been informed that if they receive any requests

with a statement similar to the outline below, it should be clear that no RTI submission

is expected, and therefore a standalone Self-Assessment record (and UTR) can be

created:-

“We are applying for a UTR for our client and enclose the necessary signed forms SA1

and 64-8.

***T/p Name *** was an inward assignee to the UK. **T/P Name*** was in receipt of

taxable earnings for UK workdays in (Tax Year) and needs to submit a Self-

Assessment return(s). PAYE was not operated on his/her earnings and as such a

standalone SA record is required. Please let us have the UTR and notice(s) to file for

***Tax Year*** only (*or multiple years**)”.

*Delete as appropriate

48. Section 690 applications (1)

Some s690 applications are being returned without being processed.

This is usually when applications are made in advance, or if there is

no National Insurance Number (NINO) and/or no Full Payment

Submission (FPS).

The Operations team in Bootle have now been advised to refer any post in respect of a

s690 agreement to the technical team. This team is experienced in dealing with such

post, and so hopefully this will resolve the issue of s690 applications being incorrectly

returned.

49. Section 690 applications (2)

This is a query with regard to inbound expats (business travellers),

who are taxable on their UK workdays:

The legislation at s690(8) ITEPA 2003 is clear that where no direction under s690 (2)

has effect, the entire payment is to be treated for the purposes of PAYE regulations as

a payment of PAYE income of the employee.

No Question Answer

Background – business travellers (Non-resident in the UK), who are

taxable on their UK workdays (e.g. because of economic employment

in the UK) and for whom there is a “deemed employer” for PAYE

withholding purposes (e.g. as required per s689, ITEPA).

HMRC guidance (CWG2, Page 70) states –

“Where, because work is performed both in the UK and abroad, it is

unclear at the time of making a payment how much of the payment will

ultimately be assessable as PAYE income, the whole payment should

be subjected to PAYE unless we have directed otherwise.”

The question is, however, what one means by “unclear” in the above

guidance. For example, some of our clients will obtain full UK / non-

UK workday calendars from their business traveller population on a

live basis each month. Such data, can be required, for example, to

ensure that the overseas withholding (e.g. in Germany) is correctly

calculated. As such, such employers do have a clear understanding

of exactly what income relates to UK workdays.

The question therefore is whether it is acceptable from an HMRC

perspective to only account for PAYE withholding on the actual UK

workdays in this case – or should they still be getting a s690 ruling

from HMRC for example (even though the s690 ruling would only be

based on estimated data and is therefore innately less definitive than

the live calendars that the employees provide each month).

However, in the case of a short term business visitor (STBV) who is taxable in the UK

in relation to their UK workdays only, a s690 may not be appropriate. This could be, for

instance, an STBV from a non-treaty country or from an overseas branch of a UK

Company. The “relevant payment” processed through the UK shadow payroll would

simply be the employment income relating to the UK workdays, and therefore a s690 is

not required. In this example, there is no part of what would be considered to be the

“relevant payment” which can be deemed to not be PAYE income, and so s690 is not

applicable.

No Question Answer

50. STBV Special Arrangement – Day counting

How are the work days counted in respect of the STBV Special

Arrangement for the following circumstances: an STBV with 2

distinctive roles, 1 of which can be included on the EP Appendix 4 (as

the economic employer remains overseas), and the other role which

results in taxable workdays in the UK.

Are all days counted? Or just those relating to the taxable role?

The Special Arrangement at PAYE81950 defines a “UK Workday” within the

arrangement as “a day (or part day) where duties are carried out in the United

Kingdom for the UK Employer.”

This means that, for the purposes of the Special Arrangement, the days relating to the

duties/role performed for the overseas employer (and so qualifying under EP Appendix

4) are not counted as part of the 30 UK workdays, except where duties of the taxable

role are performed on the same day.

This is on the understanding that the facts do indeed support the basis that the

individual remains economically employed by the overseas entity for the duties for

which PAYE is relaxed under EP Appendix 4.

51. Clarification of 10 January 2019 minutes

Can you confirm/clarify the statement at paragraph 2.5 from the

minutes of the forum meeting of 10 January 2019?

There was an error in paragraph 2.5 of the minutes, as the first sentence was missing

the word “not”. The correct wording is:

If at the onset the pension is completely withdrawn and it in effect closes the pension

pot down then that is not regarded as a pension but a lump sum withdrawal. Due to the

pension freedom rules the taxpayer does not have to take the pension monthly,

quarterly or half yearly. They can take it in payments when they choose, this is still a

pension subject to periodic withdrawals.

52. Split payrolls involving part payment of earnings to the UK

We understand that HMRC are taking the approach that the ‘mixed

fund’ rules at s809Q apply in cases involving claims for Overseas

Internal stakeholders within HMRC are actively working on this matter. A response will

be provided as soon as possible.

No Question Answer

Workday Relief (OWR) where an expat is paid via a split payroll, partly

into a UK bank account and partly into a non-UK bank account.

In particular, that a mixed fund exists at the point immediately before

payment is made by the employer to the expat and that, accordingly,

(i) individual payments made by the employer to the employee’s UK

bank account constitute transfers from a mixed fund for the purposes

of S809Q and (ii) each transfer is subject to the ordering rules set out

in S809Q in determining what, if any, amount of S26 earnings has

been remitted to the UK.

Please could HMRC elaborate on how funds not yet received by an

employee may constitute a mixed fund in these circumstances? This

is not intuitive, not least as (a) the employer’s bank account will

contain monies received/used for many different purposes and (b)

where the employer uses a UK bank account the expat’s funds would

already be located in the UK, regardless of whether they are later paid

to the expat in/outside the UK. In any event in considering whether

there is a transfer from a mixed fund Step1 (S809Q(3)) is to ascertain

“the amount of income or capital of the individual…in the mixed fund

immediately before the transfer” (emphasis added) and it is unclear

how an expat can possess such income or capital when the funds are

the property of the employer.

Aside from the additional analysis required under S809Q, the reason

this matter is important is that under S809Q if the expat works to a

larger extent than anticipated in the UK earlier on in the tax year this

cannot be remedied later by the expat working for a greater proportion

of time outside the UK.

No Question Answer

This is not to say that there has been no payment of funds to the UK

– on the contrary clearly part of the expat’s pay has been paid to a UK

bank account. Rather the question is whether the mixed fund rules

apply or whether the employer’s payment to the expat’s UK bank

account is a remittance on other grounds. In particular, whilst S809L

includes a definition of “remitted to the UK” it seems to us that this

does not exclude other situations constituting a remittance where this

is plainly the case. Indeed split payroll payments to a UK bank

account must constitute remittances and, whilst we are unclear how

they represent transfers from a mixed fund, they do need to be taken

into account for S26(2) ITEPA purposes. However, absent application

of S809Q this would be not on a transaction-by-transaction basis but

by aggregation of the remittances for the tax year as a whole and

consideration of the work undertaken in the UK over that tax year.

Many expats will have established a S809RA qualifying account

outside the UK to benefit from the special (simplified) mixed fund rules

provided for therein. But in a split payroll situation involving part

payment in the UK then, if S809Q applies to payments from a mixed

fund in the employer’s bank account, the existence of a qualifying

account would not appear to assist in this respect

In this regard we note that. HMRC published FAQs on the special

mixed fund rules in June 2013 – see

http://taxnews.lexisnexis.co.uk/TaxNewsLive/Members/BreakingNews

FullText.aspx?id=4543. This said, they don’t cover a split payroll

involving part payment to a UK bank account, albeit that the Expat

Forum notes from 3 July 2013 (see para 1.23 at

https://assets.publishing.service.gov.uk/government/uploads/system/u

ploads/attachment_data/file/263044/expat-mins-030713.pdf) record

HMRC’s intention to update them to clarify this situation. We think it is

important that the position on split payrolls involving part payment in

No Question Answer

the UK is addressed as soon as possible and that guidance is issued

accordingly.

Finally, we are aware that HMRC’s position is that where an employer

applies PAYE to amounts paid to an expat claiming OWR then the

PAYE is not viewed as a remittance to the UK – see para 1.4 at

https://webarchive.nationalarchives.gov.uk/20130404022753/http://ww

w.hmrc.gov.uk/consultations/expat-mins-oct-2011.pdf. Whilst this is

clearly welcome we query how this tallies with a position that, for a

split payroll, payments made to the UK constitute transfers from a

mixed fund requiring analysis on a transaction-by-transaction basis.

53. US Stimulus Payments

Can HMRC comment please if Economic Impact Payments (stimulus)

from the US government to UK residents are considered UK taxable?

The Economic Impact Payments made under the CARES Act (Coronavirus Aid, Relief,

and Economic Security Act of 2020), to eligible US citizens and green card holders,

are not taxable as income in the UK.