JOINT EXPATRIATE FORUM ON TAX AND NICS: 5 March 2020 · 3/5/2020 · letter. • New Appendix 8 special arrangement set up post 6 April and before the migration exercise in May Reporting,

JOINT EXPATRIATE FORUM ON TAX AND NICS: 5 March 2020

Venue - Chartered Institute of Taxation (CIOT), 30 Monck Street, Westminster, SW1P 2AP 11:00 – 13:25 HMRC attendees: Chair: Steven Wood Secretary: Will Spencer Employer Duties: Michael Dillon-Tang Operations: Elizabeth Nenna, Sean Smith PDC Transformation: Ray Curry, Adam Rowe MEETING NOTE

1. Introductions

1.1 HMRC welcomed everyone to the meeting and thanked CIOT for providing the room and

Eleanor Meredith for making the arrangements.

1.2 HMRC explained that unfortunately Lauren Court could not attend today’s forum,

however as Chair of the forum and Deputy Director of WMBC, she wishes to attend the

forum when she can. HMRC advised that the stand-in Chair and the Secretary have regular

catch up meetings with Lauren, and she is enthusiastic for the forum to be a successful and

useful for all involved.

1.3 HMRC said that the next forum meeting had been pencilled in for Thursday 11th June,

and that a placeholder for member’s calendars would be sent. HMRC said that the meeting

would be a dial-in.

1.4 All attendees introduced themselves, including their role and organisation. The HMRC

attendees were Steven Wood (Forum Chair, Expat Individual Compliance Lead/Technician),

Will Spencer (Forum Secretary & Expat Employer Duties caseworker), Michael Dillon-Tang

(Expat Employer Duties Lead Technician), Ray Curry (PDC Transformation, Appendix 8

project), Adam Rowe (PDC Transformation, Appendix 8 project). Elizabeth Nenna (BT

Operations) and Sean Smith (BT Operations) were due to dial-in later in the meeting.

1.5 HMRC briefly mentioned the Termination sub-group meeting which took place the

previous week and asked if this had been a useful meeting. The comments were, on the

whole, positive. The meeting had been very useful in gaining an understanding of HMRC’s

views, and both sides had been able to debate the issues. There was a consensus that it

would be useful if the notes of the meeting could be shared as soon as possible while the

issues were still fresh in the minds of all. HMRC advised its understanding was that the

notes had been typed, they were just awaiting agreement from all HMRC attendees.

2. EU Exit

2.1 HMRC explained that the EU Exit team had been keen to send a representative to the

forum, however last-minute changes in circumstances had meant this was not possible.

2.2 HMRC said that a forum member had asked for an update on the post-Brexit application

of the UK’s reciprocal social security agreements. HMRC delivered a general response

which the EU Exit team had provided, as follows:

2.3 During the transition period, there will be no changes to social security coordination

rules. Employers and individuals will continue to pay social security contributions in one

country at a time when they move between the UK and EU. This means that UK employees

posted to EU Member States will continue to pay in the UK for the period covered on their

Portable Document A1, even where the period ends after the end of the transition period.

2.4 The UK has entered a period of negotiation with the EU about what our future

partnership with the EU will look like after 31 December 2020 and they have agreed to

address social security coordination as part of this. Gov.uk guidance ‘National Insurance if

you go abroad’ will be updated later this year.

2.5 We will update individuals and employers on any future developments through the usual

communication channels, including the Expat Forum, the Employment and Payroll Group,

the Employer Bulletin and online HMRC guidance.

2.6 HMRC advised that one forum member had asked a series of questions regarding the

EU/UK Withdrawal agreement. HMRC explained that, as these have only been recently

received, they are currently still being considered by the relevant specialists. HMRC said that

it would look to update the EU Exit Q&A log once these queries were answered.

Questions

Q – The Employer Bulletins are a good source of information. There was a ‘Brexit Special’

bulletin a while ago. Does HMRC intend to have any more ‘Brexit Special’ editions, and

would this contain the types of technical queries which forum members are raising?

A – We can certainly ask if there are any further ‘Brexit Special’ editions planned. In terms of

the content, it is likely that this will be more high-level information, rather than a lot of

technical detail. However, the Expat Forum is a good platform for sharing HMRC’s advice on

more specific and technical issues.

Q – In that case it would be useful if HMRC can signpost members to any technical advice

which has been published elsewhere.

A – We will certainly look to do this. We have a good links with our EU Exit team, and so

they will assist us in that respect.

3. Appendix 8 – STBV Special Arrangement

3.1 HMRC explained that part of the project team, tasked with introducing the Appendix 8

arrangement, would now deliver a brief and would happily try and answer any questions.

3.2 HMRC advised that, following on from the previous expat forum back in November, the

project requested volunteers to provide feedback and help shape the PAYE Manual to cater

for Appendix 8. HMRC said that it would like to take this opportunity to thank those who took

the time to review and provide valuable feedback to the project. All the feedback has now

been collated and HMRC have finalised the appropriate changes. PAYE81950 “PAYE

Special Arrangement for Short Term Business Visitors (STBV’s) – Appendix 8” will go live on

6 April 2020.

3.3 HMRC said that now its IT solution has been agreed and nearly developed; some low-

level information of the project’s solution and deliverables can be provided.

Transition of employers onto Appendix 8

3.4 HMRC have developed a solution to move existing special arrangement customers over

to the new Appendix 8 terms and conditions with minimal impact on employers. The solution

is intended to:

• Reduce the risk of employers operating on both the new and old scheme at

once;

• Allow employers to keep their existing PAYE reference number; and

• Requires HMRC to instigate employers to cease their current special

arrangement and sign up to Appendix 8.

3.5 HMRC advised the solution requires its IT supplier to be given a list of employer’s

schemes who have informed HMRC of their desire to move onto Appendix 8, prior to the

migration exercise commencing.

3.6 HMRC explained that it wrote to respective Employers/Agents in December requesting

they inform us of their decision to either be part of Appendix 8 or to cease operating under

the existing special arrangement. It is therefore imperative that employers and agents

respond to us before 6 April 2020.

3.7 The migration event will commence in May and will allow HMRC to move the following

sets of customers onto Appendix 8 without any further intervention:

• Current PAYE special arrangement customers who have responded to the

letter.

• New Appendix 8 special arrangement set up post 6 April and before the

migration exercise in May

Reporting, Paying and Tax

3.8 HMRC advised the tax is due on payments made and grossed up benefits in kind

provided, by 31 May 2021. To ensure a payment is attributed to the correct tax year,

employers will need to use a 17-character reference, which is made up of the 13-character

Accounts Office reference, followed by the last two digits of the tax year, i.e. 21 for 20/21,

and the month of the tax period. The month used should always be 12.

3.9 As happens now, interest will be charged on any tax due which is paid late beyond the

new due date of 31st May.

Current position regarding employer/agent applications

3.10 HMRC took the opportunity to provide forum members with some figures relating to the

volumes of employer’s (and their agents’) responses to the letters regarding transitioning to

Appendix 8:

• HMRC issued 410 letters in December 2019 to current and ceased employers

who joined the PAYE special arrangement prior to September 2019.

• Of the 410 letters HMRC sent out to customers in December 2019 we have

received 98 replies.

• There is currently a 23.9% response rate.

• We are waiting for replies from 312 employers of which 110 have agents.

• A further 52 letters are being issued in March 2020 to an additional 40

employers and their agents who have joined the current special arrangement

since September 2019.

3.11 HMRC advised that any new applications for the current special arrangement that

are made after HMRC writes to the remaining 352 customers in March 2020 will receive

an Appendix 8 Application form with their letter, which they must return to us asap if they

wish to be a part of Appendix 8.

3.12 HMRC advised that the project is currently within the HMRC service level

agreement for working returned application forms.

3.13 The final date for replying to the letters issued is 6 April 2020. If HMRC has not

received a reply by this date the case will not be migrated over to the Appendix 8

scheme and will remain on the old special arrangement. This means that any returns

made after 19th April and payments made after 22nd April will be classed as late and the

employer could incur penalties and/or specified charges.

[POST MEETING NOTE: The deadline to return application forms has been extended to

17 July 2020]

What to do if you do not want to join Appendix 8

3.14 HMRC advised that an employer who does not wish to join Appendix 8 should set a

cessation date for any return made under the current special arrangement, with the last

return being for 2019/20. If the employer subsequently wishes to join Appendix 8 in the

future, they will have to apply again and obtain a new employer reference number.

3.15 HMRC advised that if an employer is likely to want to be part of Appendix 8 in the

future, that employer could always sign up to Appendix 8 now, retain their employer ref

number and submit a nil return annually.

3.16 HMRC will be conducting an exercise late 2020 to ensure any customers on the

current special arrangement who did not migrate over have their arrangement ceased.

These employers will be expected to report and pay the tax due for STBVs through their

usual RTI payroll.

What to do if you’re a new customer (not part of the current special arrangement)

wanting to join Appendix 8

3.17 HMRC explained that for those employers who did not reply to the letter, or new

employers wishing to join the Appendix 8 scheme, they can do so via the application

form available that is embedded in PAYE81950. This will only be made available from 6

April 2020. Employers cannot apply to join Appendix 8 via the application before then.

Further communications

3.18 The project will be reaching out to agents via the Forum, requesting decisions for

your clients who have not yet replied. HMRC Large Business customer relationship

managers will also be communicating the need to do this with their respective

customers.

3.19 HMRC asked the members of the forum to prompt their clients to return the letter to

inform HMRC if they wish to move over/or not.

Questions

Q - Can you please clarify the process for a customer who currently has a Special

Arrangement but do not want a new Appendix 8.

A – We would want the customer to advise us of this by responding to the letter they

have received. We also ask that a cessation date for the scheme is applied to the 2019-

20 FPS.

Q - It is in people’s nature to sometimes forget things. In the situation where a customer

currently has a Special Arrangement, but forgets to reply to the letter to move to

Appendix 8, why can they not subsequently write to HMRC to set up an Appendix 8?

A – To use Appendix 8, the customer will have to sign the application form which has

new terms and conditions. Where the previous Special Arrangement scheme has been

closed, it may not be possible to use the same PAYE reference number. Ideally,

therefore, employers will response to the letter they have received, and be moved across

to Appendix 8 in May 2020.

Q – This question is not specifically regarding Appendix 8 but is linked to this

conversation. Where a PAYE scheme is closed in error, can it be reopened?

A – Operations may need to elaborate on normal circumstances that are not linked to

Appendix 8. Our understanding is in normal circumstances, when a scheme is closed for

a certain amount of time, then the scheme cannot be reopened, and the customer may

need to set up a new scheme.

However, if we are specifically answering about Appendix 8 schemes. The project has

obtained permission to re-open the schemes which have ceased operating under the old

special arrangement and want to be part of the new arrangement. Hence why we wrote

to employers and/or agents who used to operate under the previous special

arrangement. This will allow them to retain their previous PAYE employer reference.

4. Co-Chair

4.1 HMRC referred to previous discussions about the potential of having a co-chair of the

forum. Lauren Court has given her endorsement to implement this, and both Steven and

Will think it would be a positive step to take. HMRC acknowledged that the Employment

Payroll Group (EPG) successfully uses a co-chair, and that HMRC would be happy for

the Expat Forum to mirror how it works for the EPG in practice.

4.2 HMRC advised that it is open to ideas and is flexible at how the co-chair position

would function, however sees it as someone who would be involved in some background

work to agenda items, possible ownership of agenda items, and may canvass views of

the externals before liaising with the forum secretary.

4.3 The general feeling from all was that using a co-chair was a good idea, that it works

well in the EPG, and that the Expat Forum had previously used a co-chair in the past to

good effect.

4.4 If any forum members wish to take up the role, HMRC asked that they email Will

Spencer to make their interest known.

5. Operational & Expat Helpline issues

5.1 HMRC commented that it had received a number of emails from forum members in

regard to issues and problems they and their clients were experiencing, and therefore 30

minutes had been reserved for this agenda item. The externals were invited to raise

specific issues now for discussion.

5.2 An issue was raised regarding s690 applications, and a view given by a forum

member that HMRC was asking lots of unnecessary questions which were delaying the

applications. A further comment was the opinion that part of the problem appears to be

the systems/processes which HMRC use, essentially checking the payroll to trace the

individual, and not processing the application where the individual is not traced. The

member of the forum commented that in some instance’s agents are aware that the

individuals are not on the payroll and are awaiting the s690 agreement before placing

them on the payroll.

5.3 HMRC responded by explaining that efforts will always be made to trace an

individual’s tax records, and even if there is no National Insurance Number the system

may have created a temporary number for the individual. Therefore, HMRC will always

come back to the agent or employer for more information to try and trace the employee’s

records. Where no PAYE record exists currently – i.e. it is a provisional agreement,

HMRC suggested that agents make this clear in a covering letter.

5.4 HMRC further commented that problems for obtaining s690 directions and NT codes

were raised in previous forums. The issue has been explored internally with PT

Operations, as these are issues which are wider than the expat population. One of the

issues is that there is no one team or location which deals with the work, which makes a

consistent approach more difficult. One of the technical advisors on the Wealthy team

has agreed to take forward and raise with the PT Operations Deputy Director.

5.5 Another issue which forum members clients have experienced is receiving Self-

Assessment 2018-19 late filing penalties before the 31 January 2020 filing deadline had

been reached.

5.6 HMRC apologised for this and explained that instances of this occurring appear to be

down to human error, rather than any issue with the automated system. The problem

appears to have occurred where a call has been made to the contact centre to request

that a SA Return is cancelled. If certain steps are not followed by the contact centre

advisor, then the system unfortunately treats the return as a paper return, with a filing

deadline of 31 October, and so a late filing penalty is generated. It is an easy fix to

cancel the penalty, but HMRC will now look to address the causes of the problem with

additional staff training. Elizabeth Nenna (HMRC) asked that any such cases are sent to

her to resolve.

5.7 HMRC announced that, from the end of April, all the Expat helpline calls would be

coming directly to the team in Bootle, rather than going to the contact centre. As all case

handlers would be in one room, and be part of the Expat Operations team, it is

anticipated that some of the issues agents have experienced should begin to be

resolved, and a better service is expected as a result.

5.8 One forum member advised of difficulties in getting through on the helpline. HMRC

advised their understanding that the wait is around 5 minutes currently. The forum

member explained that the problem was more around technical phone difficulties rather

than having to wait i.e. unable to get through at all. HMRC asked to be informed when

this occurs so they can check the systems. The number to call for the Expat Helpline is

03000 533148.

5.9 An issue was raised in regard to Payments on Account (POA) not being generated

on Self-Assessment. HMRC has looked at some of these cases and in some

circumstances, this can be the correct outcome. For instance, where more than 80% of

the tax due is collected via PAYE, then POA are not generated. An external commented

that there was a wider problem around January last year whereby POA were not

generated, and this created much larger balancing payments than individuals were

expecting. The forum member asked for assurances that this problem would not be

repeated this year. HMRC advised it would need to check on this point with PT

Operations, and also the EPG.

5.10 A forum member explained there were still instances of HMRC requesting a P85 to

be completed for an NT code application, however the form clearly states that a P85 is

not required where a SA return is completed. HMRC observed that the cases concerned

may not be ‘Expat’ cases, and therefore may not have been dealt with by the ‘Expat’

Operations team. However, HMRC advised that it would feedback to PT Operations to

try and address this.

5.11 Another concern raised was the additional information which HMRC is requesting

when a call is made to cancel SA filing requirements. The view of a forum member was

that this was unnecessary and is creating admin burden. HMRC advised that it expected

instances of this to reduce when the calls are sent direct to its Expat Operations team

from the end of April onwards.

5.12 A forum member advised that there appears to be a problem where a repayment is

requested to a nominee on a SA Return filed online, however the repayment is not made

and is left as a credit on the account, with additional contact having to be made to HMRC

to request the repayment. HMRC advised that it had looked into this issue and has

identified that there are certain triggers that can stop a repayment. Where the agent e-

filing code/agent’s address does not match the agent code/agent’s address on the form

64-8 which is held on file, the system will think the nominee is different to the authorised

agent on the 64-8, with the outcome that the repayment is automatically stopped, and

then requires manual intervention.

5.13 A member of the forum flagged up a similar issue where a UTR is requested, and

HMRC respond by requesting the NINO, however a lot of Expats do not have NINOs.

HMRC asked that it is made clear on the letter that no NINO exists.

5.14 The final issue raised was in regard to where temporary workplace relief (TWR) is

accounted for in an individual’s tax code. The example given was where £15K of TWR

was included in a tax code but was then left in the code during a year when TWR was no

longer due, so giving rise to a large underpayment. A comment was made that this is

similar to the situation for outbounds, where sometimes qualifying T&S had been coded,

but benefits not coded, consequently resulting in another large underpayment.

5.15 HMRC explained that the problem is that the computer system will not differentiate

between different expenses, or automatically understand when some expenses may no

longer be due. HMRC clarified that the coding would not be able to be changed via the

Personal Tax Account, and a manual intervention is required by HMRC staff. However,

HMRC will be unaware that this is required until contacted by the individual or their

agent. HMRC advised it could not make any promises as system changes could be

expensive, but it would flag up this issue with both Operational Excellence and the EPG.

A forum member commented that similar issues were raised with the EPG in regard to

amending form P11D to include items which were a ‘one-off’.

6. Foreign Tax Credit Relief (FTCR)

6.1 HMRC advised that it has taken longer to get a decision on the FTCR methodology

than it had expected. Technical and Policy colleagues have been involved, and legal

advice taken. HMRC is now in a position where it has arrived at its preferred

methodology, and this methodology has been shared with compliance colleagues to use.

6.2 HMRC explained that Shaun Thomas had originally been planning on speaking at

the December forum regarding this issue, however the forum had been cancelled due to

the general election, and Shaun was not available for today’s forum.

6.3 HMRC advised that Shaun had shared the methodology with compliance team leads,

and were aware that some caseworkers had progressed enquiries on that basis, as they

did not want to prolong cases any further than necessary. HMRC apologised that it was

not possible for the forum to be updated before these enquires were progressed, and

that the cancellation of the December meeting had contributed to that. Shaun has

advised he would be willing to arrange to speak to the forum, but the method of

communication is yet to be decided. HMRC advised it would cover the main points now

so that the forum can get an idea of the methodology but would not be able to enter into

technical debate on it at this time.

6.4 HMRC talked through the steps of the methodology, and also provided an example

situation to illustrate how it works. HMRC’s methodology in applying section 36 to limit

the amount of foreign tax credit in respect of foreign employment income requires the

following steps to be taken:

• Identify items of foreign income that have been taxed and which arise from the

employment in a particular territory.

• Ascertain whether these items of foreign income are included in the UK income tax

computation and thus doubly taxed: income that is exempt from UK income tax (for

example, pension contributions) are not doubly taxed, and such items of foreign tax

credit are not allowed under section 18(2) and do not enter into the section 36

computation.

• Aggregate the foreign tax credits that are allowed under section 18(2) on doubly

taxed income.

• Aggregate the items of foreign income on which the foreign tax credit is allowed

under section 18(2), and calculate the income tax that would be chargeable on that

aggregated income (using the formula in section 36(2)), taking into account any

amounts permitted as deductions under the Employment Code (for example,

deductions for accommodation).

• The amount of foreign tax credit allowed under section 18(2) in respect of foreign

income arising from the employment in the foreign territory must not exceed the

amount of the UK income tax charge that would be computed on that foreign income

applying the formula in section 36(2).

6.5 A forum member commented that the methodology does not take into account areas

of disagreement, and so was concerned that following rigid steps may result in arriving at

a wrong answer. The forum member hoped an agreement could be reached in regard to

general principles, and where a return broadly comes to the right answer, but doesn’t

follow the steps, there is a hope HMRC can agree.

6.6 A further comment was that the methodology seemed to miss the point of why this

issue was raised originally, clarifying that the problem is not in identifying the income; it is

in identifying the rate of tax. Further to this another member of the forum commented that

HMRC seems to have nominated income charged at 40% as the piece of income that is

doubly charged. The forum member doubted whether or not this would be the case.

6.7 HMRC said it appreciated the concerns which had been raised and agreed to

feedback these comments and questions to the technical lead, as these may form part of

the more detailed technical discussions that may need to be had on this.

7. Accountancy Fees

7.1 HMRC advised that it has been asked if it is planning to review the agreed amounts

for accountancy fees for tax equalised employees, and confirmed these are currently

£275 for one return, and £700 for both home and host country returns. HMRC advised

that the last review was in April 2017 and, because RPI remained relatively low since the

date of the last increase, the amounts were not changed.

7.2 HMRC advised it did now want to review the amounts, and that it was considering

reaching out to forum members to check how amounts for accountancy fees have

changed. HMRC said that it believes this would result in a more realistic figure than just

looking at RPI. A forum member commented that parts of Government are using CPI

rather than RPI, so this is something which HMRC may want to consider. Another

commented that fees have not necessarily increased, and in some circumstances they

may have gone down. HMRC said that this was precisely why it now wished to reach out

to agents to agree more realistic amounts. HMRC said it would update the forum once it

had considered further.

8. Q&A log – Q36

8.1 HMRC reminded the forum that this issue had originated from a query about the

UK/UAE double taxation treaty. HMRC apologised for the length of time it was taking to

resolve and explained that there had been many internal discussions on the subject.

8.2 HMRC explained that there are two opposing interpretations in relation to the

Employment Income Article’s definition of a resident of a contracting state. One of these

interpretations is that the residence status is considered at the time of payment, whilst

the other is that it is considered in relation to the earnings period. HMRC said that there

was support internally and externally for both interpretations, and that there was

evidence of compliance checks being conducted on each basis.

8.3 HMRC advised that the Expat team has collaborated on a submission being

compiled by the Treaty Team, and that HMRC hopes to come back to the forum soon

when a final decision has been made.

Questions

Q – Will HMRC provide a final view or a draft of its view?

A – HMRC intends to publish the Tax Treaty Team view.

Q – Will the view be consistent with the Termination sub-group minutes?

A – HMRC understands the need for consistency and will liaise with the termination

payments specialist to ensure this.

Q – Does HMRC have a timeline for publishing its view?

A – Unfortunately we cannot give a definite timeline at this stage. The issue has taken

much longer that we had hoped.

Q – Once HMRC decides which interpretation is correct, will it give consideration to the

treatment which the treaty partner country applies?

A – HMRC has already flagged this up internally and it may be that it is tested via the

Mutual Agreement Process (MAP), although preferably it would be considered before if

possible.

9. Q&A log Q37

9.1 HMRC apologised for the length of time that this issue is also taking to be resolved.

9.2 HMRC is aware, from previous discussions, that forum members wish to be involved

in the debate where they can. HMRC is also aware that this issue has been ongoing

longer even than Q36, and therefore the Expat Team is pushing for a resolution. HMRC

will keep forum members updated as soon as there is more to feedback.

Questions

Q – This issue has been going on a long time, and HMRC set out their view around 10

years ago. In light of the fact that the issue is still up in the air, if clients have taken a

reasonable view, will HMRC look understandably on this?

A – HMRC is likely to look understandably in relation to the past period where employers

have acted reasonably, prior to any clarification. It is unlikely there will be any appetite to

look back at previous years directly in relation to this issue. HMRC disagrees that the

issue is still up in the air, as a statement of HMRC’s view was delivered at a previous

forum meeting.

Q – HMRC gave a clear position several years ago that the “all or nothing” approach was

correct. I therefore believe it would be a change of practice if HMRC deviated from this

approach and suggest that HMRC only considers doing this from the start of a tax year.

This is because employers and their software programmes are set up for an “all or

nothing” basis, and therefore time will be needed to make the appropriate system

changes.

A – HMRC doesn’t necessarily agree this would be a change of practice as the expat

team, for instance, have been advising customers of the apportionment basis for a

number of years, HMRC will consider the timing issue along with the other forum

concerns.

Q – Is HMRC considering a consistent approach with overseas jurisdictions? There does

not appear to be consistency currently, for example if an individual transfers to a local

employment in the US, 100% of earnings (even if deferred) would be subject to US

social security deductions.

A – HMRC accepts that there are circumstances where there is a UK NIC charge but this

has not been pursued, however in general HMRC is of the view that if there is a period of

UK insurability, then the UK should have its share. The expat team has asked that any

guidance clarifications include issuing arising from double charging.

Q – It would be helpful for HMRC to give a statement of where we are and publish their

view, including clarifying if it is a change of view. More clarity is required than just an

announcement through the Expat Forum.

A – We will feedback to our technical and policy colleagues, and we agree that the

current situation is not acceptable and requires clarity.

10. Mixed fund rules/split payroll

10.1 Although this was not on the agenda, HMRC wanted to use the opportunity to give

a quick update to the forum. This is something which has been raised by forum

members, and HMRC believes a wider understanding is required. HMRC has therefore

referred it to technical colleagues, with the intention to publish for a wider audience i.e.

everyone, not just the forum. The hope is that this will combat any inconsistencies which

may have arisen in methodology.

Q – The rules are complex; is it possible for them to be changed?

A – We can feed this back and flag it up.

Q – Due to the rules being unclear, it has been difficult to reply to HMRC

correspondence relating to this issue.

A – HMRC will need to consider issues like penalties and the past period, and we intend

to publish our overall approach in the Q&A log.

11. AOB

Q – I understand that HMRC’s digital design team are looking at the process for agent

authentication. It would be useful to understand the approach which will be taken where

expats are concerned.

A – Please put this in writing to us, and we can escalate to the right team for

consideration.

Q – There is talk of a potential US/UK trade deal. Can HMRC speak to the US about the

fact that no single UK pension plan is deemed a foreign trust by the US?

A – Please put this in writing to us, with full details, and we will consider who it would

need to be referred to.

11.1 HMRC advised that the main hot topic of recent days has been how the

Coronavirus situation impacts on the exceptional circumstances rules for the Statutory

Residence Test (SRT).

11.2 HMRC said that the situation is clearly in flux, however its specialists prepared the

following wording to be delivered to the forum:-

11.3 Whether days spent in the UK can be excluded from the day count, for the

purposes of the statutory residence test, depends on the specific facts and

circumstances of each case.

11.4 The circumstances have to be exceptional, beyond the individual’s control and the

circumstances must prevent the individual from leaving the UK. In relation to the

coronavirus, we take into account the travel advice issued by the FCO – where this is to

avoid all travel, this may meet the criteria for exceptional circumstances. However,

current FCO advice to avoid all but essential travel would not meet the criteria. We make

a distinction between the two levels in our guidance.

11.5 HMRC are not prepared in advance to give confirmation that exceptional

circumstances will be allowed. Where it is agreed that days spent in the UK are due to

exceptional circumstances, the maximum amount to be disregarded in any year is 60

days.

11.6 Self-isolation is not in itself relevant, it is why the individual is in the UK; the self-

isolation may prevent him/her from leaving the UK but that is only one leg to the test for

exceptional circumstances.

11.7 HMRC advised that, in summary, if an individual thinks that the coronavirus has

affected their residence status then they will need to look at the rules and make a claim

for exceptional circumstances, and HMRC will consider the merit of the claim.

11.8 Some members of the forum voiced their disappointment with HMRC’s approach,

and asked if a much wider blanket approach could be applied during the current crisis,

and also could HMRC consider extending the number of days disregarded from 60 up to

(say) 3 or 6 months?

11.9 HMRC advised it would feedback the members views to the appropriate specialists.

A forum member commented that some public statement by HMRC for this significant

issue would be much appreciated.

11.10 [POST MEETING NOTE: The guidance at RDRM11005 has been updated to

further clarify what circumstances HMRC would consider to be exceptional in relation to

Coronavirus]

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. 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.

No Question Answer

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?

[email protected]

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:

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,

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. 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.



mailto:[email protected]


No Question Answer

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?

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

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

No Question Answer

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: … “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.

• 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

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. 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?

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.

• 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

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.

No Question Answer

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?

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 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.

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.

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:

No Question Answer

• 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 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?

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.

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

No Question Answer

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.

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.

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye82002


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— (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.

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

(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.

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

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

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?

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.

No Question Answer

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 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).

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 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. 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

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




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 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.

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

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 would seem to disagree with the guidance on first view. If that were the case, what would be the recommended alternative?

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: [email protected]

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:



https://read.oecd-ilibrary.org/taxation/model-tax-convention-on-income-and-on-capital-condensed-version-2017/commentary-on-article-15_mtc_cond-2017-18-en

https://read.oecd-ilibrary.org/taxation/model-tax-convention-on-income-and-on-capital-condensed-version-2017/commentary-on-article-15_mtc_cond-2017-18-en

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

• Arrears of earnings (para 2.4)

• 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 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.

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

TB 68 - STBV 60 day

rule.docx

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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.

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

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,

http://internal.active.hmrci/manual/national-insurance-manual/nim06915




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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. 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?

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.

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.

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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.

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

(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.

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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: ► 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

(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.

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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.

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 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

(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.

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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 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.

(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.

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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 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.

Questions 30.1 – 30.4 are currently being considered.

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► The second scenario is where none of the specific employment income is taxable specific income because of the period. 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. 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:

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‘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.’

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?

(32.1) 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.

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(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)? (32.4) 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.

(32.3) 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. (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.

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(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: ► 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.

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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)? (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

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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? 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 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.

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► 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 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?

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(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 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)?

33.11 to 33.12 have been logged, however we do not envisage being able to provide a response.

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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, 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? (33.15) How do HMRC expect the foreign tax offset rule for member payment charges referred to in

(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.

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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 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?

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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.

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?

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.

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(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?

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. Our question is how HMRC would expect to source such payments for the purposes of the employment income article under a double tax

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.

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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.

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

We are unable to provide a direct response to this question. The relevant specialists have recommended making a non-statutory clearance request.

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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?

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.

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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 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

https://www.gov.uk/guidance/work-out-if-youll-pay-the-scottish-rate-of-income-tax




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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.

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.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/763042/Agent_Update_-_issue_69.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/763042/Agent_Update_-_issue_69.pdf

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***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: 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

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. 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.

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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).

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.



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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 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. 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

Internal stakeholders within HMRC are actively working on this matter. A response will be provided as soon as possible.

No Question Answer

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/BreakingNewsFullText.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/uploads/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 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://www.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

http://taxnews.lexisnexis.co.uk/TaxNewsLive/Members/BreakingNewsFullText.aspx?id=4543




https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/263044/expat-mins-030713.pdf




https://webarchive.nationalarchives.gov.uk/20130404022753/http:/www.hmrc.gov.uk/consultations/expat-mins-oct-2011.pdf




No Question Answer

split payroll, payments made to the UK constitute transfers from a mixed fund requiring analysis on a transaction-by-transaction basis.

Documents

JOINT EXPATRIATE FORUM ON TAX AND NICS: 5 March 2020 · 3/5/2020 · letter. • New Appendix 8 special arrangement set up post 6 April and before the migration exercise in May Reporting,