Category: Personal Tax

Tax residence when coming to the UK

Letter of Confirmation of Residence

It can be daunting going to work in a foreign country, or coming to work in the UK. Understanding how tax and social security are affected by making such a move can add to the list of complexities you have to deal with.

CONFIRMING UK TAX RESIDENCE

As a new UK resident, foreign tax authorities are often forthcoming with their requests for proof of UK tax residence. The tax authority in Greece for example may require a former resident of Greece to prove that he or she is now regarded by HMRC as a resident of the UK. Customers may also want HMRC to confirm that they are regarded as UK resident so that they can claim relief from foreign taxes which they might be entitled to under the domestic law of the foreign state rather than under the terms of the UK’s DTA with that other state.

Our personal tax desk at Mouktaris & Co is thoroughly versed in the process of obtaining proof of UK tax residence. As a first step, it’s important to distinguish what exactly is required.

LETTER OF CONFIRMATION OF RESIDENCE VS CERTIFICATE OF RESIDENCE (COR)

A Letter of Confirmation of Residence is confirmation that the taxpayer is regarded by HMRC as a resident of the UK for purposes other than claiming relief from foreign taxes under the terms of a Double Taxation Agreement (DTA).

The worked required to obtain a Certificate of Residence (CoR) on the other hand is more involved and will require the taxpayer to outline the following:

  • why a CoR is needed
  • the double taxation agreement under which a claim is sought
  • the type of income under which a claim is sought and the relevant income article
  • the period for which the CoR is needed

TAX RESIDENCE WHEN COMING TO THE UK, OR LEAVING THE UK

Having moved to the UK, an overseas assignment may turn out to be a permanent move; similarly a stint abroad may be intended for a finite length of time. In any case the length and timing of one’s time spent outside the UK, any return visits made to the UK and what personal ties are maintained with the UK are important. These factors will determine tax residence when coming to the UK in the year of arrival, or leaving the UK in the year of departure. The taxation of residents and non-residents is very different.

  • The starting point is the Statutory Residence Test (SRT), in which you are either UK resident or non-resident for the whole tax year. Provided that you continue to meet the Statutory Residence Test conditions in any given tax year (6 April – 5 April), you are considered UK or non-UK resident.
  • If however during a tax year you start to live or work abroad, or come to the UK, then ‘split year treatment’ may apply. There are 8 cases where the criteria for ‘split year treatment’ can be met:
    1. Starting full time work overseas
    2. The partner of someone starting full time work overseas. Under UK law, spouses and civil partners are generally treated entirely separately for tax purposes. This means that the tax residence position of your spouse or civil partner needs to be considered based on his or her own facts and circumstances. However, in some cases it can be influenced by your own tax residence position.
    3. Ceasing to have a home in the UK
    4. Starting to have a home in the UK only
    5. Starting full time work in the UK
    6. Ceasing full time work overseas
    7. The partner of someone ceasing full time work overseas
    8. Starting to have a home in the UK
  • Where the conditions are met this splits the tax year into 2 parts:
    • A UK part for which you are UK resident, in which you are charged to tax as a UK resident
    • An overseas part for which you are non-resident, in which, for most purposes, you are charged to tax as a non-UK resident. ‘Split year treatment’ however does not affect whether you are regarded as UK resident for the purposes of a double taxation agreement.

ADVISING ON TAX RESIDENCE IN THE YEAR OF ARRIVAL OR LEAVING

Based on the above and in order to advise properly, it’s important to:

  1. understand one’s motivations for leaving or coming to the UK, under one of the 8 cases above;
  2. clarify one’s intended leaving or arrival date and the conditions and constraints for spending time in and out of the UK during the tax year;
  3. appreciate and quantify the repercussions of not achieving ‘split year treatment’ in a particular tax year both in terms of UK and non-UK taxation, and subsequently identify what would be required to achieve non-UK-residence status in the subsequent tax year

Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.

Self-employment Income Support Scheme Accountants

Coronavirus: Help for the Self-employed

Expanding the UK Government’s measures to protect people and businesses from the economic impact of coronavirus, the Chancellor now focused on self-employed individuals (including members of partnerships) whose incomes have suffered.

The Self-employment Income Support Scheme, announced on 26 March 2020, will come as a welcome relief to those in self-employment, who comprise 15.3% of the UK’s workforce. The new scheme will cover 95% of those who are self-employed.

Under the scheme, a grant will be provided to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month. This brings parity with the Coronavirus Job Retention Scheme, announced by the Chancellor last week, where the Government committed to pay up to £2,500 each month in wages of employed workers who are furloughed during the outbreak.

Second lump sum for self-employed [29/05/2020 UPDATE]
The Chancellor has announced a second and final grant to the self-employed who are eligible for the Self-employment Income Support Scheme (SEISS), based on 70% of earnings and capped at £6,570.

HMRC has confirmed the same eligibility criteria will be used to establish self-employed individuals’ entitlement to a further SEISS grant; the grant will be 70% rather than 80% of average earnings for three months and the maximum amount will be capped at £6,570, down from the £7,500 for the first grant. Applications will open in August and HMRC expects to publish further guidance on 12 June. As with the first claim, the second claim has to made by the taxpayer and cannot be made by agents.

QUALIFYING FOR THE SCHEME

  • Self-employed or a member of a partnership
  • Lost trading or partnership trading profits due to coronavirus (Covid-19)
  • Filed a Tax Return for 2018-2019 as self-employed or a member of a trading partnership
    • Eligible individuals who have not yet submitted 2018-2019 Tax Returns will have another four weeks to file in order to become eligible for this scheme (at time of writing a deadline of 23 April 2020).
    • Not applicable to anyone who started trading in 2019-2020.
  • Traded in 2019-2020 and were trading up until the point of application (or would be except for coronavirus)
  • Intend to continue to trade in the tax year 2020-2021
  • Trading profits of £50,000 or less and more than half of your total income come from self-employment. This can be with reference to at least one of the following conditions:
    • Trading profits and total income in 2018-2019
    • Average trading profits and total income across up to the three years between 2016-2017, 2017-2018 and 2018-2019.

We are doing everything we can to help our business community. If you would like to discuss how the changes or the coronavirus pandemic may affect you or your business, please do not hesitate to contact us on 020 8952 7717 or use our online enquiry form.

proactive and reliable accountants

Negotiating time to pay with HMRC

HMRC has published details of the specific helpline to contact, but it’s not known whether HMRC will change its usual approach to time to pay, for taxpayers who are having difficulty paying.

The following usually needs to be considered when negotiating time to pay with HMRC.

WHEN TO MAKE CONTACT – In general it is advisable to contact HMRC as soon as difficulty making payment is expected. However, HMRC’s systems do not easily facilitate setting up a payment arrangement too far in advance, so the best time to phone HMRC is usually one to two weeks in advance of the due date for payment.

MAKE SURE RETURNS ARE UP TO DATE – HMRC is more amenable to agreeing time to pay if returns are up to date and the correct liability has been established.

CASH FLOW FORECASTS AND BUDGETS – Before phoning HMRC it is advisable to have financial forecasts and a statement of assets and liabilities available. HMRC will expect the taxpayer to make the best offer they can and will not usually make suggestions about the amount it will accept as a regular payment.

HMRC STAFF AUTHORITY TO AGREE TIME TO PAY – HMRC will usually expect to set up a regular monthly payment plan with collection by direct debit. Most HMRC debt management contact centre staff have authority to agree time to pay over a period of up to 12 months. Longer periods can be arranged but usually need to be escalated to more senior HMRC staff.

EXPECT ROBUST QUESTIONING – We don’t know to what extent HMRC staff will be more sympathetic to requests for time to pay in the current environment but in normal circumstances negotiating time to pay can involve what feels like personal and intrusive questioning. It is important to make HMRC aware of all information which might be relevant to the payment difficulties, as calmly and professionally as is possible in what may well be extremely difficult circumstances.

NO AGREEMENT MAY BE BETTER THAN AN UNAFFORDABLE AGREEMENT – It is often better to conclude a phone call to HMRC having failed to reach an agreement than to agree to an arrangement which the business can’t afford. If a time to pay agreement is not kept to it is difficult to get HMRC to reestablish it and HMRC will be more reluctant to make agreements in the future. If circumstances change it is advisable to contact HMRC, before missing any payments, to renegotiate the arrangement. If a formal time to pay arrangement cannot be reached it is usually advisable for the taxpayer to pay what they can when they can as this shows willingness to pay and may delay further enforcement action by HMRC (this approach may not be appropriate if insolvency is likely and further advice should be sought in this situation).

FUTURE TAX LIABILITIES – A standard term of HMRC time to pay agreements is that future tax liabilities are paid in full as they fall due. Where this is not possible it is necessary to contact HMRC again to renegotiate the arrangement to include the new debt. HMRC is often reluctant to agreed repeated requests for time to pay but may be more amenable in the current situation.

WHICH DEBTS TO PRIORITISE – HMRC is usually more willing to consider agreeing time to pay for profits based taxes such as income tax and corporation tax than for taxes such as VAT and employees’ PAYE and national insurance contributions, which businesses are effectively collecting on behalf of the exchequer. The usual advice is to prioritise paying VAT and employer liabilities as HMRC pursues these more actively. We don’t yet know whether this will change in the current situation; there has been some speculation that the Government may be minded to focus assistance on VAT and employer liabilities but no announcement has been made.

LATE PAYMENT PENALTIES – An advantage of a formal time to pay arrangement is that late payment penalties will not be charged if the arrangement is in place at the trigger date for the penalties. We don’t yet know whether HMRC will be more willing to waive late payment penalties in the current situation but the helpline page suggests that the cancellation of penalties will at least be explored.

INTEREST – In normal circumstances HMRC does not waive interest unless the delay in making payment is somehow directly attributable to HMRC. We don’t yet know whether HMRC will be more willing to waive interest in the current situation but the helpline page suggests that the cancelling of interest will at least be explored.

ALTERNATIVE WAYS TO CONTACT HMRC – As well as the COVID-19 helpline HMRC has regular payment helplines. Large businesses with a customer compliance manager should contact that individual. If the debt is a result of a compliance check any anticipated difficulty with making payment should be discussed with the compliance officer, ideally before reaching final settlement.

We are doing everything we can to help our business community. If you would like to discuss how the changes or the coronavirus pandemic may affect you or your business, please do not hesitate to contact us on 020 8952 7717 or use our online enquiry form.

Offshore income tax investigation

Offshore Income: in the Firing Line of the Worldwide Disclosure Facility

As predicted, HM Revenue & Customs (HMRC) has started firing, quite unpredictably, Certificates of tax position concerning offshore income or gains. In the firing line are taxpayers who the revenue believes have not correctly disclosed their worldwide income to HMRC. The requirement for a UK resident to disclose and pay tax on all overseas income and gains is age-old, but was often overlooked: clouded by the murky waters that separated national tax positions. Now the gunpowder, or information source, are the Common Reporting Standards (CRS), a commitment by over 100 countries to exchange taxpayer information on a multilateral basis and increase international tax transparency.

Past, Present or Future?

Taxpayers are being encouraged to use HMRC’s Worldwide Disclosure Facility (WDF) to come clean and disclose their non-UK income and assets, including additional tax liabilities together with penalties and interest. This could include income arising from a source outside the UK, assets situated or held outside the UK or activities carried on wholly or mainly outside the UK. The challenge can surmount to a daunting prospect for wealthy individuals with global, inter-connected and complex tax affairs. The declaration will affect not only past, but also future tax liabilities.

As part of the disclosure, made via the online Digital Disclosure Service, the taxpayer also needs to self-assess his or her behaviour, ranging from “careless” to “deliberate and concealed”. This self-assessment is an integral part of disclosure that determines the penalties applied and whether further action is warranted. Understanding the spirit of the Requirement to Correct (RTC) legislation is therefore crucial, for mis-reporting could compound the already very penile penalty rate, equivalent to 200% of the tax liability which should have been disclosed to HMRC under the RTC but was not. Rather frightfully, HMRC reserves complete discretion to conduct a criminal investigation in relation to the disclosure, whether it appears to be complete or incomplete.

The inevitable question arises: how much does HMRC now know, or rather, not know.

Tax investigations can be stressful if you are going it alone and most often merit professional advice. Our team of advisors in North West London is here to help. 
Contact Mouktaris & Co Chartered Accountants to ensure that you report correctly and avoid the potential repercussions, of getting it wrong.

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