Joint Forum on Expatriates Tax and NICs
Note of meeting 15 January 2009
1st Floor conference roomEuston Tower
286 Euston Road
London
NW1 3UQ
Present
Visitors
KPMG - Barry Cocks, Steve Wade
BDO - Amanda Sullivan
PwC - Eleanor Meredith, John Pritchard
Baker Tilly - Martin Benson
Grant Thornton - Peter Ashby, Matthew Fox
Deloitte - Robert Hodkinson, Philip Paul
Ernst & Young - Cathryn Kay, Rosemary Martin
Wrotham - Mavis Sargent
Travers Smith - Victoria Nicholl
IPPM - Elaine Gibson
ICAEW - David Treitel
CBI - Rose Tormo, Benjamin Webb
LCCI - Philip Fisher
Shell - Will Thompson
Zurich - Lucie Holland
British American Business John Havard
HMRC
CAR (CPTT) - Colin Gibson, Martin Dwyer, Chris Edge, Lindsey Williams
CAR Residency - Andrew Edwards
CAR Pensions - Jane Truelove
CAR ESSU - Jon Clarke
Business Customer Unit - Kate Ramm
PAYE NIC Policy Technical - Mark Frampton
PAYE Technical - Graham Lewis
Introductions and apologies
Kate Ramm opened the meeting by explaining that unfortunately her colleague,
Don Macarthur, the co-chairman, was unable to attend and that she would
be
deputising for him. All delegates around the table were then invited to
give their
customary introductions.
Q and A log
Q1 and Q3 were to be addressed as an agenda item under the heading of Pensions Issues.
Q6 - this question concerned the method to be adopted when counting days for treaty residence purposes. The answer provided by HMRC was felt by some external delegates to represent a change of policy. Furthermore, it was felt that the answer given was in contradiction of previous guidance provided through the forum. If this was indeed a change of policy, delegates required clarification of precisely from when this would apply.
Unfortunately, the HMRC Technical Specialist who had provided the response was unavailable to attend this meeting. Nevertheless, it was agreed that HMRC representatives would go back and check the position with a view to reporting back as soon as possible. In any event, it was confirmed that this particular specialist would be attending the next meeting scheduled for 16 April 2009.
HMRC structural changes
Colin Gibson explained that CPTT had been brought into the Charity, Assets and Residence (CAR) business of HMRC. A new High Net Worth Unit is being set up in place of the Complex Personal Returns teams. It will deal with the tax affairs of a smaller number of individuals who have significant income and or wealth. The Expat Unit for which he has responsibility will be based wholly in Manchester. Initially the work will continue as before but the aim is to create a new ‘globally mobile unit’ (the name has not yet been agreed) which will be aligned with the existing Residency business.
The intention is that the High Net Worth Unit will be operational by 1 April 2009. It will not be possible logistically to arrange for the movement of all Expat work to Manchester at one stroke and the plan is for a managed approach with all the work moved into Manchester by late 2009. The aim is that the globally mobile unit will be operational with any redefined customer base by 2010.
Delegates were interested to know how customers were to be notified of these changes and in particular the fact that their tax affairs would now be handled by other parts of HMRC. The High Net Worth Unit will deal with considerably fewer taxpayers than currently are handled by HMRC Complex Personal Return Teams. Approximately 20,000 cases had already been identified as not meeting the high net worth criteria and moved out of CPTT. Letters explaining this are being issued to all relevant customers and their agents.
External delegates observed that some residence investigations handled by CAR Residency appear to move very slowly. They queried whether or not this new globally mobile unit being part of the overall CAR structure, might provide an opportunity for streamlining to address this. Colin Gibson said that the work on the new unit would look critically at all aspects of Expats and Residency. Under the new arrangements it will be possible for parts of CAR to work even more closely together than they had possibly done previously.
Delegates asked for clarification of the role of Specialist Investigations in relation to globally mobile cases. It was confirmed that there would always be a role for SI and indeed they were currently involved in looking at avoidance arrangements which affected inward expatriates and which relied on the use of short term lease premium arrangements involving an EBT. Where SI were looking at such matters, however, they would not act alone. CPTT have developed close links with SI colleagues so as to ensure that the taxation principles applied in respect of inward expatriates and indeed, through this forum, the assurances given as to how these will be applied should be upheld.
HMRC confirmed that all 2008-2009 SA returns for inward expatriates would be issued from Manchester and would be expected to be returned to Manchester in due course. It was recognised that some employers have a large inward expatriate population and may need to work more closely with CPTT than others to ensure that the movement of responsibility into the Manchester office causes them minimal disruption.
Kate Ramm explained that HMRC had recently created a Business International Directorate. Although in the main this would impact more on business cases, taking responsibility for some of the work currently done within CT and VAT, the Tax Treaty teams will also move into this Directorate.
UTRs
Reference was made to an article which had appeared on the HMRC website recently and which mentioned a fast track for obtaining UTRs in business cases. HMRC representatives confirmed that this was purely aimed at the self-employed and was not capable of extension to employees in general on inward expatriates in particular.
A number of the Big 4 firms had been in contact with CPTT recently explaining that they wished to submit tax returns before the 31 January 2009 deadline but had not yet received confirmation of UTRs in certain cases. This was an issue that had been raised at previous meetings of this forum. Arrangements within CPTT were such that whenever an employer provides notification of a new inward expatriate starter, a UTR is generated and issued. Since 2008-2009 SA returns are required, the inference must be that these individuals held assignments which commenced prior to 5 April 2008.
It appeared likely therefore that the employer had not provided confirmation
to CPTT of the commencement of these particular assignments. Delegates were
asked to ensure that their clients did indeed provide timely notification
to CPTT of the commencement of all assignments. For the cases in question,
their notification at this late stage would indeed result in the issue of
a UTR and indeed a tax return for the year ended 5 April 2008. As is normal
practice, HMRC would allow a period of three months from the date of issue
of the return before any automatic penalties for return failure were imposed.
However, the individual still had an obligation to give
notification of chargeability in accordance with Section 7 TMA 1970 and
to ensure that any tax due was payable on or before 31 January 2009 in order
to avoid exposure to Section 86 TMA 1970 interest or Section 7 TMA 1970
penalties in this regard.
Some delegates explained that whilst they were indeed aware of the Section 7 TMA 1970 position, they had first-hand experience of being given assurances from CPTT sites that no penalties whatsoever would be charged provided that the return was submitted within the three month window. It was agreed that HMRC delegates needed to ensure that CPTT staff were made fully aware of the consequences arising in such cases so that they did not give misleading information in this respect.
External delegates suggested that for those cases for whom UTRs remained
unknown, they would have to make arrangements for tax to be paid on or before
31 January 2009. They asked whether or not there was any simple method of
doing this which would help to trace the payment once the UTR had been provided.
Whilst it was accepted by HMRC that payments made in this manner (without
a covering UTR) would need to be held in a suspense account for subsequent
allocation once the UTR was known, there was no particular advice they could
offer regarding how such payments should be made. What was relevant was
that the tax was indeed paid on or before the due date and that sufficient
evidence to support this was held by the payer or agent should this be required
by HMRC in due course.
New EP Appendix 6 procedures
Martin Dwyer confirmed that within a previous Q and A log HMRC had shared with delegates the draft version of a revised EP Appendix 6 agreement which had been updated to reflect the FA 2008 changes and in particular the removal of personal allowances where overseas workdays relief was factored into the PAYE calculations. Delegates were advised that a 'what’s new' message would be published on the HMRC website shortly, pointing out that steps were now being taken to notify employers who operate EP Appendix 6 arrangements to use the new version from 6 April 2009. This version also contains a reference to the form P46 (Expat) which will be introduced from 6 April 2009 and at the same time HMRC has taken the opportunity to update the wording of EP Appendix 7A and 7B to both clarify the relationship between EP Appendix 6 and EP Appendix 7A and to explain what is required by way of year end returns under EP Appendix 7B. HMRC hold details of those employers who have entered into modified PAYE arrangements under EP Appendix 6 and over the next few weeks will be writing to these to invite them to use the new version from 6 April 2009.
Where employers or their agents note that their clients have not received such correspondence, this might be suggestive of the fact that the HMRC records are deficient and they are asked to contact CPTT for clarification of the position as it affects them. Any employers who approach CPTT before 5 April 2009 wishing to enter into an EP Appendix 6 arrangement for 2008-2009 will be invited to use the newly-worded version. This confirms that where overseas workdays relief is taken, code OT should be applied so as to give the benefit of the lower and basic rate bands.
There is also a requirement for forms P45 to be submitted, although some latitude has been given to allow this to be done at each year end. HMRC made it clear that there was no scope to dispense with the necessity of forms P45 within the modified PAYE arrangements.
CAR update
Andrew Edwards explained that the Schedule 7 FA 2008 stakeholder group had had a number of meetings and had identified about 100 issues associated with the practical implementation of the FA 2008 rules. These were to be addressed in a variety of ways, including possible changes of legislation, the preparation and issue of guidance and clarification on certain points through the issue of Q and As.
As far as any proposed changes of legislation were concerned, these are clearly matters for Treasury Ministers. Progress is being made regarding the preparation of draft guidance and it is HMRCs intention to have this available for publication by the end of March 2009. A number of additional Q and As were issued via the HMRC website yesterday but it is HMRCs intention to publish further Q and As to address the need for further clarification in certain areas.
Once the modernised guidance becomes available, it will be HMRC's intention to withdraw the current version of IR20. Work regarding the content of the replacement guidance for the IR20 is underway and it is HMRC's intention to circulate this in draft to appropriate stakeholders for comment as soon as possible.
The new residence and remittance basis pages for 2008-2009 are now available to be downloaded via the HMRC website, although at this stage the accompanying notes have not yet been published.
In the light of the Schedule 7 FA 2008 changes HMRC is looking at its internal procedures to ensure these fit with the new rules. HMRC will be making changes to its procedures to improve customer service in connection with this area and where appropriate will explain any changes before 31 March 2009.
Some delegates felt that the Q and As did not always make full sense as it appeared that some of the questions had been edited. HMRC confirmed that some editing was necessary in order to preserve confidentiality since the questions had been based on real life cases. If doing so created confusion, that was unfortunate, but the intention was simply to publish all Q and As that had been resolved on this issue. If the answers given prompted further questions, that was perfectly acceptable.
Delegates requested confirmation of a date from which the approach outlined within the new IR20 would apply, pointing out that it would be convenient if this could be from 6 April 2009. HMRC explained that the IR20 was guidance only. Naturally, its content would change to acknowledge the existence of the new legislation and indeed recent tax cases. Guidance does not have commencement dates.
HMRC pointed out that there was a HMT, HMRC and stakeholder group looking at whether or not there should be a statutory residence test. This work is continuing and the group are considering many ideas which have been put forward. Whatever solution is proposed must not have a detrimental tax cost effect to the Exchequer.
HMRC confirmed that Schedule 7 FA 2008 makes Statement of Practice 5 of 1984 redundant. However, through the stakeholder group, HMRC have been made fully aware of the difficulties which this creates and are looking urgently at how this can be addressed. Suggestions for legislative change have been proposed by stakeholders and these are all being carefully considered.
Pensions
Unfortunately, the promised pensions guidance for expatriates was not yet available for distribution. It did exist in draft form but still required further input to thrash out various employment issues. It is anticipated that this work will be done in the next few weeks and thereafter the guidance will be distributed.
The Q and A log asked for clarification of other issues and this was addressed as follows:
Q1.b. Jane Truelove read out a statement as follows which addressed the EC/EEA pension schemes issue. This has been summarised in the Q&A log.
Q1.c. HMRC confirmed that an individual who has made contributions
prior to the date when QOPS approval was formally granted may claim migrant
member relief with retrospection. This does not, however, apply to company
contributions.
Q3. HMRC confirmed that a notional allocation is not a contribution to a pension scheme under any PSS legislation and accordingly Schedule 34 was not a consideration. From HMRC perspective, the lump sum payments received on retirement would be taxable under Section 394 ITEPA (subject to any tax treaty). The query posed in the log crossed a number of technical areas and asked a number of hypothetical points It is not possible to answer the points meaningfully as much will depend on the facts of a specific case.
Jane Truelove drew the forum’s attention to 2 other matters in the Pensions area:
1. HMRC had recently issued a newsletter relating to transfers from UK registered pension schemes into Australian Qualifying Recognised Overseas Pension Schemes (QROPS). This article can be found via the attached link.
Any issues relating to this should be directed to Jane Truelove
Share schemes
HMRC confirmed that the ERS manual was silent regarding the treatment of general earnings charges where for example we were looking at money’s-worth or a Section 431 election was in place. For the avoidance of doubt, the intention is that the treatment will follow the line taken had the award been made in cash and will therefore be consistent with how cash is considered when looking to determine the year that earnings are for.
Some delegates pointed out that they had not received a copy of the issues log/minutes relating to the most recent share scheme sub group forum.
Bonuses
Martin Dwyer reported that the sub group looking at the issue of bonuses and in particular how we can best determine when earnings are 'for' had met on 10 November 2008 and at that time HMRC had undertaken to provide a summary of the principles which they felt should be applied in this regard which took into account many of the representations made by external advisers as part of our discussions. Copies of this guidance had been circulated to joint forum delegates in advance of this meeting.
HMRC recognised that the guidance did not deal with issues related to NIC or treaty but hoped that they did set out a position which would help us resolve the majority of cases that might arise.
HMRC suggested that a further sub forum meeting be held to clarify any continuing areas of difficulty or disagreement relating to the tax treatment and to then focus on the NIC and treaty position. HMRC would undertake to ensure that the relative technical specialists were available for such a meeting and indeed had identified Friday 13 February 2009 as a suitable date.
Mark Frampton handed out a discussion document which set out HMRCs thoughts on the NIC position and which he hoped would provide a basis for discussion at the forthcoming sub forum meeting.
It was generally agreed that the sub forum had made some positive progress on this issue and that whilst there may always be difficulty around the most complex LTIP arrangements, the guidance produced would provide for a consistent understanding of how HMRC will look at this issue generally.
Delegates did, however, take issue with the clarification contained within
the revised notes of the meeting held on 10 November 2008 in respect of
the interaction of ESCA 11 with Section 16 ITEPA 2003 and the taxation of
spot bonuses. The general feeling of the external delegates was that ESCA
11 overrode the legislation at Section 16 ITEPA and that accordingly there
was no need to apportion spot bonuses in the manner which HMRC had proposed.
Rather, what happened in practice was
that such bonuses would be taxed in full if they were paid after arrival
in the UK and
not taxed at all if they were paid post-departure. The treatment suggested
by HMRC was considered to be unworkable. An example given of an individual
who received a spot bonus in May 2008 whilst in the US and didn’t
actually come to the UK until February 2009 highlighted the difficulties.
How would the UK company know that the individual had received a spot bonus
and how could this be related to UK duties? HMRC agreed to have another
look at this to see if their view remained unchanged.
NIC practical issues
Mark Frampton explained that the new European Community Regulations would be implemented from 1 April 2010. HMRC were keen to engage with members of the forum to consider some of the practical issues this would create. He advised that he would be contacting various forum delegates with a view to arranging a meeting in April 2009 to take this forward.
External co-chair
Peter Ashby explained that his second year of being a co-chairman was coming to a conclusion. He invited any interested parties to contact Don Macarthur if they wished to take on this role, failing which he would be prepared to continue in the post.
Issues log
Delegates asked whether or not HMRC would be prepared to reintroduce the issues log so that all delegates could ensure that important issues were carried through to a conclusion. HMRC agreed to do so.
Centre of vital interests
Delegates had asked whether or not HMRC were able to offer any clarity regarding the practical application of the centre of vital interests test when determining Treaty residence. HMRC were unclear about the precise difficulties which had prompted this request.
Delegates were invited to provide written clarification of these to Martin Dwyer so that arrangements could be made for a helpful response to be issued.
Martin Dwyer
These notes, read in isolation, cannot be relied upon to give a true view of the HMRC position on any issue. This is because:
- Positions change when new cases and legislation are announced
- The position discussed is on a particular point and not on every aspect of the topic
- The notes have to be read in conjunction with the other HMRC
guidance manuals available on the web
