KPMG Steve Wade
KPMG Bryony Sellars
BDO Andrew Bailey
BDO Amanda Sullivan
PwC Nigel Duffy
PwC John Pritchard
CIOT Martin Benson
CIOT Grant Thornton
CIOT Peter Ashby
COIT Gwen Livesey
Deloittes Philip Paur
Deloittes Drew Buckle
Ernst & Young Rosemary Martin
Ernst & Young Matthew Fox
H W Fisher Adam Bonell
IPPM Khafayah Abdulsalam
ICAEW David Treitel
CBI Rosa Tormo
CBI Benjamin Webb
LCCI Philip Fisher
Shell plc Will Thompson
British American Business John Havard
Zurich Lucie Holland
CAR Residency Ed Stuart
CAR Residency Jane Burke
CAR Residency Craig Mason
CAR Residency Martyn Rounding
CAR Pensions Jane Truelove
PAYE SA NIC Mark Frampton
PAYE Technical Graham Lewis
CAR Expat Martin Dawes
CAR Expat Shirley Davies
CAR Expat Steph Malone
BCU Business Customer Unit Brian Redford
CAR ESSU Tom Rollinson
Philip Paur opened the meeting by introducing his co-chairman, Brian Redford, who gave details of his background in and responsibilities for developing HMRC relationships with employers and tax agents. Redford explained that the transfer of his predecessor, Don Macarthur, had now provided HMRC with an opportunity to review the chairing arrangements. It was likely that Redford’s involvement would be temporary but a further discussion on this point, including the external co-chairman, would follow in the next few weeks.
HMRC confirmed that they had now issued letters to all known employers using EP Appendix 4 arrangements, drawing to their attention the new text within EP Appendix 4 following the change of methodology for counting days for treaty residence purposes effective from 6 April 2009.
HMRC confirmed that each of the Big 4 had now replied, the latest response being received in mid-September 2009. HMRC are still examining this recent response but the information provided has been most helpful and is likely to mean that risks associated with the reporting of foreign tax payments as earnings will be addressed through examination of tracking and processes as part of employer compliance reviews rather than by reference to individual Section 9A enquiries.
It was noted that the previous meeting’s notes contained clarification that the 'light touch' compliance approach would be applied in relation to 2008-09 errors (where the error relates to a change in the rules or in HMRC guidance) but would not be extended to 2009-10 and beyond. HMRC reaffirmed this position and confirmed that the thinking was that legislation and guidance has been in place sufficient to allow taxpayers to make choices and arrange their affairs accordingly for the 2009-10 year (and onwards) whereas it was not the case that this had been achieved for 2008-09.
This quarter the Log contained only 6 questions. These were gone through in turn with the meeting confirming that they had no further comment to make regarding the answers provided by HMRC.
Update on the SP1/09 Replacement
Statement of Practice 1/09 had been introduced to replace Statement of Practice 5/84 due to the Finance Act 2008 remittance basis changes. HMRC had previously indicated that there was a commitment to introduce legislation within the 2010 Finance Bill to provide statutory access to this methodology. A consultation paper had been issued by HMRC and many responses have been received, 8 of which were substantive. We are now over 2 weeks from the closure of the time allowed for any further responses to be made but in the interim those responses held had been circulated amongst interested parties within HMRC. The intention was to produce a paper by the end of October which consolidated all feedback received within the time allowed and thereafter a meeting would be arranged for some time in November 2009 to discuss the issues and any proposed solutions. The main issues featuring within the feedback to date are as follows:-
Currently, foreign accounts to be regarded as qualifying must be in the name of one individual and receive earnings from one source. External commentary indicated that this was universally disliked and considered impractical. The feedback suggested that joint accounts between spouses or partners where only one party was in receipt of employment income should be considered as qualifying. Furthermore, the feedback queried why Group employments had to be regarded as giving rise to separate sources of employment income and questions had also been raised regarding the treatment of pre-arrival income and gains and deferred bonuses or share awards.
HMRC had been asked to consider the position where exercise of a stock option is followed immediately by disposal of the shares. It had been drawn to HMRC’s attention that there was often an inevitable delay even where the intention of the individual was to immediately sell the shares, because care had to be exercised so as not to flood the market and depress the share value. There was also an issue relating to the sale of shares by an independent broker rather than the share scheme administrator.
Concerns had been expressed regarding the impact of the Apportionment Act which suggested that any apportionment should be by reference to 365 days. Some feedback suggested that reference to duties contained within Section 26 ITEPA 2003 would enable the Apportionment Act difficulties to be overcome since, in many cases, duties would not be performed on weekends and holidays. HMRC will need to engage with their Solicitors for further guidance in this respect.
The general feeling is that it will be difficult to frame a definition of a work day within statute and that there may be a requirement to cover this issue in guidance and/or to issue a Statement of Practice. Some feedback referred to exclusion for specific payments referable to specific periods rather than strict apportionment of all earnings across the board. Some contributors have queried whether SP1/09 can extend beyond NOR individuals to those regarded as NR.
The current treatment takes all benefits in kind and apportions them by reference to work days. The consultation document suggested an alternative approach under which benefits provided in the UK would be regarded as entirely chargeable here on the grounds of remittance. The feedback had suggested a preference to retain the status quo and had suggested that there was a strong risk of behavioural changes involving the delivery of additional cash and overseas benefits if the proposed methodology was introduced.
External delegates pointed out that whatever path is chosen to resolve these issues must apply consistently for tax and NICs. Whilst HMRC acknowledged that there were different rules for both they did give a commitment that wherever possible there would be consistency of treatment.
HMRC confirmed that it remained their intention to provide guidance and support to Ministers to enable the SP1/09 issue to be legislated within the 2010 Finance Bill. HMRC were unable to comment regarding the impact of the forthcoming General Election.
Forex Gains & Losses
HMRC acknowledged that the loss of the AEA for Remittance Basis users from April 2008 could create administrative difficulties in tracking individual transactions to identify Forex gains or losses, including cases where overall there might be little additional tax to pay and had been working with external stakeholders to find a pragmatic solution. HMRC stressed that this was not a new problem – FOREX gains/losses on non-sterling bank accounts always had to be calculated on a transaction basis – but had simply been brought into focus by the new remittance basis regime.
HMRC were exploring potential non-statutory solutions to resolving these issues, including agreeing an averaging method to establish the acquisition cost of non-sterling accounts.
Computational issues presented a particular difficulty. Any non-statutory de minimis limit could only be established on the basis of the costs incurred by HMRC of applying the strict statutory approach, but in this situation any administrative costs are borne largely by agents. However, HMRC would be grateful of views from the forum on what they considered an appropriate level to set any de minimis.
HMRC said they were aiming to issue a note in October which would spell out their position on those FOREX issues where they had reached a settled view.
External representatives made it clear that there were a large number of Returns being held back until such time as clarification in this area was obtained. These were likely to be filed in late January 2010.
Foreign Currency Exchange Rates
HMRC’s had issued a technical note which provided the basis for the statement in their remittance basis guidance that foreign source income should be converted to £ sterling on the date when it is remitted to the UK.
A number of external representatives believed this analysis needs to be qualified. While agreeing that the exchange rate and the date of remittance should be used, they believed the correct treatment was to limit remittable income by reference to the sterling equivalent of the exchange rate in force on the date the income arose. As a consequence a number of external representatives explained that when completing SA Tax Returns, accountants would have regard to HMRC’s views but would be entitled to take their own view and express detailed reasons for this within the white note space.
HMRC6
HMRC were grateful for the significant feedback received in respect of HMRC6. Some of the feedback was contradictory and some made suggestions not aligned with Case Law. Nevertheless, this significant feedback was now receiving consideration.
Much of the feedback suggested that HMRC6 was a direct replacement for IR20 but this was not the case. There are in fact 3 tiers of guidance, the lowest tier being made up of basic internet guidance, the next level being within HMRC6 and aimed at unrepresented taxpayers with simple affairs and then the final, more complex, guidance (not yet finalised) aimed at advisers.
The next draft of HMRC6 is to be shared with various forums before general issue and this was realistically anticipated to be no sooner than late November 2009. Delegates were interested to hear of the tier 2 guidance which would help in the more complicated cases. The tier 2 guidance is principally for HMRC technical advisers but will be publicly available under open government, the first two sections, on the remittance basis and domicile, have already been shared and the final section, on Residence, is a work in progress.
HMRC were asked about the impact of on-going litigation. There were a number of cases awaiting litigation and the outcomes were uncertain. It was accepted that judgements may impact on the content of guidance in due course but HMRC intended to press on with updating HMRC6 in any event given the numbers of cases and the time span over the respective hearings.
Statutory Residence Test
Ministerial approval has been obtained to continue working and all stakeholders have confirmed commitment to the process. Work progresses, involving cross section of external representation. There has been no consensus on a solution yet and the availability of space within the next Finance Bill is still a significant consideration.
External representatives confirmed that there was clear momentum behind the creation of a Statutory Residence Test and that employer representation had been influential. There have been meetings expressly to address employer concerns and their views continue to inform thinking on proposals from others. It was proposed that there should perhaps be some further direct representation from within the Joint Forum on Expatriate Tax and NICs. HMRC made no promises in this respect, it is an HMT forum, and commented that the CBI and TUC was represented fully. But nevertheless Jane agreed to take that request away, and welcomed suggestions of any umbrella group that might bring a different perspective/representation going forward.
Procedures
Shirley Davies confirmed her gratitude for the support of advisers and customers in allowing the Manchester Expatriate Team headroom to get up to date with outstanding post. She reminded advisers of the need to address post correctly because if this is not done CAR Expats won’t receive it without undue delay. This is particularly relevant to forms 64-8.
The form P46 (Expat) has been designed specifically for use with inward assignee employees. HMRC procedures meant that without this special form, notification of commencement would be mis-directed within HMRC which could then lead to further difficulties for both customers and HMRC alike. It was essential that employers bringing inward assignees to the UK use form P46 (Expat) to notify commencement and indeed HMRC would no longer be able to accept forms P86 in lieu of a P46 (Expat).To do so would override fixed HMRC procedures and may generate penalties for employers. Accordingly, HMRC would no longer accept forms P86 or 64-8 as notification of a new employee where no P46 (Expat) was received and CAR Expats would return such forms where the P46 (Expat) was absent.
HMRC accepted that there may be cases where no PAYE obligation existed. In these circumstances, advisers can write to CAR Expats setting out the relevant circumstances and an SA record will be set up for the individual taxpayers.
Attention was drawn to recent publicity surrounding the SA1 process and in particular the need for National Insurance numbers to be quoted in this connection. HMRC is looking at the procedures in so far as they relate to inward expatriates and is seeking to identify some individuals for whom an annual SA Return may not be required. This work is on-going but feedback will be provided to the Forum as soon as any is available. In the meantime, the SA1 process need not be followed for inward expatriates; CAR Expats will continue to issue an SA Return from receipt of the P46 (Expat).
HMRC confirmed that the national process related to the setting up of UTRs does not involve automatic notification to agents of the UTR created. However, in CAR Expats there will be automatic notification to agents of the UTRs where forms 64-8 have been submitted. Agents can also gain access to UTR information through the Gateway but HMRC can no longer handle requests for UTRs to be entered on to lists. It was recognised that there was some confusion around agents’ codes which could lead to difficulties but HMRC felt that this was a simple thing for agents to resolve. CAR Expats was no longer resourced to handle requests for the entry of UTR details on lists provided by agents and, accordingly, would no longer be prepared to do so. Agents should therefore ensure that timely and accurate information was provided to HMRC in the first place to ensure that they were advised of the UTR on its creation and that they use the Gateway to gain access to UTRs belonging to their clients.
HMRC also highlighted examples of agents ringing the CAR Expats helpline and asking for faxed copies of customer statements when copies of same could easily be obtained by the agent via the HMRC gateway. HMRC said they were simply not resourced to do such work and that where it was clear that the agent was registered for e-filing such requests would be refused.
External representatives asked for confirmation of how agents and employers should give notification to HMRC in respect of local hires rather than assignees, where form P46 (Expat) was not appropriate. HMRC confirmed that dependent on the circumstances local hires would be expected to provide notification through either the P45 (Part 3) or P46 process using form SA1 to generate an SA Return.
HMRC confirmed that although a large proportion of the inward expatriate population dealt with by CAR Expats represented international assignees, the current working definition of an inward expatriate would include any non-UK domiciled individual working wholly or partly in the UK and retaining an employment relationship with a non-UK resident employer. This would, for example, include local hires who held dual contract arrangements, but individuals who had come to the UK on international assignment and then had been offered employment locally by a UK employer and had no other employment, would cease to be handled by CAR Expats but would then be handled by Customer Operations.
External representatives still had concerns regarding low paid employees who may, through no fault of their own, be served with an SA Return and on completing it would lose access to certain benefits. It was agreed that HMRC would look at this further and report back in due course.
Postal Strikes and Paper Filing
HMRC confirmed that if agents could provide evidence of posting in time they would accept that this meets the formal deadlines in circumstances where the envisaged postal strikes impact on the delivery of Tax Returns before the 31 October deadline. HMRC confirmed that delivery at local offices was an option, although it was stressed that this should be done during office hours and that it was now HMRC practice not to give receipts for SA Returns so delivered.
Pensions
HMRC had circulated updated and enhanced guidance in advance of this forum meeting and apologised for the delay in doing so. Unfortunately, however, limited and reducing resources would impact on HMRC’s ability to add to what was now available other than over a lengthy time frame. In respect of the Special Annual Allowance, HMRC had published some guidance in mid September in relation to the domestic system. Both this and guidance on the international aspects of this legislation would be incorporated in the Registered Pension Scheme Manual that was due for publication at the end of October. (Update: published 27 October 2009).
The document that has been circulated is intended to represent a basic piece of guidance and the more technical feedback would be used to update the RPSM rather than this document.
The external delegates agreed that this document was both useful and well written and provided the clarity that had been requested when it was first commissioned. Unfortunately, some representatives felt that it merely confirmed that the requirements necessary to underpin successful claims to relief were so demanding as to make the system commercially unworkable. HMRC held some statistics regarding both historic and current claims but it still remained unclear about whether this suggested that the number of claims was reducing. It was certainly not the aim of the revised legislation or guidance to deter employers or their employees from claiming reliefs to which they were entitled.
Some external representatives felt that large numbers of individuals did not include details of their international pensions on their SA Returns and therefore by default were claiming Treaty Relief.
HMRC confirmed that they would welcome feedback to the enhanced guidance document now produced and would aim to finalise the guidance by the end of the year to include other aspects not yet addressed.
HMRC were reminded that a question relating to whether a co-settler of a Trust had to report capital gains or investment income personally had yet to be answered. HMRC confirmed that this issue had been identified within the Issues Log and that an answer would be provided as soon as possible.
The external representatives had requested clarity regarding a period for which accrual of benefits should be considered when considering the special annual allowance computations. HMRC confirmed that it was the accrual of benefits over the UK tax year rather than any other period which should be taken into account. This was already the position in respect of calculations performed for the annual allowance. External representatives felt that this presented practical difficulties and felt that it would be more reasonable for HMRC to accept a benefit statement covering an annual period (probably a calendar year) rather than requiring them to apportion figures from 2 such statements to arrive at details for a UK tax year. HMRC reiterated that the legislation specified the UK tax year.
HMRC were asked to comment about top up payments made in circumstances where UK employees were on secondment overseas and their participation in the UK scheme was suspended until their return when top up payments were made. This was in relation to the special annual allowance legislation. HMRC explained that during the Report stage of the Finance Bill procedure, an undertaking had been given to further review a couple of aspects impacted by the special annual allowance legislation. One of these aspects was referred to as ‘pipeline’ cases i.e. where arrangements were in place at time of Budget but not fully carried out by that date. HMRC couldn’t comment categorically on this review work at this time but advised that the type of scenario raised by the query could be covered by this review if this arrangement was in existence pre 22 April 2009. HMRC confirmed that for taxpayers going out of the UK post 22 April 2009 there was unlikely to be any protection offered from the charge in the situation described regardless of the outcome of the review.
NIC
There was little to report here. HMRCs lawyers were still looking at the paper prepared in conjunction with the work done on the taxation of bonuses. The NIC specialist was hopeful that an answer would be publicly available soon. External representatives agreed that the work done in respect of the tax treatment and in particular the revisions made within the Earned Income Manual had been most helpful and assisted in moving many enquiries towards conclusion. It was agreed that once the promised answer in respect of NIC was available the Bonuses Sub-group should be re-convened to consider the implications and the methodology through which revised guidance should be provided.
New Penalty Regime for Delayed Payment of PAYE Liabilities
HMRC were asked to confirm their views regarding the imposition of these new penalties where:-
HMRC confirmed that specific questions on these issues should be submitted by email so that detailed answers could be provided and shared through the Q & A Log. However, the arrangements applicable where EP Appendix 6 applied had been discussed in some detail during the previous meeting held on 16 July 2009 and the Minutes clearly recorded that the new penalties would not be applied in such cases.
In addition, HMRC confirmed that where financial support arrangements had been agreed, and were being adhered to by compliant businesses; it was considered most unlikely that the new penalties would be invoked.
Next Meeting
The next meeting was confirmed as being on 19 January 2010.
These notes, read in isolation, cannot be relied upon to give a true view of the HMRC position on any issue. This is because:-
Nor should the notes be read as acceptance by external delegates of positions outlined by HMRC, unless expressly indicated.
