KPMG LLP Barry Cocks
Steve Wade
BDO Andrew Bailey
PwC LLP Eleanor Meredith
Simon Morris
Baker Tilly Martin Benson
Grant Thornton LLP Peter Ashby
Mathew Fox
Deloitte & Touche LLP Philip Paur
Robert Hodkinson
Ernst & Young LLP Phil Davis
Rosemary Martin
H W Fisher Martin Taylor
Travers Smith Victoria Nicholl
IPP Elaine Gibson
CBI Rosa Tomo
Benjamin Webb
BP plc Noorie Sazen
LCCI Philip Fisher
Shell plc Ishbel Huggins
Will Thompson
Zurich plc Lucie Holland
British American Business John Havard
ICAEW Louise Mooney
CAR (Expats) Martin Dwyer
Shirley Davies
CAR Residency Andrew Edwards
Ed Stuart
Business Customer Unit Don Macarthur
PAYE Technical Graham Lewis
Don Macarthur opened the meeting by inviting the attendees to give their customary introductions. Apologies were offered on behalf of Amanda Sullivan of BDO.
Some of the matters arising concerned issues around residence, domicile and treaties and it was agreed that these would be discussed as agenda items. There remained three open points from the meeting held on the 15 January 2009 which were not to be specifically addressed as agenda items but in respect of which some further feedback was available.
1. Counting of Work Days for Treaty Purposes
At the previous meeting, external representatives had indicated that an answer given within the Q & A Log regarding the revised methodology to be adopted when counting days for treaty residence purposes constituted a change of policy. HMRC had now reflected on this and had accepted that this was the case and have issued a statement accordingly.
2. Pensions Guidance
On 15 January 2009, HMRC representatives promised to produce draft pensions guidance relating to expatriates. In advance of today’s meeting, this draft guidance had been made available to all delegates with a note inviting feedback by 29 May 2009. The general feeling was that this guidance was most welcome and represented a good effort for a first draft. However, a number of external representatives explained that gaps remained in what the guidance covered, for example the draft did not provide any commentary regarding the tax implications which arise in circumstances where it is not possible to claim relief (eg the EFRBS regime).
3. NIC Practical Issues
At the previous meeting HMRC had explained that the New European Committee Regulations would be implemented from 1 April 2010 and that a meeting was to be arranged to consider some of the practical issues this would create. Although the meeting was anticipated for April 2009, this had not yet been arranged. A major part of the new rules will be in a new 'Administrative Commission Decision' to replace Administrative Commission Decision 181, which contains many of the detailed administrative rules and processes to do with posted workers. Member States were originally timetabled to reach agreement in this regard by February 2009 at the latest but unfortunately there is still a deadlock over certain key concepts. Negotiations continued throughout February 2009 and a meeting is being held on 21 and 22 April 2009 to (hopefully) reach a final agreement.
On the assumption that the text of the new Decision has been agreed by 23 April 2009, HMRC intend to write to interested parties with a view to arranging two sessions in London for the mornings of 2 and 3 June 2009. Forum members will be able to choose which they wish to attend. The idea will be that the HMRC representative will share what he knows about 883/2004 and hear from the forum members any issues that they think HMRC will need to consider before publication of any formal guidance and finalisation of the processes. The invitations to attend will be accompanied by a copy of the detailed briefing paper on the new regulations. If either of these two dates is inconvenient to any forum member, HMRC is prepared to run further catch up sessions. In order that HMRC may gauge the level of interest, forum members who wish to attend are asked to provide their expression of interest by sending an email to Mark Frampton.
As had been requested at an earlier meeting, the Issues Log had now been reinstated. Don Macarthur suggested that the items which were endorsed as closed in 2007 should now be removed from any future versions of the log and this was agreed by those present. One of the Big 4 representatives indicated that an issue dated 28 February 2008 relating to overseas pension schemes had not been satisfactorily resolved (clarification of when overseas pension schemes are not subject to the settlements legislation) and should not therefore be regarded as closed. It was agreed that this representative would clarify precisely in what respect this issue remained open by sending an email to Martin Dwyer and he would ensure that the relevant HMRC technical specialist addresses the issue. Martin Dwyer reminded the Big 4 representatives that he had requested some clarification of their respective methodologies applied when reporting foreign tax payments made in tax equalised cases, and in particular where these were associated with tax equalisation reconciliation calculations.
The majority of questions and answers appearing on the log associated with this meeting concerned residence, domicile, remittance basis and treaty issues, all of which were to be covered as agenda items. There were no comments regarding the answers provided on other topics.
1. Short term Business Visitors and EP Appendix 4
Martin Dwyer confirmed that the version of EP Appendix 4 available through the HMRC website had been updated to reflect the change of methodology for counting days for treaty residence purposes effective from 6 April 2009. To date this change had been publicised through a 'What’s New' internet article but HMRC wanted to clarify the preferred method through which they could be confident that employers using EP Appendix 4 would adopt the new version. After some discussion it was agreed that the most efficient method would be for HMRC to write to those employers known to use such agreements and to supplement this by use of articles within Employer Bulletin and IPPM News. HMRC confirmed that they had a record of EP Appendix 4 users but this may not be totally accurate. Nevertheless, HMRC would use this to identify EP Appendix 4 users and would agree a timetable for the issue of the necessary advisory letters. After this exercise had been completed and if there remained employers who were indeed using EP Appendix 4 but had not received the relevant notification, this would be indicative of the fact that the HMRC records were deficient in this regard and such employers (or their agents) would be encouraged to contact HMRC to ensure that the records were updated and the necessary letters drawing attention to the new text were issued. HMRC confirmed that they would not be intending to require employers to exchange signed copies of the revised agreements but rather to acknowledge and use the new version which could be down loaded from the website.
2. New Manchester Expatriate Team
Shirley Davies explained the background to the move towards centralisation of Expatriate work in Manchester and confirmed that overall responsibility for all employer issues would migrate to Manchester in late July to coincide with the introduction of HMRC’s new IT platform (MPPC). An immediate benefit would be that there would be no requirement to revise employer payroll references. The Employer Bulletin due to be issued in June 2009 will include an article explaining to employers the impact of the changes. In the meantime, SA returns issued in April 2009 should be returned to Manchester and all new starter forms are being referred to Manchester and individual SA records are being set up in Manchester. MPPC will provide one record for each individual rather than the current position where each employment has a separate record.
The larger Expatriate employers (those with 50 or more expatriate employees) will shortly receive a letter from their current Expat Team giving details of the changes and reminding them of their in-year forms online filing requirements, specifically the new P46 (Expat).
Towards the end of June there will be a short period where the current platform (COP) is not available and where MPPC has not yet been launched. This may result in some processing delays which will be unavoidable.
Going forward, the Manchester Expatriate team will have both an Enquiry and a Non Enquiry team. Shirley Davies will lead the Non Enquiry team and the intention is that this will include a dedicated New Case team, where responsibility for issuing UTRs for new cases would lie, a dedicated Post and Telephone team and a dedicated Repayment team. It would also deal with S690 applications. The aim is to focus on areas where experience tells HMRC that problems have arisen in the past and need better management going forward.
Shirley Davies invited delegates to come direct to her if any problems arise or are anticipated. Some of the inward expatriate processes have already been improved to take into account issues previously brought to her attention. For example, the introduction of forms P46 (Expat) will enable early identification of EP Appendix 6 modified PAYE arrangements and help to ensure that forms P2 and P6 are not issued in respect of employees to whom these arrangements apply. In due course, HMRC will contact interested parties to set up a sub group to look at opportunities for identifying customer groups where HMRC may be prepared to dispense with the necessity of an annual SA return.
Going forward the form P46 (Expat) will be the trigger for the creation of new records for inward expatriates but it was recognised that there will be some inward expatriates whose employers have no UK presence and for whom PAYE may not be appropriate. Currently such individuals are notified to HMRC by the submission of form P86 and clarification of precisely what advisers needed to do in order to obtain a UTR in such circumstances was requested. It was agreed that CAR Expat delegates would provide the necessary guidance in this respect as soon as possible but that for mainstream inward expatriate assignees for whom PAYE was appropriate, the form P46 (Expat) would represent the trigger for the creation of new records. In circumstances where the agent dealt with the individual but did not have any responsibility relating to the employer, they would need to ask their client to confirm with the employer that the relevant form P46 (Expat) had indeed been submitted before arranging for the submission of form 64-8 (P86) etc in request of a UTR.
3. Repayment Delays
HMRC accepted that there continued to be delays in issuing certain repayments which had attracted security checks. There were a variety of reasons for this but principally these were because of nominee mandates, no 64-8 authorisation or agent code password differences.
HMRC applies rigid risk triggers to internet filed returns and unfortunately inward expatriate cases displaying these features are flagged as risky. They appear on worklists and it is the numbers of cases requiring a review which contributes to the delay. This in turn is exacerbated by the fact that expatriate tax returns are habitually submitted towards the end of the filing window rather than being spread over a longer period. HMRC apologised for the delays and accepted that some of the criticism was justified but explained that unfortunately the design of the risk system was not geared to the relatively small number of inward expatriate cases but more to the majority of internet filers. CAR (Expats) were doing what they could to get through the backlog but they could only do so much.
One of the external delegates identified a problem associated with a situation where no SA returns were filed but tax was paid and thereafter returns for a subsequent year were filed which reflected an overpayment. In these circumstances, despite the fact that the return for the earlier year remained outstanding, the repayments offered by HMRC included the SA tax paid for the previous year. CAR (Expats) representatives agreed that this was clearly an erroneous situation and promised to investigate.
4. Bonuses Update:
Martin Dwyer confirmed that following the various meetings of the Bonuses Sub Group, the Employment Income Manual had now been updated to reflect the agreed guidance. It was felt that this should be capable of resolving the majority of cases from a tax perspective, although it was conceded that more complex LTIP arrangements would still require detailed examination and probably a submission to HMRC’s Technical Specialists. The NIC position was less clear. At the last meeting of the Bonuses Sub Group, Mark Frampton had set out HMRC’s position regarding the NIC charge but this did not mirror the tax treatment. He also offered an alternative view which had been put up to the Board’s Solicitor for consideration. Unfortunately, a response had not been received.
CAR (Expats) staff would be made aware of the existence of the new EIM guidance and encouraged to apply this in cases where enquiries into the taxation of bonuses need to be resolved. However, within the period that consultation on this issue had taken place, a large number of former complex personal return cases had now been moved out of CAR (Expats) into Local Compliance. The individual taxpayers had been notified of their new tax district details but if any of these cases had open enquiries into bonuses which could now be resolved by reference to the aforementioned guidance, it may be quicker for the advisers to write to the Local Compliance contacts to draw their attention to the availability of the new guidance.
1. Statement of Practice 1/09 and Statement of Practice 5/84
The Q & A log answered all the questions asked with the exception of one relating to foreign exchange gains (which would follow as soon as possible). External delegates felt that there remained a number of tricky issues not covered in the HMRC guidance so far and that it would be difficult for unrepresented individuals to know how to complete their SA tax returns in the absence of some additional guidance.
Andrew Edwards confirmed there would be no further guidance for 2008/09 other than provided in the Q&A. Broadly, the way things had worked under Statement of Practice 5 of 1984 should apply for 2008/09. It was acknowledged that clarity about the rules applicable for 2008/09 had not been made available until part-way through the year and that this impacted on individuals’ ability to arrange their affairs. In recognition of this, HMRC provided an assurance that they would take this into account when considering the remittance basis for 2008/09, applying common sense and pragmatism, looking sympathetically at cases where the rules were not clear. This did not mean, however, that there would be no Section 9A enquiries in cases where the remittance basis had been claimed. Martin Dwyer expressed the view that for years up to and including 5 April 2008, the main focus of typical S9A enquiries for inward expatriates was to clarify entitlement to NOR status and to check the quantification of the earnings attributed to overseas workdays. He anticipated that Section 9A enquiries for 2008/09 would focus on the same issues rather than a dissection of bank account details aimed at identifying occasions where the mixed fund rules had not been met.
HMRC explained that the guidance published on 31 March 2009 was not final and they welcomed comments and suggestions from practitioners on how the guidance could be improved. External delegates suggested that there were certain aspects which required further clarification. For example, it was suggested that the foreign exchange gain treatment appeared inconsistent with HMRC’s existing practises and although clarification had been provided about what happened if a bank made a mistake in crediting monies to the wrong account, it remained unclear what the position would be if an employer made the mistake and as a consequence the wrong account was credited.
Clarification was also requested about bonuses derived from different employments. HMRC’s view was that such bonuses should be apportioned and paid into separate accounts. External delegates suggested that this presented employers with practical difficulties, some of which were associated with payroll software. HMRC were prepared to listen to concerns but could make no promises regarding amendment to the guidance. Statement of Practice 1/09 has a concessionary element and there was a limit to how far HMRC could go in applying concessions.
A question was asked about share option exercises and the sale of shares. Clarification was requested as to whether or not the sale proceeds of the shares being paid into an account would mean that this account was regarded as a mixed fund. It was agreed that Peter Ashby would frame a question on this topic and pass this to Martin Dwyer who would, in turn, obtain a definitive response from the relevant technical specialist.
2. Replacement for IR20
HMRC confirmed that the recently published document HMRC 6 is not the sole replacement for IR20. Further guidance has been published, such as on domicile, and more would follow. Comments regarding the new guidance have been invited by the end of May 2009 in order to facilitate publication of a final version in summer 2009. One external delegate felt that the flowcharts (particularly flowchart 2) suggested a new approach to the determination of domicile and in addition felt that the overall tone placed undue emphasis on the intrusive nature of HMRC domicile enquiries and as a result possibly suggested that domicile status should not be claimed. HMRC did not accept this criticism. In fact some customer road testing had taken place in respect of the flowcharts and positive feedback had been received. In addition, HMRC had been specifically asked by customers to make it clearer precisely what an enquiry into domicile status would involve so that they could be well informed when making decisions regarding their domicile and its relevance from a UK tax perspective. However, as had been confirmed before, HMRC were prepared to consider any representations made in this regard and invited appropriate feedback through the usual channels.
3. P86 and DOM 1 Forms
HMRC confirmed that the DOM 1 form had been withdrawn and the form P86 was under review and would be changed in some way in due course, if only to remove questions relevant to domicile. The issue which HMRC were addressing regarding the P86 was to do with what it was reasonable to request from customers and to what use the information received was put. One Big 4 agent felt that the DOM 1 served to act as a contemporaneous record of fact at the time the individual first came to the UK and that this had value. HMRC confirmed that if agents wished to submit such information on a unsolicited basis that was a matter for them.
It was agreed that HMRC would confirm the time frame to be applied to the revision of form P86. In the meantime the existing form P86 remained in use and should be use whenever appropriate.
Subsequent to the meeting HMRC can confirm that the time frame is not precise but it is anticipated that any revised or replacement version of form P86 will be available by late autumn subject to satisfactory customer testing.
4. Schedule 7 Stakeholder Group
Andrew Edwards confirmed that this will now continue beyond August 2009.
5. Statutory Residence Test
HMRC confirmed that the group looking at this were making progress and had established broad themes and representative examples. External representatives requested clarification on the issue of consensus as it had been previously suggested that if no consensus was reached the Statutory Residence Test would not be introduced. HMRC explained that ultimately the Minister would have the final decision but that naturally we are looking for consensus across HMRC, HMT and the representative bodies. In the event that one particular representative body was unable to agree with the final proposals, this would be reported to the Minister who ultimately would have to decide if the work proceeded or not.
6. Share Scheme Sub Group
The meeting was advised that a Share Scheme Sub Group meeting had been arranged for 8 May 2009. Invitations to interested parties had already been issued some time ago.
7. Treaty Issues
a) US Citizens resident in the UK and working in the US
Ed Stuart confirmed that this was a difficult issue involving clarification of who has the primary taxing rights and what was the basis of US taxation. The examples he had seen involved highly paid professionals/executives and his pragmatic approach to settle the problem would involve looking at where the employment costs were borne. HMRC’s view was that if the US was bearing the cost of employment through a recharge then the UK would give credit for US tax but if the UK was bearing the costs then the UK would not be prepared to give credit for any US taxes paid.
Accordingly, therefore, in the cases where foreign tax credit relief had been claimed within SA returns under enquiry, evidence would be required to show who was bearing the cost.
External delegates indicated that there were obvious problems related to straightforward assignments to the UK of individuals who remained employed by US employers and whose assignments duties required them to work in the US as well as UK companies having a US check the box election. After some discussion it was agreed that the recharge issue may not resolve all of the open enquiries but it could resolve some of them. For the remainder there would be a need to refer cases through the Mutual Assistance Programme via the Competent Authority. HMRC had already submitted one case through the Competent Authority some time ago but had yet to receive any response from the IRS. This may be because the US administration, post the election of the new President, had yet to fill all of the vital posts within the IRS.
It is accepted that this issue had been dragging on for some time but in reality much of the delay was attributable to the lack of any meaningful response from the US counterparts. HMRC remained of the view that it should not automatically give credit for US tax paid in respect of US workdays simply because the US had chosen to tax worldwide income by virtue of citizenship. If more cases need to be advanced through MAP then that is the path that will be followed.
External representatives asked for clarification of the position for green card holders. HMRC explained that the UK was not obliged to give credit where the US taxed a green card holder on a world wide basis and the taxpayer was not tax resident in the US, but where we see a recharge to the US for US workdays we will accept the US has the primary taxing rights in the same way as for US citizens and we will give credit for the US tax paid on those US workdays by green cardholders. In the US a green card holder is debarred from claiming relief under a treaty. HMRC suggested that an individual who is taxed in the US on their world wide income because he retains his green card and so is treated as a resident of the US for the purposes of Article 1(4) even though they would be treaty resident in the UK may not have taken all reasonable steps to minimise their US liability, as required by S795A ICTA if he were to qualify for credit relief. As such, although strictly Article 24(6) may not apply to green card holders in these circumstances, the effect of the minimisation requirement is that the UK will limit relief given in the UK under the treaty to that which would be given if Article 24(6) did apply. Representatives pointed out that giving up the green card might trigger expatriation taxes in the US.
The HMRC position is that we will not give relief in the UK for tax paid in the US as a result of Article 1(4). We believe that the US will give unilateral relief for the UK tax paid on their income at least to the extent it arises in the UK so as far as we know this should not lead to double taxation although it could lead to higher tax payable in the US as a result of the alternative minimum tax provisions. If anyone at the Joint Forum can provide details of circumstance in which our approach could lead to real double taxation then we would like to know about it as even if we are not prepared to give relief in the UK it can be discussed with the US as part of the ongoing 5 year review. Please contact ed.stuart@ir.gsi.gov.uk.
b) Day Counting for Treaty Residence purposes
Attention was drawn to the technical question (2) contained within the Q & A log. HMRC pointed out a need to look at the treaty between the countries in question and that what was relevant was whether someone was treaty resident in the source state.
c) Centre of Vital Interests and Permanent Accommodation Tests
HMRC acknowledged that external representatives had requested additional guidance from HMRC on these issues but felt that the OECD model commentary provided adequate guidance in these areas. Indeed, HMRC’s experience was that cases referred to MAP on these issues were resolved quickly by reference to the OECD guidance. However, if delegates were aware of any non- avoidance related circumstances where the centre of vital interest test presents problems these could be referred to Ed Stuart. Failing this, HMRC’s advice would be to refer to the OECD guidance.
d) Economic Employer
This issue had been on the agenda of the OECD for some time but HMRC were not aware of any recent progress. Draft guidance had been prepared by HMRC including examples of a variety of scenarios from as long ago as 2005 and had been circulated around the OECD but there were some scenarios and circumstances where bilateral agreement had not been possible. Any specific interpretation issues could be referred to Ed Stuart as he was the Competent Authority who would ultimately deal with these on behalf of HMRC. Big 4 representatives explained that they had requested further clarity given the absence of detail within the OECD guidance and the fact that (in their view) HMRC’s Tax Bulletin articles were not consistent with DT instructions. This had been pointed out within an email sent to Martin Dwyer some time ago. Ed Stuart was aware of the contents of this email and agreed that where there was inconsistency this needed to be resolved.
Peter Ashby confirmed that this would be his last meeting as co-chairman and that Philip Paur had been the sole volunteer to take over the post which he would do with effect from the next meeting scheduled for 16 July 2009. All delegates thanked Peter Ashby for his work and contributions to the progress made throughout the tenure of his co-chairmanship.
These notes, read in isolation, cannot be relied upon to give a true view of the HMRC position on any issue. This is because:-
