Cathy Wilson - CAR Residency
Jane Truelove - CAR Pensions
Chris Murricane - CAR ESSU
Jon Clarke CAR - ESSU
Don Macarthur - Business Customer Unit
Mark Frampton - PAYE NIC Policy Technical
Graham Lewis - PAYE Technical
Martin Dwyer - CPTT
Chris Edge - CPTT
Barry Cocks - KPMG LLP
Sarah Roberts - KPMG LLP
Amanda Sullivan - BDO LLP
Andrew Bailey - BDO LLP
John Pritchard - PWC LLP
Martin Benson - Baker Tilly
Peter Ashby - Grant Thornton LLP
Matthew Fox - Grant Thornton LLP
Andrew Buckle - Deloitte & Touche LLP
Philip Paur - Deloitte & Touche LLP
Rosemary Martin - Ernst & Young LLP
Phil Davis - Ernst & Young LLP
Mavis Sargent - Wrotham
Martin Taylor - H W Fisher & Co
Nigel Doran - Macfarlanes
Victoria Nicholl - Travers Smith
Helen Hargreaves - IPPM
David Treitel - ICAEW
Benjamin Webb - CBI
Noorie Sazen - BP plc
Debby Morris - BP plc
Philip Fisher - LCCI
Will Thompson - Shell plc
John Havard - British American Business
The Co-Chairman reminded delegates that the Joint Forum intended to deal with overarching issues but would use sub groups to look at specific topics and report back to the Joint Forum in due course.
Q2. (Of those unanswered from 22 May Forum). The published answer confirmed that 'the point of arrival in the UK will be when, an aircraft lands, a train arrives at the first station in the UK, a boat docks at the quayside or drops anchor in territorial waters.' HMRC were asked to confirm that similar rules applied to determine the time of departure. HMRC confirmed that the departure rules were consistent with those described for arrival ie 'the point of departure from the UK will be when, an aircraft takes off, a train leaves the last station in the UK, a boat leaves the quayside or its anchorage point in territorial waters.'
Q3. (Of those unanswered from 22 May Forum). Despite the answer provided by HMRC some delegates remained unclear as to whether a US individual retirement account (IRA) was regarded as a pension scheme or a settlement. HMRC explained that the test would be whether it conformed to UK pension rules. One delegate explained that this only became an issue if the individual didn't want to claim relief by reference to the US/UK Treaty. In accordance with Treaty rules nothing can be taxed until there is a distribution. HMRC acknowledged that there was still some lack of clarity in this area and explained that if a particular example could be referred to Jane Truelove she would provide the necessary guidance. HMRC acknowledged the reference made to the US/UK Treaty but explained that there remained a difference of interpretation between the UK and the US regarding certain elements of the Treaty.
Q1(a). HMRC's response suggested that there were no current plans to publish rates for 'foreign to UK' travel despite the fact that scale rates for foreign travel (the FCO rates) had now been published. Delegates wished it to be recorded that this was unhelpful and that it would make things much easier if HMRC could publish an agreed detailed list of scale rates which could be applied to inward expatriates. Although the published answer confirmed the factual position at present, HMRC representatives were able to confirm that the issue was under consideration although as yet no decision had been made in this respect.
Q4(b). HMRC confirmed that the relevant legislation which should be quoted within this Q&A was Section 809B ITA 2007 rather than Section 809S. Delegates asked for clarification of why the exemption would not be available if for example paid by the employee out of earnings received from an offshore Contract of Employment not otherwise chargeable to UK tax. It was agreed that HMRC would provide clarification on this issue.
Q4(d). Clarification was requested in respect of the year a £30,000 charge would be regarded as 'for' in circumstances where it was paid on behalf of an individual by an employer as part of the tax equalisation arrangements. Clarity was requested regarding this on the basis that the nominated income to which the £30,000 charge relates would be taxed on an arising basis and may in any event never become chargeable to UK tax if not subsequently remitted.
The initial response provided by HMRC was that the £30,000 charge paid would be regarded as additional net of tax earnings for the year for which the remittance basis was claimed and accordingly HMRC would expect to see this liability grossed up on an in-year basis. However, it was agreed that HMRC would provide a formal response to this enquiry in due course.
Q5. HMRC were asked to clarify whether or not the exemption for relocation expenses within Section 271 ITEPA 2003 was available against earnings taxed on the remittance basis. HMRC confirmed that the current legislation does not provide for relocation exemption to be available where the remittance basis is claimed. However HMRC were aware of existing practice whereby the relocation exemption was applied before apportionment in respect of non-UK workdays. Although this methodology was not consistent with the existing legislation HMRC were content to allow the practice to continue.
Q7. Further clarification was requested in respect of the 'Polish plumber' example. HMRC explained that ESCA11 will continue to apply where the conditions are met. The look through to income and gains arising in the part of the year before which the individual becomes resident in the UK is for the purpose of determining whether a claim to the remittance basis must be made if the individual chooses to use the remittance basis.
Q8(b). HMRC confirmed that it will follow the OECD Commentary on the approach to the day counting where an individual's treaty residence alters during a fiscal year. For practical reasons, HMRC will adopt this approach for 2008-09 onwards. If this is currently a live issue within an open case then HMRC will consider the case on an individual basis.
Q9. The HMRC reply indicated that the remittance basis charge was not considered to be 'a significant change' because it was not a new tax. Delegates wished it to be placed on record that they took an opposing view and that they regarded the introduction of this charge as a significant change and therefore notifiable by HMRC to its Treaty partners.
Q12. Delegates were aware of impending negotiations between the UK and the US regarding the existing Double Taxation Convention and recommended that HMRC's Treaty Team be advised of this issue so that they may ensure that it is included within the scope of the discussions. HMRC representatives confirmed that the Treaty Team were indeed aware of these issues.
Q13. Delegates expressed some disagreement with the published answer to Question 13. Martin Dwyer explained that he recognised the practical difficulties which delegates were attempting to overcome but had to rely on advice provided to him from the Head Office Specialist. Unfortunately the person who had occupied this seat had recently (suddenly) left HMRC for an extended career break and it may take some time for a replacement to be found. From an operational point of view CPTT have prepared an issues list of matters relating to Treaty and credit which they were keen to resolve and this would be discussed in due course with whoever was appointed to fill the vacant post. The issue described within Question 13 would feature on the issues list but HMRC would need to ask for further forbearance as it was likely to take some time for these matters to be addressed.
Q16. HMRC was asked to confirm whether the second part of the answer given was based on the understanding that the share base remuneration was tax equalised. HMRC confirmed that this was indeed the case. It was recognised that not all share based remuneration would be tax equalised but the answer had been given in the context that tax equalisation did apply.
Q17. HMRC requested additional information to support the question that had been recently submitted. Delegates explained that for many inward expatriates their cash earnings would be entirely delivered overseas (possibly into a Channel Island bank account). They would then bring in to the UK sufficient cash to meet their living expenses taking care not to remit more than the proportion of earnings attributable to UK workdays. Such transactions may give rise to the realisation of exchange gains and the geographical limitation within Section 252(2) TCGA would not provide exemption in this respect. HMRC requested the submission of a typical example setting out this point so that they could consider the intended scope of the question.
As far as the reference to treatment in accordance with CG7843 was concerned this was entirely possible provided the rules associated with such treatment were met and that it was applied consistently and provided a reasonable overall result. HMRC acknowledged that such calculations may be complex, pointing out that any exemptions to the intentions of the legislation were likely to be complicated.
Q19. Unfortunately, since this question had been submitted relatively recently (on 12 September 2008) it had not yet been possible to obtain a formal response. Additional clarification was requested by delegates, in particular in respect of what circumstances do HMRC see an earnings payment being made by either an employer or a trust which give rise to a liability to Class 1 NIC. HMRC agreed to provide a written response in due course.
HMRC confirmed that they did not regard the Q&A logs as formal guidance but acknowledged that they were useful and could be shared by delegates amongst their representative bodies. The Q&A logs do inform HMRC thinking and often identify areas where formal guidance is required or needs to be enhanced.
The Co-Chairman, Peter Ashby explained that a 2008 Stakeholder Group was being created by HMRC and that one place had been allocated to a representative of the Expatriate Tax Forum. He invited anyone interested in being that representative to let him know failing which he would take up the invitation personally.
A separate group, led by the Treasury, were looking at whether or not we should have a statutory residence test and if so what would be its components. This group were to meet on 15 October and contact had already been made with various external representative groups inviting their involvement.
The 2008 Stakeholder Group was not looking at policy but was to look at practical issues around Schedule 7 of the Finance Act 2008. This Group was to meet on 16 October and representative bodies as well as the Expatriate Joint Forum had been invited to nominate delegates.
ESCA11 continued to apply but its future was being considered by the Group looking at the statutory residence test.
HMRC explained that CAR were under pressure due to staff departures and efforts to produce guidance whilst at the same time being inundated with questions about how the new rules work. CAR's aim is to produce guidance in several phases focusing initially on the needs of unrepresented taxpayers. Practitioners have already been invited to contribute ideas relating to the replacement of IR20.
CAR continued to welcome questions regarding general uncertainty about how the new rules work but felt that some questions previously received could have been answered by simple scrutiny of the legislation and the explanatory notes. CAR had a small team of people responsible for the production of the much needed guidance relating to Schedule 7 and was looking to see how time could be saved on answering submitted questions as this demand was impacting on the time available to devote to the guidance which customers and representative bodies had requested.
Going forward CAR will publish the Q&As at least monthly (with any appropriate caveats). CAR intend to go through old Q&As to see if they remain relevant in the light of the new rules and in due course all relevant Q&As will be placed on a document which will be available to download from the HMRC website. Once this has been done, if CAR receive a question which is capable of resolution by reference to the published Q&As they will not respond further.
Guidance relating to the Finance Act 2008 rules is to be written and made available by the end of March 2009, with the exception of that relating to the transfer of assets abroad which may take a little longer (possibly until summer 2009).
It was acknowledged that there remained areas of uncertainty and where practitioners identified serious issues these should be referred to the 2008 Stakeholder Group.
A compliance strategy was being considered and HMRC provided assurance that they would apply a light and sympathetic touch where the application of the new rules was uncertain.
Statement of Practice 5 of 1984 will be withdrawn as it has been overtaken by the new legislation. However the day counting rules will still apply. Delegates asked whether HMRC would be prepared to allow for apportionment on an annualised (rather than a monthly) basis. The legislation concentrates on transfers from mixed funds on the occasion of each and every transfer. HMRC did not think it was possible to override the intention of the legislation but agents considered that it would be unworkable to examine each and every debit and credit on the basis envisaged within a new legislation.
HMRC reminded delegates that use of the remittance basis is voluntary as from 6 April 2008 and that HMRC had been asked to bring in rules on remittance from mixed funds and rules relating to overseas transfers.
The overwhelming view put forward by external delegates was that without the availability of a methodology along the lines of Statement of Practice 5 of 84 it would be impractical for any inward expatriate to claim access to the remittance basis because it would not be possible to perform the calculations required by the legislation.
It was agreed that whoever attends the 2008 Stakeholder Group on behalf of the Expatriate Joint Forum should make this point strongly and provide a detailed example illustrating the practical difficulties.
Subsequent to the meeting Philip Paur of Deloitte & Touche LLP agreed to attend the meeting on 16 October as the nominated delegate from this Forum.
Big four agents explained that they were currently struggling with writing questions for the expatriate organisers which would gather relevant information for the 2008-09 tax returns. A number of issues remained unresolved and against this background it was difficult to frame these questions accurately.
Delegates suggested that a possible solution would be to allow the practice enshrined in Statement of Practice 5 of 84 to run for 2008-09 even if the 2008 Stakeholder Group Review decides that a different approach should be applied for later years. It was agreed that this proposal would be taken to the 2008 Stakeholder Group by the appointed delegate in due course.
HMRC were asked to comment on whether or not the IRS had yet responded regarding the creditability of the £30,000 charge. HMRC were unable to provide any comment in this respect.
HMRC offered thanks to those delegates who had provided details of the levels of accountancy fee benefits reported for their leading customers.
Martin Dwyer of CPTT had spoken with the HMRC Head Office specialist about this issue further and in particular what CPTT could practically do to provide some clarity (both internally and externally) regarding what from a risk assessment perspective might be regarded as acceptable levels of tax return preparation fee benefits going forward.
It was made it clear that these discussions and any proposals or guidance based on them will relate only to circumstances where:
In such circumstances HMRC accept that the level of benefit in kind should be arrived at by apportionment based on the facts. The mechanics of how the apportionment should be calculated are an operational issue and CPTT had already shared with delegates (within the meeting notes of 30 August 2007) an exchange with Ernst & Young LLP on this topic.
CPTT did not have authority to agree fixed round sum figures applicable in all cases. Indeed, it was clear from the evidence submitted that there is no 'one size fits all'. However, CPTT were prepared, in due course, to provide some clarity of the level at which they perceive there to be a risk worthy of enquiry.
The intention therefore would be to:
CPTT is still analysing the information provided but Martin Dwyer was able to say that the available evidence suggested that a level of around £600 per head would be reflective of a situation where a home and host country Return was completed.
HMRC remain of the view that any accountancy fees paid in respect of S9A enquiry work should be reported as benefits in kind. HMRC will continue to look for evidence of the payment of such fees and their position will be as clarified within the meeting notes of the Forum held on 30 August 2007, as follows:
'Where we find evidence to indicate that the costs of accountancy services related entirely to resolving the S9A enquiry, we will regard these costs as giving rise to a taxable benefit in kind. If your clients are unable to accept this treatment, we will need to refer an appropriate case to the Commissioners.'
Subsequent to the meeting HMRC has now completed its analysis of the information provided. From this we conclude that the levels of benefits which appear both realistic and reasonable are £650 per head where a home and host country Return is completed and £250 per head where only the host country (UK) Return is completed. Under existing circumstances these figures will represent levels which if returned or exceeded will not prompt an enquiry from CPTT. However, it has been recently highlighted by external representatives that the proposed levels of analysis necessary to support access to the remittance basis from 6 April 2008 is likely to lead to increases in the costs charged for UK Tax Return preparation where the remittance basis is claimed. If this proves to be the case there would be a need to recognise this and revise the figures for 2008-09 onwards accordingly.
HMRC reiterate that the sums quoted above are not intended to represent an agreed level of benefits which must be reported across the board. We recognise that there is unlikely to be consistency in the precise make up of the bundle of accountancy services provided across different cases and by the variety of advisers involved. Rather, the aim is to indicate a level at which CPTT perceive the level of risk to be worthy of enquiry.
Again, HMRC thanked the Big four firms for their helpful comments relating to the HMRC examples and the examples which they had created and have been shared amongst the contributors.
The most common suggestion received was that these should be accompanied by something which explained the basis upon which HMRC were able to decide when the earnings were 'for'. HMRC have now prepared a draft document which draws on some of the conclusions reached within the Big four examples and their own interpretation of the application of the judgement in Bray v Best. This was issued to attendees in advance of the Forum meeting.
The examples have also been improved to address specific issues raised by the Big four contributors, not least the inclusion of commentary regarding the NIC position. Again, revised documents had been issued in advance of the Forum meeting.
Whilst overall these were very helpful they did contain some conclusions with which HMRC are unable to agree. HMRC has not asked for comments from the Big four firms in respect of the examples submitted by their peers but would propose that a further sub-forum meeting be arranged (in October or November) for interested parties to establish areas of common agreement, discuss the draft document outlining the HMRC approach and finalise the examples in advance of these being incorporated into HMRC guidance.
Arrangements have now been made for a sub-forum meeting to be held in London on 10 November 2008. Any delegates who wish to be involved should please send an email to Lindsey Williams by 31 October 2008 and details of the time and venue will be provided.
It is likely that there will be interest from delegates outside the Big four and as yet (by mutual agreement) the examples provided by Big four firms have not been shared widely. HMRC believe that it would be helpful if these examples could be distributed to attendees in advance of the meeting date if (together with the previously circulated HMRC examples) they are to form the basis of discussion on the day. The Big four contributors are accordingly invited to contact Martin Dwyer by 31 October 2008 to provide their agreement or alternative comments.
HMRC had been asked to clarify the position regarding SA returns submitted prior and subsequent to 18 October 2007 given confusion caused by a typing error within the published notes of the meeting held on 22 May 2008. These notes made reference to circumstances where a 2005-06 SA Return had been submitted subsequent to the sub-group meeting held on 18 October 2007. They should have made reference to a 2006-07 SA return.
For the avoidance of doubt HMRC was able to confirm that where tax returns were submitted prior to 18 October 2007 on the basis of the established HMRC position (which regarded conditionality as the determinant factor over any specific performance period) they will not seek to challenge the Returns on that point. Furthermore, if after 18 October 2007 any individual submitted a Tax Return for 2006-07 (or earlier) in accordance with the HMRC guidance given on 18 October 2007 HMRC will not seek to challenge the Return on this point, but if the individual wishes to change the basis and adopt the position clarified on 28 February 2008 HMRC would not object to a taxpayer amendment provided that this is made within the available window.
The notes of the sub-group meeting held on 8 May 2008 make reference to a Counsel's Opinion from Michael Sherry. HMRC have been asked whether or not they are prepared to share details of this Opinion to further illustrate the issues considered and the conclusions reached.
The Opinion is in fact the property of Deloitte & Touche LLP and accordingly it would not be appropriate for HMRC to share its contents. However, HMRC believe that much of the commentary within the discussion document outlining their approach to deciding the year that earnings are 'for' is reflective of the conclusions drawn by Counsel and HMRC's Solicitor when examining the Bray v Best case judgement.
Jane Truelove apologised for the delay in providing the individual responses to feedback that had been promised at the previous meeting. She had received feedback from the Co-Chairman and the CBI on what they would like to see covered in guidance from a practical operational perspective. This was being considered alongside some work that CAR was carrying out in providing an overview of the overseas scheme manager responsibilities. This would be produced internally but HMRC would look to share this with the members of the forum prior to publication. HMRC gave a commitment that the promised guidance would be available prior to the next meeting of the Expatriate Joint Forum in January 2009. CAR would also be reviewing previous Q&A logs from the Forum to check that the aspects covered on Pensions issues had been incorporated into the Registered Pension Scheme Manual.
Amongst the issues referred to in the previous feedback was one about deductions for pension contributions for overseas staff employed in branches of a UK business. Prior to 6 April 2006, S76 FA89 generally meant that there was no difficulty in a deduction being available for such contributions in the calculation of the CT liability. Since 6 April 2006, the timing of the deduction was likely to be governed by Sch 24 FA03. Representatives of the accountancy bodies had recently met with HMRC Pensions Policy people to explore this issue. HMRC would discuss with those representatives how best to publicise the outcome of that meeting.
HMRC had been asked to comment as to whether there were aspects of the international pensions regime that could be regarded as discrimination under the terms of the Treaty of Rome.
HMRC confirmed that the regime had been designed very much with EU considerations in mind. In particular, HMRC had ensured that it would be feasible for schemes set up in all EU States to meet the requirements to be Qualifying Overseas Pensions Schemes (QOPS) for the purposes of members wishing to claim migrant member relief. However, it was pointed out that this did not necessarily equate to any form of scheme in an EU State meeting the requirements.
HMRC explained that when they examined tax returns submitted in respect of fully tax equalised individuals, particularly those who had claimed foreign tax credits in the UK, it was not obvious how the foreign tax payments had been reported as earnings for UK tax purposes. From a risk perspective therefore, HMRC felt that this may be an area where SA returns did not always declare the full amount of taxable compensation but before any Section 9A enquiries were opened in this respect HMRC wished to clarify the position from the representatives' perspective.
The delegates were unanimous in their belief that the reason why such foreign tax payments were unlikely to be identified separately within SA return schedules was that these were often included within the separate tax equalisation reconciliations and would within these be used to offset against any additional hypothetical tax recoveries made from employees. All representatives were convinced that the foreign tax payments were accounted for in this manner and accordingly the risk which HMRC perceived to exist may be minimal.
HMRC thanked the delegates for this information but explained that they still required clarification of how in practice this reconciliation system worked to include foreign tax paid and how in particular any figures were taken from the reconciliation and included within the SA return. It was agreed therefore that HMRC would approach the Big four delegates to request a typical example to demonstrate the methodologies which they apply. Once HMRC understood what happened in practice they could then seek clarification in real cases where any doubts remained. This would involve the opening of Section 9A Enquiries which specifically requested access to the tax equalisation reconciliation documentation.
HMRC reminded delegates that a Share Scheme Sub Group was to take place on 19 September and that there was still an opportunity to provide suggestions for agenda items even at this late stage.
HMRC confirmed that repayments to nominees could only be made via the BACS system. Provided taxpayers clearly included the relevant BACS details within the nomination mandate included with the SA tax return HMRC would be able to make repayment accordingly.
HMRC explained that some agents were contacting CPTT for details of UTR numbers without providing the full name and National Insurance number of the individuals concerned. HMRC is not resourced to carry out tracing exercises without the full information being provided. In some instances HMRC were being asked for details where the Agent code was e-enabled and therefore there was already a system in place to facilitate the production of such information in house. In some cases the requests did not relate to CPTT customers and therefore agents were asked to use the proper channels to obtain the information they require.
The dates arranged for meetings with the Expat Forum for 2009 were announced as follows:
15 January 2009
16 April 2009
16 July 2009
15 October 2009
The venue for all of these meetings will be Euston Tower.
Martin Dwyer
HM Inspector of Taxes
