Cathy Wilson - CAR Residency
Kevin Lindoe - CAR Residency
Jane Truelove - CAR Pensions
Jon Clarke - CAR ESSU
Tom Rollinson - CAR ESSU
Don Macarthur - Business Customer Unit
Mark Frampton - PAYE NIC Policy Technical
Graham Lewis - PAYE Technical
Martin Dwyer - CPTT
Shirley Davies - CPTT
Barry Cocks - KPMG LLP
Sarah Robert - KPMG LLP
Andrew Bailey - BDO
Amanda Sullivan - BDO
Simon Morris - PwC LLP
Eleanor Meredith - PwC LLP
Peter Ashby - Grant Thornton LLP
Robert Hodkinson - Deloitte & Touche LLP
Philip Paur - Deloitte & Touche LLP
Rosemary Martin - Ernst & Young LLP
Steve Wade - Ernst & Young LLP
Hugh Morgan - H W Fisher & Co
Nigel Doran - Macfarlanes
Victoria Nicholl - Travers Smith
Mavis Sargent - ACCA
Martin Benson - CIOT
Elaine Gibson - IPPM
Benjamin Webb - CBI
Mervyn Woods - CBI
Will Thompson - Shell plc
Lucie Holland - Zurich plc
Linda Mansfield - Rio Tinto plc
John Harvard - British American Business
The meeting took place at the The Boardroom, 1 Horse Guards Road, London, SW1.
Delegates were again reminded that in view of security requirements it remained important for all visitors to give confirmation of their intention to attend the Joint Forum well in advance of the meeting dates.
At the previous meeting held on 28 February 2008 external delegates had been invited to complete a questionnaire to offer their frank views regarding the Forum, its make-up and performance as well as the way it should be used going forward.
The results of the feedback were as follows:
| Question | Yes | No |
|---|---|---|
Should we continue with the Q & A log? |
20 |
0 |
Should attendance numbers stay the same |
18 |
0 |
Should attendance numbers increase |
0 |
0 |
Should attendance numbers decrease |
3 |
0 |
Are we right to close the meeting to non-representative bodies? |
15 |
5 |
Should there be more sub-committee meetings to discuss detailed topics? |
19 |
2 |
Is the current format right? |
20 |
1 |
Should we rotate the co-chairs annually? |
5 |
14 |
How many meetings should be held each year - 2, 3, 4 or 6? The majority were in favour of 4 |
0 |
0 |
The co-chairmen were grateful for this feedback and confirmed that they would take note of it. Overall the current format of the Forum and the way it operates appeared acceptable to the majority but there was a clear steer to make more use of sub committee meetings as a way of providing the necessary time and focus to specific issues. It was agreed that the Joint Forum's input would be more in the way of reaching agreement on the types of items which should be referred to a sub committee and receiving feedback and reports indicating progress and/or whether solutions to problems can be found.
The minutes of the previous meeting held on 28 February 2008 were agreed. A number of action points were identified but it was confirmed that these would be dealt with under specific agenda items later in the meeting.
HMRC explained that a sub-committee meeting had been held on 8 May 2008 and indeed the notes of this had been issued to all delegates on 21 May 2008 together with some simple examples intended to illustrate the differences which may arise in circumstances where bonuses are assessed for a defined earnings period or alternatively (if no such period is evidenced) for the year in which any conditions are met, or if no conditions apply, the year in which payment is made. It was clear from the discussion held at the sub-committee meeting that the views of both HMRC and external advisors are now significantly more aligned and that in the more straightforward performance bonus cases, difficulties regarding agreement over which earnings period a bonus was for should be capable of resolution by reference to available facts and documentation. However, it was similarly clear that where more complex arrangements were involved, such as LTIPs or indeed where deferral or salary sacrifice arrangements were available, there appeared to be no common methodology applied in attributing earnings to specific periods.
It had been generally agreed that HMRC and the Big 4 should work together to create some typical examples which might provide clarity regarding the approach to follow. HMRC had now kicked this process off by providing some examples relating to more straightforward arrangements and the Big 4 had agreed to produce examples based on more complex arrangements operating in the market place.
HMRC's aim was to update the Employment Income Manual to incorporate more specific guidance regarding the taxation of bonuses and the periods earnings are 'for' and such guidance will include illustrative examples.
The Big 4 were invited to submit their examples, including their analysis of periods earnings were for and the rationale applied in reaching this conclusion, by 4 July 2008 to Martin Dwyer.
It was recognised that there was a wide variety of incentive arrangements in operation in the market place and that the examples could not possibly reflect all of these. The aim was to produce guidance and examples which set out and observed the fundamental principles now agreed. It was hoped that the availability of such guidance would bring more consistency to this area and provide more certainty of treatment as well as reducing the numbers of cases where the application of UK domestic legislation produces a result which may be at odds with treatments applied in other fiscal authorities which may give rise to Competent Authority difficulties.
HMRC were asked to confirm whether or not the ongoing discussions meant that the cash basis of assessment for bonuses was no longer available. HMRC confirmed that the concessionary cash basis as referred to in help sheet IR212 remains available but only to the tax equalised population to whom it was specifically limited.
HMRC were asked to clarify their views regarding the transition period. Confirmation was given that where a 2005-2006 Self Assessment tax return had been submitted, subsequent to the sub-committee meeting held on 18 October 2007, showing earnings reported in accordance with the advice provided by HMRC at that time, it would not be appropriate for HMRC to challenge the return on that point. Similarly, for PAYE reporting during 2007-2008, employers would not be penalised if they limited the operation of PAYE on earnings delivered after 18 October 2007 to amounts computed in accordance with the HMRC position as stated at that time. However, as far as the 2007-2008 Self Assessment tax position was concerned, the position agreed by all representatives of the sub-committee was that these should include earnings calculated by reference to the agreed position and where this resulted in a liability in excess of the tax withheld under PAYE, this residual liability should be settled under Self Assessment.
HMRC reported that a short sub-committee meeting had also been held on 8 May 2008 to discuss accountancy fees. HMRC had made clearly their position with regards to fees incurred in respect of Section 9A enquiry work and it was clear that these views were not widely accepted by external delegates. Nevertheless, HMRC had made it clear that where they find evidence of such accountancy costs being met on behalf of employees by the employer, they would regard the full extent of such expenses as representing the measure of the benefit-in-kind and would expect such amounts to be reflected on forms P11D and Self Assessment returns accordingly. HMRC remain willing to test this difference of opinion before the Commissioners if necessary.
However, as far as the accountancy benefit in respect of tax return preparation fees is concerned, CPTT is prepared to look at this more closely in the light of representations made. In this regard CPTT met recently with KPMG LLP to discuss their views regarding tax return preparation benefits and some constructive proposals have emerged.
KPMG LLP have provided CPTT with a anonymised details of their top ten expatriate employers and the tax return preparation fee benefits reported across the employees within these programmes, splitting out where possible the amounts considered as referable to the UK tax return and those considered referable to any home country tax return obligations. CPTT invited other advisers within the Forum to provide similar details so that these may be used to build up a picture of where the current ball park figure of tax return preparation fee benefits sits. This will then allow CPTT to discuss the possibilities of agreeing a round sum benefit applicable across the board within discussions at Policy level as a response to the complaint which suggests that HMRC staff are currently generating unnecessary and expensive work in this area by challenging levels of benefits reported whilst remaining unable to outline a clear and detailed methodology for quantification of an alternative figure.
For the sake of clarity it was confirmed that this exercise was aimed at resolving difficulties experienced where due to tax equalisation arrangements, the employer paid for accountancy services relating to the preparation and submission of the individual assignees' tax returns. There was no suggestion that whatever figures may be ultimately agreed should be regarded as applicable in any other circumstances, for example, where board directors were provided with accountancy advice as part of their employment package.
It was agreed that the co-chairman would write to delegates subsequent to the meeting, clarifying the precise information requested. Any responses on this point should be directed to Martin Dwyer.
HMRC confirmed that a number of responses had been received to the request made at the previous meeting for details of technical and practical difficulties relating to the new pensions legislation to be provided in writing.
By way of an interim response, HMRC provided all attendees with a note which attempted to draw together some common themes from the various responses received (reproduced at Appendix 1 below). This note included a response from HMRC in respect of some of these and identified areas where more information is required to enable HMRC to gauge just how widespread these difficulties might be.
CAR Pensions intend to issue detailed responses to all of the correspondence received and will look at the areas of difficulty identified. CAR Pensions are aware that some members consider these issues should be dealt with via a sub-committee approach. The Pensions team would like to receive further detail on the aspects flagged in the Handout before responding to this request.
The contents of the handout were discussed. Delegates required more clarity on the Section 307 ITEPA issue. The feeling was that HMRC had not articulated its reasons for taking the line they do when interpreting this piece of legislation. It was agreed that HMRC would attempt to provide more clarity in this area.
The co-chairman explained that he had been looking for some simple guidelines to cover the various routes through which access to relief in respect of contributions into an overseas pension scheme can be obtained. He agreed to write to the relevant HMRC technical specialist a detailed note of what he would like to see CAR Pensions deliver for the benefit of employers and practitioners [this has been provided]. Employer representatives explained that because of the practical difficulties around tracking and reporting, some employers opted to proceed on the basis that their tax equalised employees should claim no reliefs in respect of pension contributions but even in these circumstances, some reporting requirements remained. The co-chairman confirmed that he would incorporate this scenario within his submission to the Policy specialists and copy all delegates into the exchange of correspondence.
HMRC confirmed that they were currently working on amendments to the Finance Bill with a view to presenting these at a Parliamentary Committee Hearing in the near future. As amendments are finalised the intention is to publish these on the Finance Bill page of the HMRC Internet site. Comments regarding each publication are invited although as we get closer to the date of the Parliamentary Committee Hearing, the time available for publishing and commentary will diminish. A meeting has been scheduled for 2 June 2008 for discussion of the Finance Bill legislation. Invitations to interested parties have already been issued.
Mixed Accounts: Concern was expressed regarding the treatment of mixed accounts and the perceived need to review bank statements in detail to ensure compliance with the new rules rather than use the old Statement of Practice 5 of 84 approach. HMRC confirmed that SP5/84 is to be withdrawn but will be replaced by a guidance note. There is no intention to revise the legislation on this point and indeed the methodology associated with SP5/84 can continue to apply.
IR20: As far as booklet IR20 is concerned, the current content will be updated when the Finance Bill receives Royal Assent. In due course, there will be consultation (around September 2008) regarding a replacement document.
Refunded payroll deductions and remittances: The current treatment applying to refunded payroll deductions when repaid to an overseas bank account or (in the case of tax equalised assignees) to the employer, being not regarded as remittances will continue to apply.
The £2,000 limit and ECSA11: The split-year concession will continue but the £2,000 limit will apply for the full year and of course this will determine whether or not personal allowances should be given up where the remittance basis is claimed.
External representatives queried whether or not there was an intention to withdraw split-year treatment as legislative changes appeared to chip away at this. HMRC confirmed that there was no general wish to remove the ESCA11 but there was some inconsistency in its application where full PAs and rate bands were available albeit residence was considered on a part-year basis.
It was the wish of Ministers that the remittance rules and the availability of personal allowances be drawn in specific terms. A frequently asked question entry had clarified HMRC's position with regards to the £2,000 limit but if external representatives still wish to make representation on this issue, they should write to the Treasury.
The 2008 Self Assessment return has already been finalised and called for the reporting of items specifically to conform with the new legislation to facilitate access to the remittance basis. The questions asked were basic ones only.
Claims would be policed through the section 9A enquiry regime (which would include random enquiries). In due course practitioners will be engaged in discussion/consultation relating to the preparation of Self Assessment return guidance.
For the purpose of the £2,000 limit income and gains will be computed in accordance with the usual rules (including by reference to a UK tax year and the normal practices applied regarding the use of average of specific exchange rates).
Remittance of nominated income and gains: It was accepted that the legislation provided for some complication where nominated income and gains were subsequently remitted. HMRC regarded this as a necessity to make the legislation effective in achieving its desired outcome but agreed that if employees could arrange their affairs so as to ensure that nominated income and gains were not subsequently remitted the complications could be avoided.
Imputed income: At the previous meeting held on 28 February 2008 clarification had been requested in respect of income which may be imputed to be that of an individual and how this sat with the proposed legislation. HMRC were able to confirm that where a bona fide pension scheme was involved (ie one where the pension scheme makes all necessary reports to HMRC) the pension scheme legislation would apply in preference to the settlements legislation. So, if the scheme conforms to the pension scheme legislation, the settlements legislation would not apply.
A supplementary question regarding the status and treatment of US IRAs was posed against a background of the UK and the US agreeing to regard each others schemes as pension schemes for the purposes of the treaty. HMRC agreed to research this issue and come back in due course.
Due to time constraints a number of specific questions asked in relation to the residence and domicile rules were agreed to be resolved through subsequent publication of HMRC's answers in writing.
The two main outputs from the share schemes meeting related to the application of ESCA11 and the impact of the residence and domicile rules.
A draft guidance note had been issued recently pointing out how HMRC intended to proceed on the ESCA11 point.
HMRC confirmed that legislation at Section 421E(1) and (2) and Section 474(1) ITEPA 2003 should be read in relation to the whole of the first and final years of residence in the UK without regard to ESCA11. However, notwithstanding that this was HMRC's position it was accepted that there may have been a lack of clarity amongst employers, individuals and advisors regarding the non-application of ESCA11 for the year of arrival. Accordingly, HMRC had proposed some relaxation to recognise this. Representatives of the Big 4 indicated that it was not reasonable for HMRC to either assume that employers, individuals and advisers had been aware that ESCA11 did not apply for Part 7 ITEPA in the year of departure and that to allow an amnesty until the date of Royal Assent of the 2008 Finance Bill provided an unrealistically narrow window within which businesses could react to this approach.
The Big 4 argued that clients had already received advice regarding what they needed to track and report and this recent announcement by HMRC would create unnecessary difficulty with regard to the completion of forms 42 and would provide little opportunity for individuals to exercise options in order to avoid a tax charge where such options were incapable of being exercised within the period in any event because of constraints attached at the time of grant.
HMRC defended the position regarding the availability of the ESCA11 generally but did acknowledge that the points raised regarding completion of forms 42 merited some additional consideration. It was agreed that they would give this matter attention and provide additional advice in due course.
Post Meeting Note: Since the meeting a revised draft of the guidance note was circulated (on 23 May 2008). This prompted further reaction from Forum delegates and resulted in a note being issued by Jon Clarke of ESSU on 5 June 2008 confirming that formal publication of the guidance note was to be 'put on hold' temporarily. A commitment was given that the feedback would be considered and HMRC's definitive view in this area would be published as soon as possible.
Businesses and advisers were reminded that employers need to use forms P46 (and in due course forms P46 (Expat)) to identify new starters, submitting these forms on line where there are more than 50 employees within a scheme. It was noted that in some cases difficulty was being experienced in obtaining UTRs from HRMC. It was confirmed that an employer was obliged to notify HMRC of the arrival of new expatriates. Provided the necessary 64-8 has been submitted, CPTT will give notification of the UTR to the appointed agent. However, there will normally be some security checks applied if such a request is made over the telephone and in order to confirm with these the agent will need to be aware of certain information personal to the individual.
The wording of EP Appendix 6 is to be revised to include reference to the mandatory forms P46 (Expat) and to include a requirement for employers to issue forms P45(1) after the year end showing a week 52/month 12 calculation but the actual date of leaving. CPTT will approach customers who are noted on our records as holding current EP Appendix 6 agreements and these will be replaced accordingly.
HMRC has ruled that repayments to UK nominees cannot be made in cheque form and must be made through BACS transfer. This limitation applies in the main to paper returns because any online return filed must have the relevant BACS details entered where a nominee is involved. However, CPTT has negotiated a position which allows the continuation of repayments in cheque form from a paper return for this year only to UK-based nominees.
Post Meeting Note: National guidance has since been issued to extend this relaxation to all customers so HMRC will continue to pay a UK nominee by cheque from a paper return until further notice.
Agents asked whether or not this meant that it will be necessary to submit paper returns by the October filing date if the wish was that HMRC repaid a UK based nominee by cheque. It was agreed that HMRC would clarify the position in due course.
Post Meeting Note: This issue is being looked at separately following the change of approach for paper returns and an update of the changed position will be published on the Internet in due course.
Reporting obligations
Concern expressed over a number of issues around reporting requirements:
1. Some suggestion that the FA2004 legislation imposes reporting requirements on the employer in respect of BCEs.
This is not the case. The reporting obligations fall on the scheme manager.
2. Where the scheme manager is overseas, can reporting obligations be delegated to the employer?
It is appreciated that organisations may devise their own means of ensuring that the legislation is complied with in terms of collating information and submitting reports to HMRC. HMRC's interest is in receiving the required information timeously. Where that information is not submitted, HMRC will turn to the person prescribed by the legislation to provide that information - internal arrangements will not be relevant.
Is a formal basis of nominating the responsible person being suggested?
3. Difficulty collating information for the operation of the TE/EI fraction at Sch 34 FA04.
EI is defined in the legislation as employment income 'for the tax year'. It is not possible to override this to take account of, for example, split years when an individual arrives or departs from the UK. This would seem to be a point that works in the favour of the individual where appropriate.
How much of an issue is this in the context of this population given what the fraction is looking to achieve?
For defined benefits schemes EI is the employment income from any 'relevant employment' in the year. A relevant employment is one with an employer who is a sponsoring employer in relation to the scheme so, shouldn't it be possible for the scheme manager to access as required information on employment income from employers contributing to the scheme?
If there are difficulties, it would be helpful to see some real examples of the situations being encountered.
In the money purchase arrangement the fraction is looking at the employment income from 'the employer' - what are the difficulties in this information being available to the scheme manager?
It is central to the regime that non-UK schemes are used as intermediaries to provide information and operate the appropriate safeguards on pension tax reliefs to ensure it fits with government's objectives. Any compliance regime based on individual reporting would in our review be significantly more burdensome than the current system.
HMRC has not received any complaints about complexity or reluctance from overseas pensions schemes themselves.
Deductibility of employer contributions
4. Suggestion that employer's contributions made prior to a scheme being notified as a QOPS could be deductible at a later date to when they are paid (ie when that notification has been made).
It is the intention of the legislation that relief will only be available to the employer when the reporting obligations (that come about as part of QOPS process) are in place.
Contributions made prior to this date will be available under Sch 24 FA03.
Is the suggestion that the employer would revisit the accounts submitted prior to the date of QOPS status being accepted and claim the tax deductions then or in the current year?
It is noted that there are additional difficulties in the tracking of deductions in defined benefit cases. Is it possible to collate any meaningful data about:
S307 ITEPA related issues
These points have been referred to colleagues in PSN to comment on.
5. Concern raised that S307 only exempts from the residual BIK charge and not from S62.
HMRC would be interested to hear about real circumstances in which this possibility might arise.
6. Difference of opinion between HMRC and some correspondents about the effect of S307 in the circumstances where a scheme provides additional benefits - not just retirement and death benefits.
This is not an area that can be resolved by correspondence - it remains a difference of view. However, HMRC has no difficulty if the benefits are provided via two separate schemes.
PSS is interested in understanding which countries have tax-recognised schemes that won't generally meet the S307 test because of domestic law and why. What number of schemes and members are affected by this point? What obstacles prevent such schemes from being QOPS so S308A would apply?
Transfers between overseas schemes
7. Issue raised about transfers that have been made into a QROPS and where the fund is subsequently transferred on. If the second transfer is made to a scheme that is not a QROPS then this can give rise to an unauthorised payment (UP). This is regardless of whether the receiving scheme would meet the conditions to be accepted as a QROPS.
The policy intention here is that the fund should remain within an environment that results in producing an income from life as opposed to lump sums being taken from the fund. If there are circumstances where an individual is 'forced' to transfer the funds eg on a change of employer but the reality is that the fund remains within a pensions environment then HMRC are willing to look at these scenarios.
HMRC would like more information on the countries and circumstances in which such UPs may arise. The US has been put forward as an example. HMRC needs to understand whether it is Regulation in the US that gives rise to these scenarios or is it the way the industry works in the US. The same information would also be required for other countries where this can occur.
Other
8. All points covered in Forum Q&A should be included in the guidance.
This will be looked at.
9. Could there be a list of generic types of plans that are accepted for QOPS status?
QOPS application process does not operate in this manner. Each scheme is required to indicate on what basis it meets the requirements to be a QOPS.
10. Modification of ESC A10 where lump sums relate to periods both before and after 6 April 2006.
The ESC is to be reviewed in line with Budget Note 95.
Martin Dwyer
Lead National Technician
Complex Personal Tax Teams
