Jane Truelove Charities, Assests and Residence (CAR) Pensions
Andrew Edwards CAR Residency
Chris Murricane CAR (Empoyee Shares and Securities Unit (ESSU)
Tom Rollinson CAR ESSU
Don Macarthur Business Customer Unit
Martin Delnon PAYE Technical
Martin Dwyer Complex Personal Tax Team (CPTT)
Shirley Davies CPTT
Gary White Corporation Tax (CT) & VAT
Amanda Robinson CT & VAT
Barry Cocks KPMG (Limited Liability Partnership (LLP)
Sarah Robert KPMG LLP
Amanda Sullivan BDO LLP
Eleanor Meredith PwC LLP
Nigel Duffey PwC LLP
Martin Benson Baker Tilly LLP
Peter Ashby Grant Thornton LLP
Matthew Fox Grant Thornton LLP
Stephen Woodhouse Deloitte & Touche LLP
Philip Paur Deloitte & Touche LLP
Rosemary Martin Ernst & Young LLP
Steve Wade Ernst & Young LLP
Mavis Sargent Wrothams
Nigel Doran Macfarlanes
Elaine Gibson Institute of Payroll Professionals (IPP)
David Treitel Institiute of Chartered Accountants in England and Wales (ICAEW)
Rosa Tormo Confederation of British Industries (CBI)
Ishbel Huggins Shell plc
David Martin ICI plc
Linda Mansfield Rio Tinto plc
The meeting took place in Room G23, Ground floor, South West Wing, Bush House, The Strand, London WC2 4RD
Don Macarthur reminded delegates of the importance of giving early notification to HMRC of their intention to attend the joint forum meetings or otherwise. For reasons of security and seating it was important that all delegates made their intentions clear to Lindsey Williams in this respect.
Peter Ashby reminded delegates that only representative bodies would be allowed to join the forum going forward. The manageable size of the forum needed to be monitored and it was hoped that most businesses and advisors had representation through the current membership. Should any new representative bodies seek membership this would be looked on favourably.
Don Macarthur reminded delegates that they should restrict the number of attendees to no more than two persons from each business. HMRC representation would be limited where appropriate, but it was felt that letting HMRC experts experience the full range of employer concerns in this area would help the Department provide more joined-up responses.
1. During previous meetings, the Confederation of British Industries (CBI) had asked whether or not HMRC would be prepared to accept schedules which showed expatriates' names and residual liabilities in place of Self Assessment (SA) Returns. HMRC had expressed a reluctance to do so but the CBI had indicated a wish to debate this further. Peter Ashby confirmed that after further consideration the CBI had taken the decision not to press on with this issue.
2. In an attempt to clarify the domestic application of Article 14(2) in the US and the impact this may have on the availability of foreign tax credit relief claimed in the UK, HMRC wrote to the IRS on 31 August 2007 setting out a variety of scenarios for comment. To date there has been no response from the Internal Revenue Service (IRS) and naturally the joint forum regarded this as disappointing. Peter Ashby and Don Macarthur explained that they were considering writing to the IRS on behalf of the joint forum to explain the urgency of the clarification required and the impact and uncertainty that is created by continued delay. Delegates strongly supported this idea.
3. Don Macarthur reported back on the question of posting historic Question and Answer (Q & A) logs on the Internet. As had been discussed previously, the direction in which HMRC is proceeding is to produce better and more user friendly guidance generally. Indeed, with the recent Pre-Budget Report a paper entitled ‘Alignment of NIC and Income Tax – an evidence based assessment’ had been issued which highlighted three initiatives announced by the Chancellor. The first of these concerned consultation regarding payrolling of benefits in kind and a consultation paper was expected to be issued later this week. The second concerned Class 2 and Class 4 NIC contributions for the self employed and a consultation paper was expected to be issued by mid-December. The third concerned priority areas for improvement of guidance and this would involve informal consultation. Don Macarthur invited the external joint forum representatives to participate. He provided the attendees with an extract from the aforementioned document to give a flavour of the concerns and aims identified by HMRC as far as tax and NIC guidance is concerned. He pointed out that there were naturally some prioritisation issues as expatriate matters affected a limited number of customers and were therefore not necessarily at the top of HMRC's agenda insofar as the alignment of guidance was concerned but nevertheless indicated that this provided an opportunity for interested external parties to influence the debate.
Martin Benson suggested that HMRC should abolish the National Insurance Manual and consolidate the relevant guidance within the Employment Income Manual. Don Macarthur welcomed this idea, but suggested that it might be more helpful to HMRC customers to produce guidance accessible via internet access using a search facility, rather than a specific library.
Peter Ashby reported that HMRC had received no feedback from external representatives regarding the NIC grossing formula. The current position therefore remained that two formulas were in existence, one prepared by Tolley's and one by HMRC. Martin Dwyer repeated the position that had been outlined at the previous meeting. Currently HMRC had not indicated a definitive approach which employers must follow. This meant that employers were free to use the Tolley's version of the grossing formula for NIC reporting. However, where HMRC identified additional unreported liabilities, they would calculate the additional NIC arising in respect of these earnings by reference the HMRC formula. In these circumstances, HMRC would not seek to recalculate the previously reported NIC by reference to the HMRC formula.
4. The topic of accountancy fees had been discussed at the meeting held on 30 August 2007. Since the meeting KPMG LLP had approached HMRC with proposals and a methodology regarding quantification of accountancy fee benefits which they felt recognised the concerns that HMRC had expressed during the previous meeting. The KPMG LLP proposals would be considered in due course and after taking advice from the relevant technical specialists, these would be referred to the joint forum if HMRC were content that they provided a satisfactory solution to this issue across the board.
A copy of the updated Q & A log had been issued prior to the meeting. No specific questions on the answers provided were raised.
HMRC felt that there was a general need for a simple guide to cover the implications of domestic legislation regarding pensions insofar as they affect international assignees. Jane Truelove is relatively new to the technical seat and requested clarification of the key issues (to be confirmed subsequently in writing) so that she can produce some appropriate guidance to address these.
Philip Paur indicated that transfers between overseas schemes are an issue. Post-assignment transfers can trigger a charge unless the new scheme is authorised which is seldom the case. Such transfers are common in the US and may generate an unauthorised payment charge if the new scheme is not registered before the event.
There had of course been a meeting held between representatives of the Big 4 accountants and HMRC on 14 May 2007 to discuss specific issues relating to the pension legislation. Copies of the agreed notes of this meeting had been circulated to delegates in advance of this joint forum meeting. It was not generally clear to members of the joint forum who was leading in respect of the issues raised at this meeting and indeed the stage that any subsequent dialogue had reached. Rosemary Martin explained that there had been subsequent correspondence with CAR Pensions and there remained a number of issues to resolve. Rosemary confirmed that the accompanying letter referred to within the Q & A exchange which had been handed out by Martin Dwyer at the previous meeting could be shared with the members of the joint forum.
Supporting documents <<link to supporting documents listing page>> are available for meeting held on 5 December 2007.
The general feeling amongst attendees was that the ongoing dialogue should best be continued under the auspices of the joint forum. Peter Ashby explained that the CBI had some time ago asked HMRC to provide guidance on how employers should act in connection with the new pension legislation. There was clearly some lack of clarity regarding their obligations and how the new rules needed to be applied.
Jane Truelove explained that she would work on a simple guide for employers and pick up any technical issues from the agents provided that they respond to her request for these to be confirmed in writing. Elaine Gibson of Institute of Payroll Professionals (IPP) suggested that such guidance could be published via Agent's Update as this was a frequent point of reference for employers when searching for advice and clarification.
Philip Paur asked whether or not there was any scope to amend the legislation. Steve Wade of Ernst & Young LLP pointed out that against a background of ‘no changes’ the Pre-Budget Report had suggested that some amendments are proposed. Jane Truelove confirmed that the desire was not to change things but HMRC were listening to external concerns and these would be reported back through the policy makers to ministers. It was hoped that some of the concerns may be addressed by the issue of updated guidance on technical and process issues but some may require legislative change. Peter Ashby explained that if, following the continued exchange of views with HMRC, there appeared to be no real signs of a lessening of the practical problems experienced by businesses, he would be prepared to write to ministers on behalf of the forum in an attempt to lobby further for change.
Ishbel Huggins of Shell Plc explained that from the employer's perspective the position appeared extremely confused. Professional advisers would sometimes provide conflicting advice and this, compounded by the lack of clarity available from HMRC, provided an extremely difficult environment within which employers had to act. Ishbel offered to provide Jane with examples of practical problems faced by employers if this would help the debate. Jane encouraged Ishbel to do so.
Martin Dwyer recognised that there was clearly an issue here which needed to be resolved. He agreed to take forward the suggestion that a separate meeting be arranged between external forum representatives and HMRC to both clarify the issues creating difficulty and uncertainty and to see how best these may be resolved.Martin Dwyer will work with Jane Truelove and her colleagues at CAR Pensions to make the necessary arrangements but in the short-term, he encouraged all representatives to provide written confirmation of both technical and practical difficulties as previously invited.
Written confirmation of the technical and practical difficulties experienced by employers and their advisers should be forwarded to jane.truelove@ir.gsi.gov.uk with a copy to martin.dwyer@ir.gsi.gov.uk HMRC does not intend to issue individual responses but will invite interested parties to a meeting to discuss these issues in general terms in due course.
Peter Ashby noted that the notes of the meeting held on 18 October 2007 had been published on the HMRC Internet site and suggested that these provided tax planners with opportunities to design arrangements which would deny any UK domestic charge on conditional bonuses. The general view of the external representatives was that it may have been unwise for HMRC to publish these notes until such time as the debate was finally resolved. Martin Dwyer took responsibility for the preparation and publication of the notes but accepted that subsequent to the meeting there had been further exchanges of letters and e-mails which meant that this issue was far from settled. He agreed that in these circumstances, it would be prudent to ensure that if the notes of the aforementioned meeting were to remain on the HMRC website, they should contain a clear note to show that the issue is far from resolved and that continuing correspondence and dialogue through the medium of the Joint Forum is underway.
Martin Delnon confirmed that at the meeting held on 18 October 2007 HMRC had set out with some clarity its position and the thinking behind this. HMRC had been surprised by the weight of the subsequent responses and was carefully considering them. HMRC aimed to reply and to further explain its position in January.
Steve Wade reminded the forum that one of the main difficulties associated with HMRC's assertion regarding its domestic charge was how this fitted with methodologies adopted by other countries. The availability of foreign tax credit relief in the UK was a particular issue which required clarification and although this had been addressed by Kevin Madley at the meeting on 18 October 2007, Steve Wade did not believe that the notes of the meeting adequately reflected the advice given in this respect at the time.
Martin Dwyer acknowledged that the question of foreign tax credit relief had indeed been debated at the meeting on 18 October 2007 and that Eleanor Meredith of PwC had also flagged her concerns regarding the content of the notes in this regard within an e-mail submitted subsequently. At the aforementioned meeting there had been some debate amongst HMRC representatives regarding the availability of foreign tax credit relief and this debate had continued subsequently. Martin Dwyer confirmed that the intention was to create some examples relating to both cash and non-cash bonuses which would address not only the income tax and NIC implications but would also address the foreign tax credit relief aspect. Dwyer's preference was to await the further explanations referred to above before finalising these examples.
Stephen Woodhouse of Deloitte & Touche LLP asked whether HMRC were seeking to interpret previous case law by reference to the modern incentive plans that are now common in the market place rather than by reference to more simple versions that were in place at the time. He explained that although Bray v Best was a relatively recent case, others relevant to the debate were much older and as a consequence the facts and circumstances were not necessarily relevant to incentivisation in the 21st century.
Martin Dwyer explained that this point had been well made in a lengthy letter issued by Deloitte & Touche LLP on behalf of the Big 4 recently and that this letter had been passed for the attention of Mike Harmon, the technical specialist.
The feeling of the forum was that once HMRC had clarified its position a further meeting to discuss bonuses and the UK charge, the Organisation for Economic Co-operation and Development (OECD) angle and the interaction with other countries would be of benefit.
Peter Ashby sought clarification of the availability of concessionary treatments for expatriates post Wilkinson. In particular, he was seeking to establish what advisors and agents could rely on in terms of existing and future concessions. Martin Delnon explained that currently anything published as a concession would continue to be available until specifically removed. Furthermore, it was usual that HMRC would give appropriate notice if such action was intended.
Martin Delnon explained that the difficulty for HMRC is knowing exactly what concessionary arrangements were being operated.
Steve Wade offered the view that HMRC had gone too far in its interpretation of the impact of the Wilkinson case. In the expatriate arena there were a number of concessions which eased the way that businesses needed to operate. Philip Paur explained that in his view it was unfortunate that no further extra statutory concessions were available as where legislation had not been updated and the intention of Parliament remained unclear some guidance was still required.
Martin Delnon explained that it was HMRC's preference to incorporate concessions within legislation. He conceded however that where new legislation changed the previous position (for example Chapter 3C) some additional guidance was required.
Don Macarthur set out the background to this issue and confirmed that his Policy colleagues were continuing to talk to stakeholders regarding the resolution of problems that the Demibourne decision had created. HMRC were aware of the current advice from stakeholders indicating that the position was not workable and as a consequence, were looking for a legislative solution going forward. An announcement in early spring in this respect was anticipated but Macarthur was unable to comment about whether any revised legislation would be retrospective.
Currently, the use of mandates to support Section 33 TMA 1970 claims could continue, although in this respect the wording of the official HMRC mandate had been amended to further clarify for the benefit of the employee his particular rights to the credit and resultant tax overpayment.
Steve Wade asked about consultation. His view was that the findings in the Demibourne case were not correct and that tax paid under PAYE was tax paid by the individual. He was concerned about the impact of any revised legislation on expatriate employees.
Both Don Macarthur and Martin Dwyer explained that there had been external representation (through Chartered Institute of Taxation (CIOT)) involved in the consultation around this issue. The advice available to Macarthur suggested that a legislative solution represented the only way forward to address the concerns expressed on all sides.
Andrew Edwards confirmed that the residence and domicile review has now concluded. A consultation document from Hm Treasury (HMT) will be issued later this month and it is anticipated that meetings with interested parties will take place in January. It is hoped draft legislation will be issued on 20 December 2007 covering most of the issues raised in the pre-budget report with some residual draft legislation sweeping up the remainder early in the New Year.
Edwards confirmed that HMRC were happy to meet with groups and representative bodies re the draft legislation. The intention was to apply the revised legislation from April 2008.
Barry Cocks of KPMG LLP referred to proposed changes regarding the counting of days of arrival and departure and asked whether HMRC was going to legislate re a residence test. Edwards confirmed that the revised day counting will appear in the new legislation. HMRC remained willing to listen to thoughts regarding any further legislation required to define residence. He acknowledged that the 91-day test was not within legislation and was currently HMRC practice. The intention was that new legislation would cover how days are to be counted for the six months' test and HMRC practices would be amended accordingly for other day counting practices.
Jane Truelove confirmed that HMRC acknowledged that the UK was currently out of step with other fiscal authorities in interpreting the OECD commentary regarding days of presence. This commentary says that for the purposes of the Treaty, any presence represents a day of presence but based on legal advice received HMRC doesn't follow this. This issue is something that will be considered alongside the work relating to the UK’s domestic position on day counting.
Amanda Sullivan of BDO asked whether or not HMRC intended to revise the scope and definition of ‘exceptional circumstances’. Andrew Edwards confirmed that there was no intention to change from the current position in this regard.
Philip Paur queried the approach to be taken in respect of days of transition making reference to the OECD model which discounted transit occasions. Andrew Edwards confirmed that where a passenger simply transferred flights during the course of a day in the UK, this would not be regarded as a day of UK presence.
Philip Paur explained that under the new legislation proposals, it could be possible for an individual to be regarded as not resident for 2007-08 under the UK average test but resident for 2008-09 by reference to the factual test of residence. Edwards explained that this was an actual consequence of the intended policy. He confirmed again that HMRC were willing to listen to representations regarding enlarging the scope and coverage of the statutory residence test. Law and practice will change as of April 2008 and will not apply retrospectively. So, when seeking to determine the residence position for 2007-08 HMRC and advisors should use the rules and legislation applicable for that period. If new legislation is introduced from April 2008 then this will need to be considered when looking at residence for 2008-09 onwards.
Barry Cocks asked whether or not the £30,000 levy would be creditable in another fiscal authority. Edwards clarified that the intended £30,000 levy was a charge in addition to any tax paid. It is not a tax on income but is a charge giving access to the remittance basis of assessment. Ultimately it was up to the other fiscal authority to determine whether or not they would give credit for the £30,000. Philip Paur was concerned about transitional arrangements. Edwards explained that it was expected that there would be transitional provisions and that these would be clarified in the draft legislation.
Steve Wade explained that there should be clarity regarding reporting guidance. Edwards acknowledged this but explained that although HMRC would attempt to issue clear guidance this was unlikely to be available until after the Finance Bill had received Royal Assent.
Should the intended legislation be introduced, trailing spouses and wealthy children who wish to claim access to the remittance basis would need to file an SA Return going forward. This position differed from that currently applied (as set out within question 1 of the Q & A log issued in advance of this meeting).
Philip Paur explained that the centre of vital interest test would become much more prevalent from April 2008 onwards and observed that there was not much guidance on this issue available from HMRC. Edwards agreed to take this forward. Barry Cocks asked for additional clarification regarding the permanent home test and Edwards confirmed that he would look at this as well.
Shirley Davies explained that the Carter initiatives to be rolled out across HMRC would have an impact on existing arrangements for expatriates and unfortunately CPTT was not immune from these. A particular issue related to the filing of form P46 Employee without a form P45 online. A sub-group meeting was arranged to discuss these issues on Monday 10 December 2007 but Shirley was seeking to acquaint the joint forum with the fact that some local arrangements would need to change going forward.
The impact on cases included within modified PAYE (EPM Appendix 6) were less extreme although the wording of the agreements might need to be changed but a large proportion of expatriates whose affairs were handled by CPTT were not subject to modified PAYE arrangements.
Don Macarthur confirmed that to support online filing foreign and capital gains pages would now be available from April 2008. Steve Wade had raised some practical issues which need to be addressed and had provided some examples of difficulties which advisors and taxpayers face in connection with online filing.
A copy of the letter regarding the electronic filing of expatriate tax returns <<link to EY letter online filingp4 tif.pde>> submitted by Steve Wade for general information. The HMRC Carter Team, CPTT and others will be happy to work with the joint forum to understand the issues and devise practical solutions. Will interested parties please make themselves known to lindsey.williams@ir.gsi.gov.uk by 25 January 2008 in order that a meeting may be arranged to discuss these issues further.
Because of time constraints it was agreed to defer this item to the next meeting arranged for 28 February 2009. Don Macarthur invited the submission of any views regarding the scope of the forum and the positions of joint Chairmen either in advance of the meeting or at the meeting.
Shirley Davies explained that some difficulties were presented to HMRC in connection with paper returns and the non-resident page. In particular, where a tick was included in Box 9.1 there must be supporting entries in Boxes 9.10 or 9.14 and often this was not the case. Shirley explained that the reason for this may be that certain programmes used by advisors may have overridden the requirement to enter details in Boxes 9.10 or 9.14 where a tick is placed in Box 9.1. However, from HMRC's perspective, it was not possible to capture a return which did not contain the relevant information and where this position arose, HMRC would have no alternative other than to return the SA Return for accurate completion. Deloitte & Touche LLP indicated that they use white note space entries to provide additional information when manually filed but this doesn't work for online filing.
Shirley Davies then discussed the issue of composite payments (previously referred to as global payments) and explained that a spreadsheet and helpcard were to be issued to employers and agents next week. When making composite payments it was preferable that the CHAPS rather than BACS was used as under BACS, the payment was likely to be made into the PAYE account. If, however, businesses or agents use BACS, they will need to make this abundantly clear within supporting correspondence so that HMRC can arrange to reallocate the payment from the PAYE account.
Peter Ashby reported that a sub-committee meeting had been held on 21 September 2007 and indicated that he would arrange for the notes to be circulated in due course.
Barry Cocks of KPMG LLP asked HMRC to work towards resolving this issue in advance of next year's bonus round so that all parties could understand the implications arising and necessary advice could be given.
Philip Paur explained that Deloitte & Touche had discussed the CIOT report and had set out their own preferred options for change based thereon. Don Macarthur confirmed that the Forum continued to welcome input and recommendations based around this document but would require some indication of priorities.
Steve Wade of Ernst & Young LLP explained that this year's SA Return guidance in respect of the NR pages was particularly poor and he hoped that it would be remedied for 2007-08.
These notes, read in isolation, cannot be relied upon to give a true view
of the HMRC position on any issue. This is because:
