Don Macarthur – HMRC
Keith Williams – HMRC
Martin Dwyer – HMRC
Ivor Graham – HMRC
John Weaver – HMRC
Shirley Davies – HMRC
Chris Edge – HMRC
Martin Delnon – HMRC
Anneli Campbell – HMRC
Jane Truelove – HMRC
Peter Ashby – CBI
Mervyn Woods - CBI
Rosa Tormo – CBI
Lucie Holland – Zurich Financial Services
David Martin – ICI
Ishbel Huggins – Shell
Ben Webb – General Electric
Ian Holloway – IPP
Martin Benson – CIOT
Victoria Nichol – Share Plan Lawyers Group & Travers Smith
Eleanor Meredith – PWC LLP
Nigel Duffy – PWC LLP
Philip Paur – Deloitte & Touche LLP
Michael Lewis – Deloitte & Touche LLP
Hugh Morgan – H W Fisher & Co
Philip Davis – Ernst & Young LLP
Steve Wade – Ernst & Young LLP
Rob Gell – Ernst & Young LLP
Matthew Fox – Grant Thornton
Amanda Sullivan – BDO Stoy Hayward LLP & Tolley Publishing
Colin Ben-Nathan – KPMG LLP
Barry Cocks – KPMG LLP
The meeting took place in the Conference Room at Euston Tower, 286 Euston
Road, London NW1 3UQ.
Don Macarthur opened the forum with an introduction and hoped that representatives would share his optimism as to opportunities offered by the new joint chairmanship arrangements and the “round table” style of the meeting to focus discussion more strongly on issues of importance to employers and agents. He offered good wishes on behalf of the forum to Rachel Marshall who was unable to attend the meeting due to illness. Don explained that HMRC speakers would provide notes of their contributions to Martin Dwyer who would then co-ordinate the preparation and delivery of notes of the meeting.
Don confirmed that himself and Peter Ashby would co-chair this meeting and invited the meeting to agree that Peter Ashby should remain in place as co-chairman for the next 12 months notwithstanding any return to practice that he may choose to take up. The meeting accepted this proposal.
Peter Ashby explained that he had taken on the role of co-chair on the understanding that the forum had teeth and was able to influence change. He hoped that members would feed issues to him so that he could then liaise with Don to ensure that these were fully considered by HMRC and that either change or detailed explanation could then be reported back to the forum.
1. Don Macarthur explained that the terms of reference of the forum had been circulated on 12 February 2007. He had received no amendments and the meeting confirmed that these could now be considered as finalised. Don confirmed that arrangements were being developed to ensure that secretaries of various groups/forums within HMRC would liaise and discuss where any areas of overlap arose. The aim of HMRC was to ensure that matters relating to cross-border employment would be referred to the Joint Forum On Expatriate Tax and NICs and that there should be no duplication.
2. Keith Williams would be delivering more information about the transformation of CPTT at Agenda Item 8.
3. The CBI acknowledged the view expressed by Steph Malone at the previous meeting regarding SA reporting obligations for expatriates and in particular a reluctance to accept schedules which showed expatriates’ names and residual liabilities rather than SA returns. The CBI was still debating this issue and would make public their views in due course.
4. The previous meeting had discussed short term business visitors. There remained issues unresolved around the precise meanings of “works for” and “incidental duties”. Martin Delnon apologised on behalf of HMRC for not resolving these before today’s meeting. It was agreed that he would provide any further clarification in the near future.
Section 689(6) ITEPA defines work in relation to an employee as meaning the performance of any duties of the employee’s employment. The word “for” takes its everyday meaning; “on behalf of” or “to the benefit of” best fitting the context. Clearly, whether an employee is “working for” a UK entity will depend on the facts. Paragraph 120 on page 70 of the CWG2 (2007) emphasises the importance of day to day control and management and asks employers to contact HMRC for advice in cases of doubt and to provide full details of the employees concerned and the work they have been sent to the UK to do. So this is an area where HMRC is already committed to giving what amounts to pre-transaction advice in line with the spirit of the Varney Review.
As far as “incidental duties” are concerned there is guidance available within EIM40203 and examples in EIM40204 in addition to the IR20 guidance.
A copy of CPTT’s internal guidance relating to the Short Term Business Visitor issue is provided as Appendix 1 to these notes.
5. Mervyn Woods pointed out that the Varney Group discussions had suggested
that all guidance relating to expatriate issues should be “housed”
in one place. Don Macarthur explained that joining up guidance around customer
tasks was something that HMRC were trying to do, particularly in bringing
together tax and NIC guidance. This posed quite a resourcing challenge however
and he could offer no assurance regarding when this would be achieved.
Martin Delnon reported back on this. Two sub group meetings had resulted in the creation of a revised Help Sheet which would be available on the Internet. Martin explained that the revised IR212 explicitly recognises that the amended instructions in the Help Sheet are not restricted to foreign nationals working in the UK but can apply to other equalised scenarios e.g. locally engaged employees and employees sent to work outside the UK..
The amended instructions permit the use of “NIL” figures on the SA return and forms P11D in return for a full analysis of the figure in box 1.8. This analysis will normally be contained within the schedules supporting the SA tax return.
The revised Help Sheet will be released, perhaps as early as the week commencing 23 April 2007 (on the Internet with clear signposts from other Internet pages).
Martin explained that the sub group has now completed its work and was unlikely to be reconvened. He nevertheless would appreciate any feedback from practitioners particularly if problems arise in practice.
The revised Help Sheet will only be available on the Internet and the previous paper version for 2006-07 will be obsolete and will no longer be obtainable from the HMRC Orderline. It is hoped that most IR212 Help Sheets are already accessed via the Internet so any “old” paper forms in circulation should not cause problems.
As an aside it was reported that the Share Scheme Sub Group had rearranged its next meeting for 18 May 2007.
Don Macarthur explained that since all attendees had been provided with a copy of the written Q and A log he would prefer to take specific questions rather than read through all Questions and Answers to maximise time for discussion.
Colin Ben-Nathan of KPMG explained that his firm were interested in developing
sub forums to foster discussions in the areas of expatriates and pensions
and expatriates and NIC. Anneli Campbell the HMRC PSS Representative felt
that Questions and Answers in respect of a number of pensions issues were
already available. She
explained that a review was ongoing and results of this would be fed out to
the wide audience (including this forum) by mid May (hopefully).
Philip Paur of Deloitte and Touche queried whether or not there was any prospect of a general waiver of penalty action relating to the 7 July deadline but was given no comfort in this respect by the HMRC representative. Eleanor Meredith of PWC explained that there was an open query regarding pension book reserves in Germany, which she had raised at an earlier forum meeting, but was awaiting some clarification. Anneli Campbell confirmed that this was part of the ongoing review to which she had previously made reference.
Peter Ashby on behalf of the CBI requested an opportunity to meet with HMRC to discuss pensions since there were evidently many issues with which employers were experiencing difficulty. It was agreed that this request would be referred back to Robert Sims of HMRC for his consideration.
Mervyn Woods requested that as soon as views had been reached on pension issues it would be helpful if a meeting could be arranged to share these before they were formally published.
Barry Cocks of KPMG explained that although the CIOT report concentrated on tax issues there were many NIC matters which needed clarity. John Weaver of HMRC responded by indicating that there may be specific issues which warranted a sub group but in general the view of HMRC was that we didn’t consider that an NIC sub forum was appropriate as customers generally wished the Department to address tax and NICs issues together.
It appears to HMRC that if National Insurance were split from the main Forum into a sub-forum we would all lose the advantages that have accrued from looking at National Insurance and Employment income issues jointly. We would see a permanent NIC sub - group as a retrograde step - particularly as we are keen to look for further opportunities to align.
There may however, from time to time, be distinct advantages to convening NIC sub- groups around specific NIC issues that interest the Forum. For example, the introduction of the new European Community Regulations 883/2004 (we estimate will come into force in 2009) will present HMRC, agents and employers with a new set of challenges - issues that do not read across to income taxes.
The answer provided by Jane Truelove indicated that additional guidance would be provided by HMRC on the impact of the revised OECD commentary. Jane was asked to indicate when this additional guidance might be available. Jane responded by explaining that she was able to start the process now but any external involvement was unlikely to be before October 2007.
Both Deloitte and Touche and Ernst and Young had similar issues in respect of the technical point addressed by this Question and Answer. Steve Wade on behalf of Ernst and Young indicated that HMRC compliance officers appeared to misunderstand the rules around availability of Foreign Tax Credit Relief under the new US/UK Treaty. He was seeing a number of enquiries asking similar questions where these will be unlikely to lead to any additional liabilities. He wished to discuss with Dwyer separately whether or not such enquiries were prompted by a lack of information on the tax returns which had been submitted by his firm. It was agreed that Martin Dwyer would work with Steve Wade to resolve the issue and would indicate the outcome within these minutes.
Since the meeting Martin Dwyer has confirmed that a number of foreign tax credit relief claims within SA Returns submitted by a variety of advisers have indeed been identified within CPTT as representing a risk to HMRC in circumstances where it is not clear that the claimant is liable to pay US taxes on earned income in the light of Article 14(2) of the new US/UK Double Taxation Convention. S9A enquiries have been opened in both CPR and Expatriate cases handled by CPTT. The US Technical Explanation of the new US/UK Double Taxation Convention confirms that: ‘Conditions (b) and (c) are intended to ensure that a Contracting State will not be required to allow a deduction to the payer for compensation paid and at the same time to exempt the employee on the amount received. Accordingly, if a foreign person pays the salary of an employee who is employed in the host State, but a host State corporation or permanent establishment reimburses the payer with a payment that can be identified as a reimbursement, neither condition (b) nor (c), as the case may be, will be considered to have been fulfilled’.
HMRC are entitled to be satisfied that individuals who submit claims to foreign tax credit relief in the UK meet the requirements of the Treaty. US citizens are subject to tax in the US on their worldwide income regardless of source. What we are seeking to establish is whether the Treaty (specifically Article 14(2)) affords relief from a US domestic charge to an individual who is not a US citizen. To assist our greater understanding of this issue and to advance the existing S9A enquiries it would be helpful if the affected advisers could provide (to Martin Dwyer at martin.dwyer@hmrc.gov.uk) a general appraisal of how the US approaches the interpretation of Article 14(2) in the case of a non-US citizen. It would be particularly helpful to see any correspondence from the IRS addressing this issue or alternatively an explanation of the IRS approach to the matter of treaty interpretation in non-US citizen cases from the US perspective (perhaps from the US offices of the agents or legal advisers). In the meantime, we intend to continue with the S9A enquiries issued.
Once we better understand the position taken by the IRS in such cases we can develop internal guidance and if appropriate re-evaluate the risk in this area.
Ishbel Huggins of Shell International Limited queried why HMRC required an SA return in the circumstances outlined within Question 5. Martin Dwyer explained that EPM Appendix 6 agreements required the submission of forms P86 which in turn prompted the creation of an SA record and the issue of an SA return. Further debate followed and it was agreed that Martin Dwyer and Shirley Davies of HMRC should speak with Shell to understand their particular problems and see what could be done to overcome these.
Matthew Fox of Grant Thornton pointed to difficulties experienced with the time taken to issue codes NT in respect of outbound expatriates. It was ascertained that these difficulties were related to cases not dealt with in Expatriate Teams and were associated with the need for HMRC to refer internally to CAR for guidance. Shirley Davies offered to follow up on specific cases and invited Matthew to provide details of these.
Peter Ashby suggested that historic Question and Answer logs should be published on the web. This would enable all interested parties to have access to information rather than rely on attendance at specific forum meetings to receive a paper version. Philip Paur suggested that this approach should also apply to any Question and Answer logs from sub groups. Don Macarthur agreed to take these requests away and report back.
Peter Ashby referred to his report prepared on behalf of CIOT. He confirmed that there was a separate CBI list of open issues with additional points and confirmed that this would be made available to forum members in due course. Some prioritisation of issues was required and Peter invited the forum to decide in this respect. Peter invited members to identify four or five issues of most importance to their companies or businesses and feed this back to the co-chairmen. Thereafter Peter Ashby will pursue resolution of those issues with HMRC.
The CBI list has been made available to HMRC since the meeting and will be circulated to forum members within the next few days. HMRC recommend that in order to ensure that progress is made in this area comments regarding prioritisation and identification of the ‘top 5’ issues should be submitted by a deadline of 30 June 2007.
Given the imminent share schemes sub group meeting rearranged for 18 May 2007 Peter requested that any share schemes questions be submitted in advance of this date.
Martin Dwyer referred to discussions held between CPTT and Ernst and Young regarding difficulties experienced in quantifying the extent of overseas workdays, particularly where long haul travel into and out of the UK was involved. He explained that as a result of these discussions a rule of thumb had been agreed and was captured within a document which was handed to all present (Appendix 2). Dwyer explained that this represented guidance only, it was not to be considered as an Extra Statutory Concession or representative of a line which had to be followed in all cases. However, Expatriate Teams had been made aware of the rule of thumb and would be content to apply it when looking at the question of workday quantification within their enquiry work.
Peter Ashby queried whether or not this approach would be applied across HMRC. Martin Delnon confirmed that he had been appraised of the content of this rule of thumb and was content that this represented a fair method of resolution of a difficult issue.
Philip Davis of Ernst and Young explained that it was indeed helpful to have a rule of thumb agreed by HMRC although it was not practical to adopt this in all cases.
Dwyer explained that whilst he accepted that the rule of thumb would not be adopted in all cases he did hope that it would be used on a consistent basis and not simply when it had a beneficial effect. The meeting agreed that the rule of thumb should be published with the meeting notes. Dwyer explained that where use of the rule of thumb was applied it would be helpful if this could be made clear within the white note space of any SA tax return. For this purpose the rule of thumb should be referred to as the ‘methodology endorsed through the Joint Forum on Expatriate Tax and NICs’.
Martin Delnon discussed the tensions that arose where HMRC insisted on the gross up of interest and penalties met on behalf of a tax equalised employee by the employer in circumstances where the culpable duties had been quantified by reference to a full in year engrossment. Martin explained that in his view it was correct to calculate the loss of tax arising from an omission from a tax equalised employee’s return on the same basis as that used to calculate the original liability. Further, the payment by the employer of the interest and penalty elements included in an enquiry settlement in respect of a tax equalised employee represented additional earnings on first principles and there was a respectable argument that this too should be grossed up. However, HMRC recognised that this approach was regarded as unduly punitive by tax professionals and business alike. In view of this he had taken advice from Central Policy and was able to confirm that as long as the culpable tax was indeed calculated on an in-year gross up, HMRC would no longer insist on a second gross up on payment of the interest and penalty elements..
Martin Dwyer explained that this issue affected the EC environment as well as SA enquiries. It was important for those present to understand that the approach suggested by Martin Delnon would only apply in circumstances where tax equalised liabilities were calculated by reference to an in-year gross up irrespective of whether those related to an SA or EC enquiry.
Barry Cocks asked about the grossing up arrangements for NIC purposes. John Weaver handed out a help sheet on this topic and requested any alternative proposals be referred to him by 30 April for consideration.
Shirley Davies referred to arrears of post within HMRC and again requested that correspondence meant for Expatriate Teams should be clearly addressed and the identification stickers used. Shirley pointed out that if a software package was used by agents a five digit number identifying the tax district should be selected to identify the relevant Expatriate Team. Additionally, forms 64-8 should not be sent to Longbenton but should go straight to the Expatriate Team.
Shirley encouraged more expatriates to make use of online filing, pointing out that currently only 13% of expatriate returns were filed online. CPTT were currently working with Ernst and Young to set up new agent codes so that more online filing may be facilitated. Shirley Davies was happy to discuss this aspect with other providers (businesses and agents) to facilitate more use of the online opportunity.
Steve Wade of Ernst and Young pointed out that there were still some problems with online filing which prevented a number of expatriate customers from being able to file online in circumstances where a paper return would be considered acceptable. Steve requested confirmation of the HMRC view with regard to deadlines etc in circumstances where the online system bounced the SA return where a paper return would be considered acceptable. Don Macarthur agreed to take this forward but confirmed that it was not advisable to attempt to file online at the last minute.
Shirley Davies explained that currently 30% of expatriate tax returns were sent to the Large Processing Office. This inevitably leads to a delay in capturing information and dealing with any repayment claims.
Keith Williams gave a Power Point presentation regarding the forthcoming transformation of CPTT. He explained that the main changes were:
The centralisation of the risk process would mean that the risk assessment and case selection would be on a national rather than a Team basis. This would lead to the movement of some enquiry work across existing teams, but the day to day contact and Service relationship would not be different in practice from that currently in place.
The centralisation of the risk process, and the creation of lead technicians across CPTT, would facilitate links with customers, both in the awareness of risks and in improving the approach taken on common issues across CPTT.
Keith introduced Martin Dwyer as the individual with responsibility for a small Team of National Technicians looking at employment related issues as well as pointing out that other National Technician roles for ‘Capital Gains & Offshore Issues’ and ‘Avoidance’ had been created.
The changes were taking place over the next few months. Contact details of the new Group Leaders and Technicians would then be published.
Don Macarthur agreed to circulate in the very near future details of the intended dates for future meetings of the forum over the next 12 months, so that diaries could be noted accordingly.
Keith Williams requested that in the future agenda items should have specific timings so that all items receive fair consideration within the allotted time for the meeting without any overrun occurring.
The co-chairman asked Martin Dwyer to ensure that the minutes are published within 30 days.
Martin Dwyer
HM Inspector of Taxes
Currently there are 2 alternatives available to employers:
Q: What is the position where short term business visitors come to work in the UK from a non-treaty partner country?
A: Provided that the UK employer has a statutory obligation to operate PAYE, deductions should apply from day 1. There is no 30 day period of grace or ‘informal’ exemption
Q: What is the position where an employer fails to submit the information required under EP Appendix 4 by 31 May following the year end?
A: Provided the information is available to demonstrate that the individual fully meets the requirements of the DTA, Expatriate Teams should not contend that any PAYE failure has arisen in respect of this individual.
Q: What if the information was not obtained by the employer by 31 May following the year end but can be obtained now?
A: This circumstance is likely to arise during an ongoing EC review. Provided that the necessary information can be supplied with the minimum of ongoing delay I would expect Expatriate Teams to take a reasonable approach in these circumstances. This would involve setting an agreed realistic deadline for the submission of the outstanding information. If this is submitted by the deadline and demonstrates that the individual meets fully the requirements of the DTA the Team should not contend that any PAYE failure has arisen in respect of this individual. When setting the deadline it should be made clear that in the continued absence of the necessary information PAYE failure (with all its consequences) will be pursued*
Q: What risks are prevalent in this area?
A: We have evidence to show that some UK employers:
* Note that until such time as any formal Regulation 80 charge becomes final
and conclusive an employer has the opportunity to present evidence to show
that no PAYE income arose.
Martin Dwyer
Assistant Director (Compliance) Expatriates
1 December 2006
Short Haul Travel
Long Haul Travel
Note: Where this rule of thumb refers to morning or afternoon departures or arrivals what is meant is the times the planes (boats or trains) actually left and arrived.
Long haul travel means a flight or journey lasting for more than 7 hours in duration.
When calculating whether or not a flight is long haul in nature we are considering time spent in the air. However, where flights are not direct a one hour foreign transfer addition may be added to the airtime to determine whether or not the travel should be regarded as long haul in nature.
Business travel on a weekend or Bank Holiday is subject to the same rule of thumb as for any other day.
