Bum advice from helpdesk?

[***] advice from helpdesk?

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We have a client (CIS subcontractor) who is domiciled and resident in Ireland.  Latterly he has (without losing Irish resident status) become UK resident by reason of coming to the UK to undertake CIS work and being in the UK for more than 183 days in the tax year.  He has been served with a UK tax return notice to file.  He has no permanent address in the UK (moves from B&B to B&B around the country where the work takes him) and his family, roots and permanent home are in Ireland where he regularly returns and which is the only permanent base of business establishment.  The income from UK sources is reported on his Irish tax return.  He also receives rental income from UK and Irish immovable property.

My reading of article 8(1) of the double taxation agreement is that he is exempt from entering the self employment profits on his UK tax return. My reading of article 21 is that the UK CIS tax deducted at source can be claimed as a non-repayable credit on his Irish tax return.  HMRC helpdesk disagrees with me and says that the trading income must be entered on the UK tax return, but would not give me an authority.  Tell me I am not being stupid, here?  Whether it might be in his interests to claim (were it sustainable) that he has a UK permanent establishment is a separate issue, of course.

With kind regards

Clint Westwood

Replies (7)

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By nogammonsinanundoubledgame
08th Feb 2011 19:01

Just had another idea

How about I complete self-employment pages on the UK tax return showing £nil profit on the grounds that it is exempted from UK tax by reason of article 8(1) of the DT agreement, but on those same pages claim back from the UK government all of the CIS tax deducted at source.  That would seem to be a better solution to the taxpayer than claiming DTR in Ireland, and more logical on the grounds that if he is exempt from UK tax then he should not be paying UK tax in the first place.

I can't help thinking that there must be some block on this.

With kind regards

Clint Westwood

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By blok
09th Feb 2011 09:12

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Clint,

Does article 8 not come at this from the point of view that the taxpayer is non resident in one country.  You have admitted that your guy is UK resident.  Then surely that will trump everything else.  The DTT is useful if your guy was not dual resident, but I think your guy is dual resident so I would have thought you would have to jump through the hoops?

 

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By yardy
09th Feb 2011 09:29

Odd...

... but I was looking at this yesterday:

Article 4 states that where an individual is a [tax] resident of both Contracting States then  [......] he shall be deemed to be a resdient of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests).

I agree that this makes all his income taxable in Ireland and not in the UK but, as with the case that I was looking at, I think it is going to be difficult persuading HMRC that this is the case.

 

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By nogammonsinanundoubledgame
10th Feb 2011 06:37

The problem area ...

... is in the interpretation of article 5 of the UK-Irish agreement, and perhaps in particular article 5(2)(h):

"The term 'permanent establishment' shall include, specifically, ... a building site or construction or installation project which lasts for more than six months".

*My* (preferred) interpretation of this is that if a construction project takes 2 years from the viewpoint of the contractor but the individual subcontractor only works at the site for 3 months then he has no permanent establishment, at least not by reason of this clause.  In other words, the "project" in this context is the taxpayer's project, not the contractor's project.  Indeed, how could the subcontractor be sure of knowing (or be entitled to know) the length of the project from the contractor's viewpoint?

I feel a bit uneasy about this, particularly as the construction of the sentence seems to divorce the term "building site" from "project", and building sites in isolation would tend to extend beyond six months.

Dissenting views?  If the project length is measured in terms of the contractor's viewpoint irrespective of the period of attendance by the subcontractor/taxpayer then it does our client no good the fact that he is flitting from B&B to B&B around the country on a weekly basis, if each site to which he attends itself is a seven month "project".

HMRC manuals attempt to give some sort of interpretation of their view, here

http://www.hmrc.gov.uk/manuals/dtmanual/dt9881.htm

I don't find this particularly helpful in resolving the issue. Furthermore it appears to go beyond the provisions of article 5 without providing a legal authority.

With kind regards

Clint Westwood

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By nogammonsinanundoubledgame
10th Feb 2011 06:52

Further to the above

Proceeding on the assumption of the worst case scenario, that the length of the project is calculated from the viewpoint of the contractor, the likely scenario in this case is something like:

In August 2009 he was working at a long-term (>6 months) construction project in the UK albeit only for one month (this being his first UK visit)

In September 2009 he was working at a short-term project

In October 2009 he was working at a long term project

etc etc up to March.  Total days in UK >183

In Ireland he makes up accounts including all income, but on a December year end basis, having been in business for several years.

What a nightmare.  It would seem that for his UK tax return he has to work out the profit on the August, October, December etc jobs and report them in the UK.  Can he deduct ALL of the CIS tax in the year from the UK return, or would he be limited to the CIS tax on the months of deemed UK permanent establishment, the remainder being DTR's in Ireland.

And on what basis would you establish the extent of his liability to class 2 NIC?  NIC is not expressly mentioned as a tax that is covered by the DT agreement, but would it fall within Article 2(2) ("any identical or substantially similar taxes")?  He pays social security contributions in Ireland, but are these "taxes"?

If NIC is not covered by the DT agreement, does this mean that he has to pay 2NIC throughout based on his "accounting profits" even if they are substantially not UK taxable for Income tax by reason of the DT agreement?

Am I making this more complicated than it needs to be?

With kind regards

Clint Westwood

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By yardy
10th Feb 2011 09:18

Interesting

The (potential) client that I was researching for wasn't a subcontractor so it's a different situation and he will almost certainly be retaining Irish tax residence. I am much more inclined to your interpretation of a permanent establishment  than the Revenue one given in their instructions. Presumably anyone working here at any one else's permanent or semi-permanent site would fall fowl of that instruction, say a computer contractor undertaking a project at a client's business premises. The instruction does say however that a claim to exemption from UK tax can be accepted if the Irish tax authorities confirm that Irish tax residence applies which takes us back to article 4.

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By Bonehill
30th Mar 2011 13:58

Irish Residency

It is actually quite straightforward

Your client is, for Irish Revenue purposes, classed as "Non-Resident, Ordinarily-Resident" for three years after moving to the UK - thereafter he becomes "Non-Resident, Non-Ordinarily-Resident" for Irish tax purposes

For the three years as "Non-Resident, Ordinarily-Resident" he is liable to:

1) Irish Income Tax on Worldwide income > €3,810

2) Irish Capital Gains Tax on Worldwide disposals

3) Capital Acquisitions Tax on: a) Irish assets, and, b) non-irish assets disposed of while being "Ordinarily-Resident" - non-Irish assets disposed of after becoming "Non-Resident" are subject to local taxes accordingly

While being "Ordinarily-Resident" he will get double tax relief as a credit for some UK taxes paid, to reduce some of the above Irish Taxes

Also, during the above three years he is UK resident for UK income tax purposes but as he is still domiciled in Ireland his primary tax jurisdiction remains as Ireland so it would seem that UK Capital Taxes should not apply other than on a remittance basis?

Hope this helps

 

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