Is he a UK resident for foreign income

Is he a UK resident for foreign income

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Hi

I have a client that is disagreeing with my tax computation for his tax return.  I'm not used to foreign income so I'd appreciate a second opinion.

He moved out to Thailand to be an employee in august 2011.  he still work there now.

In the tax year 11/12 he was in the UK between April and July - about 120 days (i.e more than 91)

so I have classed him as a UK resident for the tax year.

In Thailand he earned gross income £54000 and paid Thai tax of £12000.  He had a UK pension of £24000 and paid £3000 UK tax after his personal tax allowance was taken into account by the annutiy provider.

I've completed the employment pages with the gross Thai income £54000, left the tax box blank. completed the foreign pages with the income £54000 and Thai tax £12000 and claimed foreign tax relief of £12000. I've added the pensions into the pension pages.

In effect the whole calculation is classes all the income as UK income subject to normal UK tax and applicable NI (less the foreign tax already paid)

the client think he should not pay any UK tax on the Thai income as he was not resident.

who is correct?

Secondly he has not registered with HMRC as being 'not ordinarily resident' - should he do this? what form is used - P85?

Thirdly he transfers most of his income back to the UK for his wife.  Does this actually negate any non residency tax savings he perceives - as the transfers become liable to UK tax? - remitance basis or otherwise.

any pointers appreciated

Replies (9)

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By eastangliantaxadvisor
03rd Jan 2013 09:04

Take a look at ESC A11 here:-

http://www.hmrc.gov.uk/specialist/esc.pdf

 

It may be that if he meets the conditions set out in the Concession, that he will qualify for "split year" treatment, and therefore will not be subject to tax on the Thai income.

Form P85 is used to reclaim tax in the year that someone leaves the UK, and there is a need for a tax refund. Where a self aseesment form is completed, the notes on the form make clear that there is no need for a P85 to completed as well.

 

The issue I have here, though, is the fact that the wife has remained int he UK, and that he remits his income back here. As this is the case, I wonder if there is sufficent proof that he has ceased to be a UK resident.

 

I quote from HMRC guidance:-

"An individual may also be resident in the UK if they are here for fewer than 183 days in a tax year. This will depend on how often and how long they are here, the purpose and pattern of their visits and their connections to the UK. This might include the location of their family, their property, their work life and social connections."

 

In addtion, remember that new rules will apply with effect from 5th April 2013.

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By paras007
03rd Jan 2013 10:33

Client probably correct

Your client is probably correct assuming certain factors.

Have a read of HMRC6, in particular section 8.5. Assuming he meets all the criteria, he will be non-resident in the UK from date of departure to Thailand. The fact that he has a wife in the UK etc would be irrelevant.

Assuming that he is UK non-resident whilst working in Thailand, his transfers of money to the UK are irrelevant for UK income tax purposes.

There is also the question of why you took this work on when you did not have the relevant technical knowledge; I would suggest you refer it to somebody who does.

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By hairyfingers
03rd Jan 2013 11:47

it comes down to residence

Thanks for that. I wondered about the split year treatment and that may well be the answer but I, like you, keep coming back to the ties he leaves in the UK that may determine his residence

It seems to be a very subjective thing to determine 'Residence' all the guidance makes it clear that it is not defined in law but taken to mean the 'everyday meaning' - to take into account personal ties, property (he owns a house), social ties etc

 

so who can be the final judge of this - me? him? HMRC?  If HMRC how do I get a ruling?

 

 

 

 

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Replying to johngroganjga:
By eastangliantaxadvisor
03rd Jan 2013 13:29

I afraid with Self Assessment that it is a matter of completing the form, making sure that the white space gives full disclosure to Hmrc.
I have not known Hmrc to give advance cleraerance.
You should discuss this matter with your client and come to a reasoned conclusion. If you disagree with your client you should consider resigning.
Like the previous poster, I wonder if you have the technical knowledge to deal with the matter

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Replying to mr. mischief:
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By frustratedwithhmrc
03rd Jan 2013 13:38

Client has not gone about this the correct way...

arthurphillips wrote:
I have not known Hmrc to give advance cleraerance

Submission of a P85 (which can be submitted prior to departure) can be used as a mechanism for advanced clearance although as with anything that HMRC does it is slow and I've often had to resend the forms more than once. 

Ensure that the form is processed by the tax office and then follow up with the Centre for Non-Residents. They may ask for a certificate of tax residence from the Thai authorities, but that is probably the extent of the requirement.

There is allegedly a follow-up request after 3 full tax years of non-residence, but I've never seen anything from this.

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By hairyfingers
03rd Jan 2013 14:10

helpful

It does appear that section 8.5 of HMRC6 overides any of the other factors taken into account to establish residency.  It is a fact that he has got a written employment contract from 1st August onwards from Thailand so I can assume therefore he is resident in Thailand from then despite his wife, property etc in the UK

So I will fill in the residence/remitance pages and declare a split year and see if HMRC come back with anything. 

 

You are probably correct I don't have the full experience of these scenarios.  But I take them on to learn - yes it takes me far longer than the fee is worth but the learning takes me forward!

 

 

 

 

 

 

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Replying to Jo Nokes:
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By frustratedwithhmrc
03rd Jan 2013 14:22

I think your interpretation is correct

hairyfingers wrote:

It does appear that section 8.5 of HMRC6 overides any of the other factors taken into account to establish residency.  It is a fact that he has got a written employment contract from 1st August onwards from Thailand so I can assume therefore he is resident in Thailand from then despite his wife, property etc in the UK

I'd be tempted to fill in a retrospective P85 as well, just to clarify matters, but don't think this makes any substantial difference other than to act as a lever to extract a formal response from HMRC.

They will add the usual caveats (based upon circumstances described, subject to change in circumstance, etc.) but it is another thing that can be used against them if they decide to challenge.

Try and keep the client out of the UK as much as possible to lessen challenge from HMRC as being an artificial arrangement to avoid tax (even though it doesn't seem to be).

I'd also be tempted to request both an "NT" PAYE Coding notice be issued as well as requesting that your client be removed from the UK Self Assessment regime. These are both at the discretion of HMRC, but can be useful. I have used similar circumstances to obtain both.

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By hairyfingers
03rd Jan 2013 14:51

pension position

So I think I've got my head round the Thailand income  - basically the opposite of what I thought - hey ho - but does this now change the pension income.

Should this still just be declared as UK taxable income, tax has been deducted at source, or do I need to be wading through the DTA.

thanks

 

 

 

 

 

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Replying to GracieM:
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By frustratedwithhmrc
03rd Jan 2013 15:03

Comes down to the source of pension income

hairyfingers wrote:
So I think I've got my head round the Thailand income  - basically the opposite of what I thought - hey ho - but does this now change the pension income. Should this still just be declared as UK taxable income, tax has been deducted at source, or do I need to be wading through the DTA.

If the pension income relates to a UK Government role (civil service, etc.) then it will remain taxable in the UK. If it is from a private company then it is likely to be taxable in Thailand. In the event of a tie-breaker (conflicting rules between UK and Thailand) then it will be determined by whatever the UK/Thailand Double Tax Treaty says.

Most of the time, non-UK Government pensions can be taxed in the country of residence and a refund can be obtained where UK tax has been overpaid.

HMRC may well demand additional documentation confirming non-UK residence before repayment, but again I've managed to obtain refunds on this basis after several months of correspondence with HMRC.

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