Not all non-doms own Premier League Football Clubs. By Rebecca Benneyworth

The focus of comment on the new rules for non domiciled individuals has been on the city workers “key to London as a financial centre” my newspaper told me, and the very wealthy. While there is without doubt an issue for these taxpayers, restricting comment and consideration to these individuals tends to “turn off” the ordinary practitioner and lead him to assume that the issue will not affect him.

There are issues of very real concern here for the average accountant in practice. Not least how on earth they will collate and check all of the information they need to gather.

Continued...

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Comments

unremittable income

Anonymous | | Permalink

A very long t ime ago I worked in West Africa for a partnership which included UK resident partners and I recall that there were provisions for any UK tax payable on non-remittable income to be deferred until such time as the income could be remitted.

I assume that such provisions are still in place.

indian exchange controls

Anonymous | | Permalink

I agree that the person concerned will have to take paying the tax on the chin and the amounts involved should be small.

However it just shows how unequitable the proposed system will be because income will be taxed twice (India/UK) and , presumably it brings Indian assets within the scope of UK IHT in which case the tax would be material.

Not being a practising accountant I am rusty on these things but this is a real life scenario which will affect someone I know.

Indian exchange control problem

Anonymous | | Permalink

Eddie - in that case, it is not worth paying the £30k charge anyway, so the chap would (by default) choose to be taxed on worldwide income. If the sub continent income is small, the tax would be small so there shouldn't be an issue.

Richard - Of course you know this is not merely collecting information about interest. I thought you preach that one should pay the right amount of tax, and not more. If the non dom does not understand double tax treaties, he/she is likely to forgo lots of relief and pay more tax then needed. As for taxing worldwide income - yes, this is common for most country with high government spending but many South East Asia countries tax on source of income arise from activities within the country only, unless remitted (e.g. Malaysia, Singapore, Hong Kong, Thailand). And that remitance basis apply to domicile residence as well. I would propose we go towards that direction in the UK.

Also, the £1k rule is on gross income, and in some cases, the amount of tax due could be minimal after qualifying deductions. As HMRC online does not support foreign income pages, the only way to report these is to submit paper return (or spend £20 on some 3rd party software). The processing cost and compliance cost will in many cases exceed tax collected. And that would be absurb indeed.

richard.murphy's picture

Can we deal with some facts?

richard.murphy | | Permalink

There's a lot of misinformation about this issue, and hype about some exceptional cases.

The reality is more of the type I explain on my blog, here http://www.taxresearch.org.uk/Blog/2008/02/14/domicile-pragmatic-question-4-low-income-workers/

I stress, I am no fan of the changes as proposed. They are going to be bad law. But let's not preume they are oppressive because there is little evidence that they are.

Richard Murphy

Remittanced basis

Anonymous | | Permalink

Can anyone explain how you are expected to pay the tax on your worldwide income because you cant afford the £30k non dom fee (only! earning £50k in total) and the small income source (inc in the £50k) from the indian subcontinent can not be remitted to pay the tax due to exchange controls?

not only, but also

Anonymous | | Permalink

Rebecca's excellent article makes the very pertinent points about the difficulties that can (and will arise) from this legislation.

There is also the point that those who are worse off as a result of these changes will be those at the lower end of the wealth chain. It is they who will end up paying proportionately more tax and more in accountants fees etc. The mega rich will pay their £30,000 and that will be it.

What is the justification for a tax regime that allows that?

REAL practical problems and costs for clients

AnonymousUser | | Permalink

I have a Spanish domiciled client in her sixties with business interests in Spain. She spends some time in Spain and some time in the UK; this might be years at a time or just months. She has houses in both countries. When in the UK she lives frugally on her UK earnings and investments. When in Spain she does the same. She does not move money between the two countries. Due to her mother's age she currently spends most of her time in the UK and is likely to be a long term resident soon.

Her major concern now is not the issue of paying tax on her worldwide income, if any is due after double tax relief, but the costs of identifying the taxable amount and tax relief available. Richard Murphy is quite wrong saying it's only collecting bank interest information - if only it was that simple (and even that is not always simple). Trying to identify the relevant bits of tax returns and documents in foreign languages is far from straightforward and can be very time consuming. Add to that the different tax years and rules other countries have and trying to communicate what is needed to both my client and her accountant will (and I have a lot of experience of this) run up large bills for no increased tax take for HMRC.

This is yet another example of ill-thought-out, headline-grabbing legislation.

Non-doms

anboyd | | Permalink

A brief note to support Rebecca's position. The late advice of this legislative change has clearly put a lot of practitioners in real difficulties - and with clients who would not be the primary target of Richard Murphy's understandable dislike of tax havens and their main users.

Correspondents up to now have been confused on the effect on the non-UK income of non-doms. If you really want to worry, have a go at the effect of the draft legislation on capital payments to non-doms from offshore discretionary trusts and the companies holding their investments. (Nice that this was flagged up in such general terms in the PBR with the details not published until late January.) Not all of these trusts were set up for tax avoidance - I've just picked up one set up by a victim of apartheid who was hounded out of his own country.It remains to be seen whether the Chancellor's latest relaxation will prevent the taxation of amounts which were never within the UK tax net - however level the playing field.

Can't say I'm really sure what a level playing field is for tax. Don't a lot of us try to get our clients - and HMRC - on to this anyway?

richard.murphy's picture

Scaremongering

richard.murphy | | Permalink

I regret to say that I see thi as scaremongering, but I do.

First the number of people in this situation is tiny.

Second, why should someone in the UK have to report their interest income but a non dom does not need to. It's only collecting data froma bank account for heaven's sake.

Third, almost all countries manage to tax on a worldwide income basis. Why can't we?

Fourth, why should a person who has created a business in the UK not be liable on all the gains they make? After all, we're providing them with the means in which to create their wealth?

I accept the £1,000 rule is absurd: there should be no ex gratia sum.

I accept the £30,000 bribe to be on the remittance basis is absurd: there should be no remittance basis.

These suggestions are real simplifications that would solve the problems noted here.

Why not propose them? Isn't a level playing field the only fair basis for taxation?

Richard Murphy

RebeccaBenneyworth's picture

Not really my point Adam

RebeccaBenneyworth | | Permalink

What I was trying to illustrate is that almost no comment has been made about the impact of these proposals - which appear to be changing daily so no I don't think it is appropriate to give a full explanation to clients of this sort yet - on taxpayers other than the very wealthy.

Focussing comment and concern on a very small minority of those affected does nobody any good - if the rules are rewritten (or implemented as they stand) to meet the needs of a few thousand taxpayers without anyone taking into account the difficulty in applying the law to hundreds of thousands of other taxpayers means that we risk developing tax law which is entirely unworkable (I might add "Yet again"). Yes, I used a bit of dramatic licence to get that point over, but it is the "ordinary practitioner" of whom I meet several hundred a week that I was trying to engage. And no, most of them haven't thought about this in that way yet. But I hope they now will.

Please no more red tape for employers......

Anonymous | | Permalink

My husband employs 2 Polish workers, who speak very little English. It's bad enough having to explain to them about applying for National Insurance numbers and Work Permits (and then basically having to fill all the forms in for them), without having to go through this as well. They are here for a couple of years to try and ean lots of money to take home, and are renting their Polish homes out while they are away, so may be affected by these rules. If it starts getting complicated and gets to the stage where they are threatened with penalties etc I can see them just disappearing back to Poland. As long as I don't have to clear up the mess I guess that's ok, but if they put the onus on employers to ensure compliance, it will be a nightmare!!

(Incidentally, we've tried getting English workers, but no-one wants to do the work for the money we can afford to pay!!)

Interaction with all those DT Agreement and domestic rules

kerpang | | Permalink

And can we expect an average accountant, let alone a individual to read through and understand all these double taxation agreements?

Some items are tax deductable in a country, but not in UK and vice versa. Then there are items which are tax free in the home country (e.g. some sort of government sponsored investment trust), but are taxable in the UK ( e.g. someone has, say a something similar to UK ISA investment fund abroad, like the US IRA etc?)

And incidently, the HMRC online filing currently does not support foreign income pages and 3rd party software will cost something like £20, or one can send in paper return and the risk of the return getting lost within the HMRC system.

£1000 threshold is gross

Anonymous | | Permalink

The £1k threshold is gross, anyone who rent a house out, say in Poland would no doubt have exceeded that threshold. If it is net (after deduction of cost/interest, then £1k may be a slightly better figure)

And no... they won't just lost their allowance on invesgitation, penalty would defintely be seeked.

It is going to be a mess.

I am predicting mass non-compliance.

Anonymous | | Permalink

It is far too difficult for most foreigners to actually try and self assess their foreign income under the UK system, and with regard to the interaction of the various treaties as noted.

I think that most people will just put their heads in the sand and ignore the problem.

The majority (I hope) of foreign workers are within the PAYE system and will sadly for the chancellor never complete a tax return or see an accountant either. They will therefore only lose their personal allowances if someone decides to review their case, and then discover, as Rebecca illustrates above that they may be in receipt of income abroad which annually exceeds the £1,000 limit. With no accountant or Revenue officer in the frame, the person most able to review the tax status of the worker (other than himself) can only be the employer.

This appears to be the only way that the new rules could ever practically be applied to most non-doms. Of course, if the employer is also a non-dom then there may be some conflict of interest. Ultimately, a huge can of worms must be gestating for employers - someone, somehow has to police the new regime - this of course supposes that they understand the new day counting rules too!