One of my clients (who used to be non-resident but can adopt the split year rules since returning to the UK in December) is paid by a European organisation based in Brussels (not the EU or NATO). His salary is subject to an "internal tax" and never had to be reported on his Belgian tax returns.
He wants to take a dividend from his company by 5th April to avoid the dividend tax next year but is worried it might take him over the £100k threshold if he has to include his internally taxed salary. He wrote to HMRC and got a letter back telling him it needs to go on his tax return, but it didn't seem very authoritative, shall we say.
Has anyone else had experience of this sort of thing? He did ask his employer once but they just said it was all non-taxable.
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Why not ask the employer to explain precisely why it is not taxable? They have more experience than the rest of us put together...
Certificate
I have a client in a similar position who is provided with a certificate each year stating that the income is subject to internal tax, and states that according to The Protocol of 21 November 1978 Amending Protocol to the Eurocontrol International Convention, the salary is exempt from the national tax of the countries of residence of the staff in question.
The certificate is issued by the pay department of the employing company in Brussels.
I think your client needs to be asking for something like this.
Protocol
Thanks Cathy. You've hit the nail right on the head. We need to look at that Protocol and see what it says (if anything) about its impact on his other income. If his salary is officially exempt from national tax, I don't see how it can be brought into account at all.
Of course, we already knew that the salary itself cannot be subject to further taxation. The only question is whether or not it counts towards the UK tax thresholds so far as his other income is concerned.
I would be interested to hear what you find out actually, 2016 will be the first tax return I do for this client so I haven't looked into it too deeply myself yet.