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non-resident taxpayer been paying PAYE for 5 years

non-resident taxpayer been paying PAYE for 5 years

Just got a new client, a contractor, who's working through his limited company, taking around £12000 salary and the rest in dividends. He's been paying tax and NI, using a normal 747L (or equivalent for previous years) tax code.

However, he works on oil rigs around the world - spends maybe 3-4 weeks a year in the UK, and does no work whilst he's here. Has been in Far East, who-knows-where else, and is now in Arctic Circle (Norwegian waters). Has never worked in UK (nor UK waters)

Surely he should have been on a NT tax code, and not been paying NI (at least after the first year).

Obviously, the company is UK resident and the CT paid is correct, but could a largeish tax-free bonus be paid, and carried back against profits for the last 3 years?

How easy is it going to be to reclaim:

1) PAYE paid

2) NI paid

3) CT paid, assuming he now closes the company and claims Terminal Relief.


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20th Sep 2011 14:12

Yes - you may have got it wrong

Before you start bandying about allegations of negligence, you need to be sure that your new client is not resident in the UK for tax purposes.

Look at the HMRC Guidance on Residence & Domicile, HMRC6.

Start at 2.2, UK Residence, third para onwards.  No one factor is conclusive in itself, but he certainly has business ties, presumably family ties, and quite possibly, social and property ties to the UK, which would make him resident in the UK, subject only to the two let outs in Section 8.

He does not seem to have established a Definite Break under 8.2.1, so you are left with Leaving the UK to Work Abroad from 8.5 onwards.  I doubt that he has any contract of employment with his own company, let alone one requiring him to work abroad for a period spanning a whole tax year, so he probably fails the first condition for establishing non-residence due to work.

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20th Sep 2011 17:39

Thanks Euan

Whilst you are probably right that he doesn't have a written contract, presumably there is an implied contract de facto of the entire purpose of the employment (which itself being implied de facto) and indeed the ltd requiring him to work abroad.

Is it actually necessary to have a written explicit contract?

If so, then presumably, at least from now on, a contract could be written, and the taxpayer could become non-resident from now?

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to petersaxton
20th Sep 2011 21:30

Doing work abroad is insufficient to make him non-resident.

aiwalters wrote:

If so, then presumably, at least from now on, a contract could be written, and the taxpayer could become non-resident from now?

Possibly, but also possibly not. Since your client remains a director of the UK company for which he is working and presumably through which he is billing offshore clients, he still has substantial ties to the UK, so how can he fulfil the terms of non-residence unless he has also officially taken up tax residence somewhere else and had this acknowledged by HMRC?

There is no question of incompetence, as given the situation described the client is AND REMAINS UK tax resident. Until he decides to do something which will categorically end his UK tax residency to the satisfaction of HMRC, the situation continues.

At the very least he would need to take up tax residence in another country and even then HMRC could argue that given the directorship of a UK company, centre of vital interests, etc., that he retained his UK tax residency although if he was able to relocate to a jurisdiction with a Double Tax Treaty, this might provide the necessary tie breaker clause.

So the bigger question is, does your client wish to become UK non-resident? If he decides that he does, you should then explain to him what the steps are that are necessary to achieve this in the light of such recent judgements as Robert Gaines-Cooper, et al. If he's prepared to up sticks and break all ties with the UK, establish a new tax residence in a foreign jurisdiction and have this acknowledged by HMRC then this can be done - but it takes a lot of character and discipline to achieve it as well as a lot of personal sacrifice. Most people when faced with a choice between cutting all ties to the UK and continuing to pay UK tax, either keep on paying UK taxes or leave for a few years, become disillusioned and then return.


Becoming UK non-resident is not something that should be done lightly to avoid a bit of tax. It should only arise because of natural changes to a persons lifestyle, such as permanent emigration or returning to their own / their partners home country.  


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