HM Treasury has today published consultation documents on a new statutory residence test and proposed reforms to the taxation of non-UK domiciled individuals available via a press release accessible here.
David Kilshaw, chair of private client at KPMG in the UK, commented:
“A statutory residence test is long overdue as taxpayers have endured decades of uncertainty in this area, having to rely on complicated and outdated case law to determine their residence position which even then left them open to legal challenges. Today’s consultation document contains a number of quite sensible and workable provisions but there are still some issues to resolve.
“Recent legal challenges on the issue of tax residence have relied on principles established in legal cases dating back to the 1920s and 1930s – far removed from the reality of today’s world where technology and travel have transformed how we operate in business.
“It’s a shame that the Government has missed an opportunity to transform our admittedly complicated ‘overseas workday relief’ rules to encourage business with the UK. It is disappointing that the proposed changes to these rules seem to be retrospective, suggesting that an individual who arrived in the UK after April 2009 with the intention of leaving before their third anniversary of arrival will now receive less relief.
“It’s also surprising that, in view of the proposed ‘merger’ of Income Tax and National Insurance Contributions, the Government has decided the proposed statutory residence test will not apply to National Insurance.”
Looking specifically at the proposed changes to the taxation of non-UK domiciled individuals, David Kilshaw said:
“Today’s consultation document is a welcome development which starts to address some of the obstacles to non-Doms investing in the UK and other tax uncertainties for non-Doms created by the Finance Act 2008 changes.
“Making the UK an attractive place for non-Doms to invest should increase investment in UK business. The proposal to allow foreign income to be invested in UK businesses without the current barrier of a charge to tax is a positive development.
“The introduction of a new £50,000 remittance basis charge for non-Doms who have been UK resident for 12 years or more is unlikely to raise significant revenue for the UK tax authorities. It is perhaps more a symbolic gesture to demonstrate that non-Dom individuals are contributing their fair share to the Exchequer.
“The proposal to remove the tax charge on gains arising on foreign currency bank accounts for all taxpayers (not just non-Doms) is particularly welcome. This will help simplify what is currently an unnecessarily complex issue and can cost more in professional fees than it generates in tax revenue.
“Generally, the proposals in the consultation document are welcome as they will ease the tax compliance burden on non-Doms and should help encourage investment in the UK.”
Employer issues
Residence and tax status are particularly important issues for people coming to work in the UK and for employers seeking to bring in overseas staff as the rules bring their own complications.
Marc Burrows KPMG’s UK Head of International Executive Services said “The challenge is to combine simplicity and certainty for individuals without causing confusion and extra costs for employers operating PAYE. The proposed 20 day restriction on working in the UK, whilst remaining in full-time employment abroad, is more generous than the 10 days that was initially being talked about but it is remains quite restrictive and there is a risk that it could harm the UK competitiveness as, given Britain’s convenience as a global hub, many international businesses have meetings here. The proposed time limit may mean that they look to other European hubs.”
He continued: “A common misconception is that making individuals UK resident inevitably increases their British tax liability. In fact it may be neutral in tax terms and only serve to increase complexity and compliance for both taxpayer and HMRC due to the interaction of the UK’s tax treaties and reliefs for foreign tax credits.”
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For further information please contact:
Margot Cowhig, KPMG Corporate Communications
Tel: 0207 694 4246 Mobile: 07920 274856: margot.cowhig@kpmg.co.uk
KPMG Press Office: 0207 694 8773
About KPMG
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
