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International
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Workers from the EU accession States
Claimants for Income Support, income-based Jobseeker's Allowance, Housing Benefit, Council Tax Benefit and Pension Credit have to demonstrate that they are habitually resident in the Common Travel Area, i.e. the UK, Channel Islands, Isle of Man or the Republic of Ireland.
In anticipation of the influx of workers from the ten new States that accede to the European Union on 1 May 2004, new tests have been introduced under the provisions of The Social Security (Habitual Residence) Amendment Regulations 2004. In order to receive any of the income-related benefits, such workers will have to meet new residency rules and register as a worker.
Individuals are "habitually resident" if they "have a right to reside" in the Common Travel Area. To have a "right to reside", nationals from the States of the European Economic Area (EEA) must be workers or be self-employed. If they are not economically active, e.g. students, pensioners, or lone parents, they have a right to reside provided they are self-sufficient, i.e. not dependent on the State's benefit system.
To show that they are "workers", individuals coming to the UK from the eight of the ten acceding States, i.e. Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia.
and Slovenia, must obtain employment and register under the Worker Registration Scheme to work for the employer concerned. If they do not have a job but come here in the hope of finding employment they will need to be self-sufficient.
For information about the Worker Registration Scheme, see the Newsletter of 26 March 2004.
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...back to 7 May 2004
Source: www.gnn.gov.uk...
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Workers Registration Scheme
The Government has laid draft Regulations that will introduce a registration scheme for workers coming to the UK from eight of the ten States that will be joining the EU on 1 May 2004. The scheme will operate for five years, with a review after two years. The arrangements are still subject to approval by Parliament.
The Workers Registration Scheme will apply to workers coming to work in the UK from the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia. The requirements will not apply to workers from Cyprus and Malta, mainly because of their comparative wealth in relation to the other countries.
Although there will be freedom of movement throughout the EU for people from the accession States, workers from the eight new States will not be allowed to work in the UK unless they have applied to the Home Office for registration. Workers will only be able to register under the Scheme once they have started in employment. There will be a one-off fee for registration of £;50. Workers will be issued with a certificate that allows them to work legally in the UK but it will lapse if they lose their job within the first 12 months. If they find another job, they will have to renew their registration.
As long as they are in work throughout the initial 12-month period, they will be entitled to the same state benefits as workers from the existing Member States, including Income Support, income-based Job Seeker's allowance, State Pension Credit, social housing, Housing Benefit, Council Tax Benefit, child tax credit and child benefit. If they stop working during the first 12 months, access to those benefits will be lost. After 12 months in continuous legal employment, they will be able to work in the UK without restriction and have access to work-seeking benefits if necessary.
(Source: www.inlandrevenue.gov.uk/news/eu_enlargement_draft5.htm )
...back to 26 March 2004
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EU enlargement and NICs
Ten new countries will join the European Union on 1 May 2004. The Inland Revenue has published an article that considers the NICs implications of this major change for UK employees going to work in those countries and for employees from those countries coming to work in the UK.
The Social Security treatment of workers who move between the countries that make up the European Economic Area (EEC) are governed by EC Regulations. Those Regulations require that workers pay contributions in the State in which they work. However, if they are sent by their employer in one State to work in another State and their work is not expected to last for more than a year and they are not replacing another worker whose contract has ended, an E101 certificate allows them to continue paying contributions in their home State. The period can be extended for an additional year by an E102 certificate.
From 1 May 2004, those Regulations will also extend to workers going to or coming from the new Member States. At that date, the countries to which the EC Regulations will apply will be
- the existing EU Member States, i.e. Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Ireland, Spain, Sweden and the UK (including Gibraltar).
- the acceding States, i.e. Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia
- EFTA States, i.e. Iceland, Liechtenstein, Norway
- Switzerland
With the exception of Switzerland, all of the countries listed make up the European Economic Area (EEC).
The existing Double Contribution Conventions with Cyprus, Slovenia and Malta will continue to operate until 1 May 2004, but will continue in force for those workers who have "certificates of coverage", which exempt them from NICs in the UK, until those certificates expire.
Employers affected by these changes should consider the article carefully. It includes a number of worked examples that illustrate the application of the EC Regulations to workers going to or coming from the new Member States.
Note also that workers from the new Member States, with the exception of those from Cyprus and Malta, will also be required to register under the new Workers Registration Scheme. (See separate news items about the Workers Registration Scheme and Asylum and Immigration compliance.
(Source: www.inlandrevenue.gov.uk/news/eu_enlargement_draft5.htm )
...back to 26 March 2004
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Double Tax Conventions
Discussions at official level are to be held shortly about new comprehensive Double Tax Conventions between the UK and Poland and between the UK and Hungary, to replace those signed in 1976 and 1977 respectively.
(Source: www.gnn.gov.uk/gnn/national.nsf/IR/... )
...back to 5 March 2004
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Non-Residents working in the UK for short periods
Most of the UK's double taxation agreements provide for employees working in the UK for short periods to continue to be taxed in their home country. A condition for this arrangement is that the employee's remuneration must be 'paid by or on behalf of an employer' who is not resident in the United Kingdom. In some cases, however, employees are seconded to work for a UK employer and the foreign employer recharges the cost of the employee's earnings to the UK employer. In this situation, the UK employer is viewed as the 'economic employer' and the exemption from UK tax for short-term visitors is not available.
However, an Inland Revenue concession dating back to 1996 accepts that a short term business visitor is not sufficiently integrated into the business of a UK company for it to be regarded as the employer where:
- the employee concerned is in the UK for less than 60 days in a tax year; and
- that period does not form part of a more substantial period when the taxpayer is present in the UK.
This has become known as the "60-day rule". Employers in the UK who rely on this rule should consider carefully the questions and answers that are considered in Tax Bulletin 68 regarding the application of the "60-day rule". A number of worked examples is provided.
(Source: www.inlandrevenue.gov.uk/bulletins/tb68.pdf )
...back to 26 December 2003
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Double Taxation Conventions
New Zealand
A Protocol to the Convention between the UK and New Zealand was signed by both parties on 4 November. The amendments include a provision to deal with income not covered by any other Article of the Convention. For income tax purposes, the new provisions take effect on 6 April 2004, assuming that the Convention is brought into force before that date.
(Source: www.inlandrevenue.gov.uk/pdfs/uk-newzealand-dtc.pdf)
Mauritius
The Protocol to the Convention between the UK and The Republic of Mauritius entered into force on 22 October 2003. The income tax-related provisions take effect in the UK on 6 April 2003 and in Mauritius on 1 July 2003.
(Source: www.hmso.gov.uk/si/si2003/20032620.htm)
Greece
Talks are to start soon on amendments to the Convention between the UK and Greece. Representations are invited and should be sent to Richard.Thomas01@ir.gsi.gov.uk by 1 December 2003.
(Source: www.gnn.gov.uk/gnn/national.nsf/IR/F3...)
...back to 7 November 2003
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International taxation
The Inland Revenue has published the text of its new International Manual on its website. Like the many other internal manuals that are written for the benefit of Revenue staff, this new manual is also available to employers and practitioners on the Revenue's website.
The International manual includes up-to-date guidance on transfer pricing and international issues, including double taxation relief and controlled foreign companies.
(Source: www.inlandrevenue.gov.uk/manuals/intmanual/index.htm )
...back to 17 October 2003
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Double Taxation Conventions
The Convention between the UK and Mauritius has been amended to clarify the treatment of gains from the alienation of property. The Protocol takes effect in the United Kingdom for any year of assessment beginning on or after 6th April 2003 in respect of income tax.
(Source: www.inlandrevenue.gov.uk/si/2003-2620.pdf )
The Convention between the UK and Canada has been amended in a number of areas, including the extension of the term "person" to include a trust but not a partnership, the amendment of the rules for determining taxable profits when a company in one country is associated with a company in the other, the amendment of the rate of tax imposed in the country of source on dividends beneficially owned by a resident of the other country, the exemption from source state taxation in relation to trade debts, and the amendment of the provisions for the elimination of double taxation in relation to Canada. The Protocol takes effect in the United Kingdom on or after 6th April in respect of income tax in the calendar year next following the date on which it enters into force.
(Source: www.inlandrevenue.gov.uk/si/2003-2619.pdf )
The Income Tax (Manufactured Overseas Dividends) (Amendment) Regulations 2003 comes into effect on 1 November 2003, to remove the requirements for persons making payments of manufactured overseas dividends to account for and pay tax in respect of such payments where payment is to persons who are not United Kingdom recipients. As a result, the Regulations containing the condition for this exemption, that the UK had made arrangements for the relief of double taxation in the overseas territory, have been repealed.
(Source: www.inlandrevenue.gov.uk/si/2003-2581.pdf
and
www.inlandrevenue.gov.uk/si/2003-2582.pdf)
...back to 10 October 2003
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Double Tax Conventions
The draft text of the two statutory instruments and explanatory memoranda for the new Agreements between the UK and Australia and Chile has been published.
In a recent Tax Bulletin, the Inland Revenue announced that, in the year to April 2004, it expects to
- complete work on new treaties with Australia, Botswana, Chile, France and Slovenia
- finalise protocols to the existing treaties with Belgium, Italy and New Zealand
- continue negotiations with Croatia, Germany, Iran, Namibia, the Netherlands, Serbia and Montenegro, and the UAE.
Two other agreements, with Mauritius and Canada, have been signed but are yet to come into force.
(Sources: www.inlandrevenue.gov.uk/...-australia-2003.pdf
www.inlandrevenue.gov.uk/si/...-australia-exp-memo-2003.pdf
www.inlandrevenue.gov.uk/...-chile-2003.pdf
www.inlandrevenue.gov.uk/...-chile-exp-memo-2003.pdf
www.inlandrevenue.gov.uk/bulletins/tb66.pdf )
...back to 12 September 2003
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Double Tax Convention
A comprehensive Convention has been signed by the UK and Australia. It includes provisions relating to the avoidance of double taxation and the prevention of tax evasion in respect of income tax and capital gains tax.
The Convention will not come into force until both countries have completed their Parliamentary procedures and exchanged diplomatic notes.
There are, in addition, three other conventions that have been signed but have not yet come into force, namely with Canada, Chile and Mauritius.
(Source: www.inlandrevenue.gov.uk/international/uk_australia_dtc.htm )
...back to 22 August 2003
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Double Tax Convention
A comprehensive Convention has been signed by the UK and Chile. It includes provisions relating to the avoidance of double taxation and the prevention of tax evasion in respect of income tax and capital gains tax.
The Convention will not come into force until both countries have completed their Parliamentary procedures and exchanged diplomatic notes.
(Source: www.inlandrevenue.gov.uk/international/uk_chile_dtc.htm )
...back to 18 July 2003
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Double Taxation Conventions
The following Agreements took effect for Income tax purposes from 6 April 2003 in the UK. The Internet address of the respective Order is provided for reference purposes.
The Inland Revenue has published a special issue of Tax Bulletin to explain in some detail the provisions of the new USA Agreement and the way in which its provisions will be interpreted and applied.
(Source: www.inlandrevenue.gov.uk/bulletins/tbse6.pdf )
...back to 4 April 2003
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International Issues
A number of issues concerning UK workers abroad and employees coming to work in the UK are clarified in the latest Inland Revenue Tax Bulletin 63. The full document is available at www.inlandrevenue.gov.uk/bulletins/tb63.pdf .
Apportionment
If employees are not resident, or not ordinarily resident, in the UK, their income in respect of duties performed in the UK is taxable. If they work partly in the UK and partly overseas, their emoluments have to be apportioned for tax purposes. Similarly, apportionment is also necessary for UK resident employees for duties performed overseas to the extent that they are received in the UK. Apportionment is normally carried out on a daily basis except where that would be inappropriate.
The Tax Bulletin article explains the situations where apportionment on a daily basis would be inappropriate, for example where the employee's contract specifically allocates emoluments to periods working in the UK or overseas. A detailed worked example is provided.
Coding allowances
In the case of employees who are not resident, or not ordinarily resident, in the UK and who work in the UK and overseas, apportionment is only permitted if the employer's tax office has given authorisation. (CWG2(2003) paragraph 122)
The Revenue has instructed tax offices to discontinue the alternative practice of allocating tax codes that treat the amount of earnings that are expected not to be subject to income tax as a tax allowance and adding it to the employee's tax code. For example, an employee with a salary of £;70,000 and spending half of the time working in the UK might obtain a tax code of 3500, giving £;35,000 free pay. Any existing codes of this nature are to be withdrawn.
Short-term business visitors
The requirement to operate PAYE in respect of visits to the UK can be relaxed if the employee is protected under the terms of a Double Taxation Convention and is not in the UK for more than 183 days in a year. (CWG2(2003) paragraph 122) Employers can obtain approval from their tax office for relaxing PAYE procedures if the employer maintains accurate records of business visits to the UK in accord with the criteria set out in Appendix 4 of the Revenue's internal Employment Procedures Manual, i.e.
- staff of all grades report their visits to a central point periodically, and
- no more than 14 days intermittently may be spent in the UK in any 12-month period without reporting to the central point.
In response to requests from employers to increase the 14 days limit due to difficulties in satisfying these requirements, the "14 days intermittently" rule has been changed to "30 days in aggregate" with effect from 14 February 2003. A number of other points of clarification have also been made to Appendix 4. See www.inlandrevenue.gov.uk/employers/epapp4.htm .
Relief from double taxation
Some employees working abroad may be liable to pay both UK tax and foreign tax on the same earnings. This can occur where there is no Double Taxation Agreement in force between the UK and the foreign country, or where there is an Agreement but the terms for relief from double taxation do not apply.
In this situation, employers are instructed to contact their tax offices so that relief from double taxation can be given through each employee's tax code. (CWG2(2003) paragraph 123) The procedures that must be followed are set out in the revised text of Appendix 5 of the Revenue's internal Employment Procedures Manual. See www.inlandrevenue.gov.uk/employers/epapp5.htm .
New Double Taxation Conventions
The UK has agreements with over 100 countries to provide relief from double taxation from income tax and other taxes in the respective countries. New agreements with South Africa and Taiwan came into force in December 2002. For income tax purposes, they apply in South Africa and Taiwan from 1 January 2003 and in the UK from 6 April 2003. The text of the statutory Orders is available at www.hmso.gov.uk:80/si/si2002/20023137.htm and at www.hmso.gov.uk:80/si/si2002/20023138.htm .
Payroll Briefing 17 - 6 March 2003
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Tax equalisation
A detailed article in Tax Bulletin issue 59 clarifies the Revenue's approach to the taxation of the benefit of "tax equalisation". Employees who are resident, but not ordinarily resident, in the UK, are liable for tax on:
- their emoluments for duties performed in the UK, and
- their emoluments for duties performed outside of the UK to the extent that the emoluments are received in the UK.
Tax equalisation is an arrangement whereby employers meet on their employees' behalf any amount of UK tax that exceeds the tax that they would have paid in their home countries.
Tax Bulletin 59 also contains a full list of the current Double Taxation Conventions and Double Contribution Conventions. The Bulletin may be downloaded from www.inlandrevenue.gov.uk/bulletins/tb59.pdf .
Payroll Briefing 4 - 18 July 2002
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For Payroll and Human Resource Professionals
