U.K. and Follow up on Statement of Practice 01/09
U.K. and Follow up on Statement of Practice 01/09
Her Majesty’s Revenue & Customs (HMRC) in the U.K. has announced that legislation will not be introduced until the 2011 Finance Act concerning (this legislation would have replaced Statement of Practice 01/09 regarding resident but not ordinarily resident taxpayers). SoP 01/09 will now apply for the U.K. tax year ending 5 April 2011, with one amendment regarding joint accounts. This amendment will apply to all qualifying bank accounts for periods on or after 6 April 2009.
Ordinarily resident (RNOR) employees are taxable on their earnings for U.K. duties whether the employee’s earnings are paid in the UK or not. However, if such an employee elects for the remittance basis, the employee’s earnings for non-U.K. duties are only taxed in the United Kingdom if remitted to the United Kingdom.
In our earlier newsletter, we explained the changes to the rules regarding the remittance of employment income of RNOR employees for the two years ending 5 April 2010. In particular, we explained that RNOR employees could simplify their compliance burden if they established they were within Statement of Practice (“SoP”) 01/09. SoP 01/09 was expected to be replaced by legislation with effect from 6 April 2010. Her Majesty’s Revenue & Customs (HMRC) has now announced that this legislation will not be introduced until the 2011 Finance Act1. SoP 01/09 will now apply for the U.K. tax year ending 5 April 2011, with one amendment regarding joint accounts. This amendment will apply to all qualifying bank accounts for periods on or after 6 April 2009.
SoP 01/09 as It Originally Applied for the 2009/2010 Tax Year
Broadly speaking, the SoP said that, for a R/NOR employee using the remittance basis for earnings arising from non-U.K. duties:
• it will be possible to look at transfers made from a bank account (see below regarding the types of account covered) for the U.K. tax year as a whole, rather than needing to examine each individual transfer;
• HMRC is prepared to accept that there is a remittance of earnings for non-U.K. duties only where the total general employment earnings remitted to (or paid in) the U.K. exceed the amount of general employment earnings attributed to U.K. duties; and
• general employment earnings may be apportioned, provided it is appropriate to do so, between U.K. and non-U.K. duties on the basis of work days worked in the relevant period, rather than the number of total days in the period.
However, the SoP would not apply to the earnings of a R/NOR employee if the earnings are:
• paid into a joint account; or
• mixed with earnings of another individual; or
• mixed with earnings of another employment; or
• mixed with non-employment income, except for interest arising on the bank account; or
• mixed with capital gains, except for gains arising from foreign exchange transactions in respect of the funds in that account and those arising on employee share scheme-related transactions.
Proceeds (other than a gain, which is already covered above) from employee share scheme-related transactions in respect of amounts paid by the employee in acquiring the shares, may also be paid into the bank account without invalidating the use of the new SoP.
HMRC Amendment to SoP 01/09
HMRC has announced it will now be possible to act upon the SoP and have earnings paid into a joint bank account provided the other account-holder:
• is the spouse or civil partner of the employee, and
• that individual has no income or gains of his/her own in the account apart from a share of interest arising on the account.
HMRC has said this change will apply to all accounts that qualify for SP 01/09 on or after 6 April 2009.
KPMG Note
RNOR employees who already have bank accounts within the existing SoP may not wish to disturb their current arrangements. Having said that, if they wanted to consider having separate accounts for earnings attributable to each U.K. tax year to exercise a wide degree of flexibility when arranging remittances to the U.K., then any new accounts could now be joint accounts, provided the above conditions are met.
Source: KPMG
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