My client has just told me that her employer has asked her to go to work on its behalf in India for about two years. It seems that she will relocate towards the end of this tax year or the beginning of the next year. I have only just learned of this and have little other information — for example whether she will let her house here or leave it vacant for use on return holiday trips to the UK.
My client has just told me that her employer has asked her to go to work on its behalf in India for about two years. It seems that she will relocate towards the end of this tax year or the beginning of the next year. I have only just learned of this and have little other information — for example whether she will let her house here or leave it vacant for use on return holiday trips to the UK.
So that I am fully prepared for any detailed questions and to assist in my giving advice, can readers let me know what factors are relevant and whether there is any specific advice that I should be giving?
My client says that she has been advised to open an offshore bank account; is this really necessary? I know little of her background and, as the subject has not arisen before, I have always assumed that she is domiciled in the UK.
And what about her PAYE code number? Will this remain the same whilst she is abroad, or can it be amended to a 'no tax' (NT) number?
Readers' advice on these and any other relevant points would be gratefully received.
(Query T16,571) — Seconded.
The first point that needs to be considered for tax purposes is the date of departure. Where I have been faced with clients leaving the UK around April, it has always been an idea to advise them that a complete tax year spent abroad always works out much better in financial terms. So obviously a date preceding 6 April 2005 is certainly a prerequisite here.
To cover 'all the possibilities' scenario, I would recommend Seconded to look first at the Revenue's booklet IR20, Residents and non-residents, which gives taxpayers a basic guidance about the subject under discussion.
Chapter 2.2 on page 9 of IR20 deals with 'working abroad' and gives the conditions for being treated as not resident and not ordinarily resident. The first condition is as mentioned — being abroad for a complete tax year, it then goes on to cover periods of visit to the UK which will be disregarded for tax purposes; less than 183 days, with an average of less than 91 days, in any tax year.
Being not resident means that earnings from duties performed in India will not be liable to UK income tax. (see Chapter 5.2 on page 24 and the schedule on page 32). There is the need for the submission of a form P85, 'Leaving the UK', which covers details of expected income(s) whilst abroad and their source(s). The NT code number, as mentioned, will then be able to be issued by the tax office dealing with the PAYE of the employer.
The rules are that being not resident means UK tax will only be charged on investment income arising in the UK, with, apart from rental income, the liability being limited to any tax deducted at source. Therefore, the mentioning of opening an offshore bank account depends on whether there is going to be rental income receivable and therefore taxable in the UK. In other words if it is thought that the total UK investment income will be covered by personal allowances then perhaps the simpler way would be to submit a Revenue form R105, (see www.inlandrevenue.gov.uk/pdfs/r105.pdf) to the UK bank in question, which allows the bank to pay interest gross to non-residents.
If the client does intend to let her house, then she will need to register with the Revenue's Centre for Non-residents. Booklet IR 140 (Non-resident landlords) covers this matter in detail and it will be seen that a form NRL1 (application by non-resident landlord to receive UK rental income gross), needs to be submitted post haste, in order that either the letting agent, or if she is to be paid directly, the tenant, will be allowed not to deduct basic rate tax from the rental income. If the house is not going to be let, but is to be used for holidays in the UK, then this no longer has any bearing on the non-resident status.
Another leaflet of interest is IR138. — N.K.
Most of the larger firms of accountants have checklists available to assist in briefing clients in these circumstances. Does Seconded know someone in such a firm? A checklist would cover such things as residence, domicile, UK tax and foreign tax during the assignment, pensions, social security contributions (home and host country liabilities), investments (including letting of the home if relevant), and capital gains tax. In addition, Seconded should read the Revenue's leaflet, IR20, which although in need of an update, is still the leading source of information on relevant residence issues.
There is no need for me to repeat here what subscribers can read for themselves in IR20, but I would say 'read it carefully'. If the client's circumstances match those described in IR20 precisely, it will be possible to rely on its content.
Specifically, if this will be a full time secondment (under a contract) and there will be no duties performed in the UK (or merely incidental duties), timing of departure is likely to be crucial to the residence status. Employment needs to cover a full tax year if the client is to become non-resident. So if she leaves (and the contract commences) after 5 April, the employment would need to continue beyond 5 April 2007 in order to achieve non-resident status. Contrast this with the effect of leaving (and contract commencing) before 6 April, which requires a much shorter assignment. There is no obvious logic behind this well-known anomaly. If the IR20 conditions are all satisfied and non-residence is expected to be achieved, code NT may be applied for straight away, but bear in mind that if something happens to shorten the assignment unexpectedly, the Revenue will expect her to self-assess for the entire period. Secondees can frequently find themselves 'dual resident' in these circumstances.
It is very likely that the client will be liable for tax in India and there is no substitute for up to date local advice. All the larger accounting networks will have representation in India and it may be necessary to tap into this. Article 24 ('elimination of double taxation') of the double taxation convention with India may provide relief in the event that non-residence is not achieved in the UK. Not knowing the nature of the work involved, one should also check any other relevant articles (such as Article 22 for teachers). However Article 16 is unlikely to solve the double tax problem if the client is dual resident. Likewise, social security needs to be considered from the Indian perspective. UK liability is likely to continue under UK regulations for the first 52 weeks. It is good practice in these situations to see whether there is a reciprocal agreement.
Seconded should find out whether the employer has a tax equalisation policy. Larger multi-nationals usually do. Space does not permit an analysis of tax equalisation here, but if she will be eligible for equalisation the chances are that the employer will also offer some tax advice to go with it. This will be particularly useful in India. If the employer is unused to seconding employees it should take some advice. This is not limited to employee tax and social security issues, but there are often corporate tax issues arising from secondments.
If the house will be let, then Revenue leaflet IR140 will assist, and form NRL1 may need to be completed to avoid withholding tax complications in relation to rent. A UK tax return will need to be filed for non-resident years in which the house is let, and also for the year of departure (unless this coincides with 5 April) as repayments usually arise due to the non-cumulative effect of code NT.
As to the bank account, there is no real need to go to the trouble of having offshore arrangements. The bank will supply forms to enable interest to be paid gross onshore. In the event that Indian tax can legitimately be reduced by offshore payments of earnings, the UK will be 'offshore' in relation to India. However, such arrangements are not always (not often?) legal and great care should be taken if they are suggested. One needs a reliable source of professional advice out there.
