Seconding staff to the UK - tax savings and benefits

Overseas employers seconding staff to the UK should be aware of significant tax breaks that can reduce employment costs and employee taxes.

• For example employees seconded to the UK for up to 24 months, and who keep their employment contract and permanent workplace in the home country, can enjoy tax-free living expenses at their UK temporary workplace.  This is a generous relief that can cover rent, utilities and council tax, and also the cost of food and meals, local travel and household goods.  The relief can either be in the form of a tax-free benefit if the employer bears the costs, or if the employee bears the costs the relief can be claimed as a deduction from taxable earnings through the employee’s UK personal tax return.  A typical arrangement would be where the employer provides the accommodation, leaving the employee to bear other living costs.  Such arrangements could involve a salary sacrifice whereby employer and employee share the tax benefits.  Also there is an exemption from social security charges (NICs) for both employer and employee on expenses qualifying for the tax relief.

The secondment arrangements will require coordination between employer, employee and the professional advisers to ensure that the employment documentation is correctly drawn up and that the information reported to HM Revenue & Customs (HMRC) by both employer and employee are synchronised.  Other matters requiring careful attention can be whether or not the employee remains in the home-country social security system, and whether the employee may remain tax-resident in the home country.  It also has to be remembered that secondments to the UK will normally require the employee to be included in a UK payroll scheme (PAYE) whereby tax and (where applicable) NIC is deducted and paid over to HMRC.  Typically the PAYE scheme is operated by a UK group company acting as “host employer”.

• There is a separate tax relief available to employees who are resident but not ordinarily resident in the UK, who can benefit from an exemption from UK tax on earnings for duties performed outside the UK.  Typically this will apply to individuals who come to the UK for employment where they intend to leave the UK within 3 years.  This so-called “overseas workday relief” applies to the proportion of earnings relating to duties performed outside the UK to the extent such earnings are paid outside the UK and not brought into or used in the UK.  (Note that the concept of “ordinary residence” is proposed to be abolished from April 2013 with the introduction of new UK statutory tax residence rules, but the new rules are intended to retain this tax exemption.)  Overseas workday relief can be available whether or not the employer is UK-resident.  The relief is claimed on the employee’s personal tax return, but the employer can apply to HMRC for provisional relief to be given through PAYE.

• There is also an exemption from UK tax that can be available to employees working in the UK who are not UK-resident and work for an employer who is not UK-resident.  In such cases a UK tax exemption can apply under the provisions of a double tax treaty if certain conditions are satisfied.

In conclusion, the UK tax rules can offer overseas employers and their employees coming to the UK significant tax and cost savings.  Proper planning and preparation is important to ensure smooth operation of the tax reliefs, and careful consideration is usually required of the effects of the tax residence rules in each country and of relevant double tax treaty provisions.

For further information/advice on any of the areas discussed in this article please contact Sarah Brock – Corporate Tax Manager at Ward Williams on 01932 830664 or email: sarah.brock@wardwilliams.co.uk

Ten Tax Tips to implement today

1.    Keep Clear Records - Keeping clear records is a tax essential. If your records are clear (and complete!) then there is more chance that your tax return will be accurate and include full claims for all legitimate expenses. Furthermore, knowing you have been keeping clear records means you can worry less about how difficult a tax enquiry can be.

2.      Write down every expense - Self employed persons are often surprised at the types of expenses that can be claimed against their income for tax purposes. Generally speaking anything that is ‘Wholly and Exclusively’ incurred for your trade can be claimed, but if you incur expenses and you’re not sure if you can claim for these, then write them down and ask your adviser as you may find that a claim is possible.

3.      Finish your tax return as soon as possible after the tax year ends - Finishing your tax return well before the deadline not only means you avoid the penalties associated with late filing, but will also mean that you have more time to prepare for any January bill, or you will be able to reclaim any tax due to you sooner.

4.      Make sure your employer has given you everything - Employees are annually issued with a form P60 to show their taxable earnings and tax deducted for the tax year. This form is indispensable for any employee completing a tax return and must be given to the employee by 31 May following the end of the tax year. However many employees are unaware that another form is also essential if they want their tax returns to be correct and complete. For any employees receiving taxable benefits in kind (i.e. company cars or medical insurance) or expense payments where the employer does not hold a dispensation, a form P11d should be issued to them by 6 July following the end of the tax year. The Revenue receive these forms directly from the employers so if an employee misses this from their tax return, then more than likely they can expect HMRC to get interested!

5.      Don’t forget your bank interest - Self Assessment is designed to collect information on all of a taxpayer’s income, not just income from business sources. Bank interest from all accounts (but not ISAs) must be shown on the tax return. Banks send HMRC your bank interest details each year and if there is a discrepancy then HMRC may raise an enquiry.

6.      Be Generous - Make sure you tell your adviser about any charitable giving you have been doing during the year. Higher rate tax payers can get up to 30% gross tax relief just because they have donated money to a registered charity. This could mean up to £30 of tax saved for an £80 donation. A gift aid declaration should be made when donating the money and a copy kept in your file.

7.      Don’t forget tax credits – HMRC provide an easy to use calculator which takes only a couple of minutes to complete, asks no difficult questions and gives you an instant result as to whether or not you are entitled to make a claim. You can find this calculator at http://taxcredits.hmrc.gov.uk/Qualify/DIQHousehold.aspx.

8.      Avoid paying a lump sum in January - Anyone receiving income from a PAYE source and completing their tax return by the 30 December is eligible to have any tax they owe ‘coded out’ provided that certain limits are fulfilled. This means that instead of demanding a lump sum payment at the end of January, HMRC will include the tax due in your next PAYE coding notice and collect it gradually via your pay in the next tax year.

9.      Don’t panic if you receive an enquiry letter - HMRC can raise an enquiry where they believe information on your tax return is incorrect. They can also raise an enquiry randomly, so don’t just assume that they know something you don’t. Enquiries are best dealt with with the help of an adviser.

10. Seek Advice - Have you got advisers? If you have, are you happy with them? ‘Future proof’ your business by investing in professionals to support you!

For further information/advice on the tips above please contact Robyn Milstead:

t: 01932 830664, e: robyn.milstead@wardwilliams.co.uk

New audit exemption options for small companies and subsidiaries

The government has recently announced changes to company law that allow many companies and limited liability partnerships more choice in deciding whether to have a statutory audit.  The changes apply to financial years’ ending on or after 1 October 2012. 

Who is affected?

• Companies and groups that previously qualified as ‘small’ (turnover less than or equal to £6.5m; B/S total assets less than or equal to £3.26m or employees less than or equal to 50) under company law but were not exempt from audit because of their turnover or balance sheet total; and
•  Subsidiary companies that previously required an audit.

What has changed?

• Align audit thresholds with small company thresholds, meaning that virtually all companies and groups that qualify as small can choose whether they wish to have an audit or not; and
• Allow qualifying parent companies and their subsidiaries to decide whether or not to have a subsidiary audit, regardless of its size.  Instead, parent companies can opt to provide a statutory guarantee over the subsidiary’s liabilities.  Dormant subsidiaries are also exempt from the requirement to prepare and file accounts, subject to the provision of a similar guarantee.

What to consider:

• Are there any legal or commercial reasons why an audit is needed? Will the credit rating be affected? Will potential customers request to see the audited accounts?

• When deciding whether or not to utilise audit exemption, one of the most important factors for the parent company to consider, is the requirement to provide an unlimited guarantee of all of the subsidiary company’s liabilities.  If a group has been structured in a way to effectively ring fence the liabilities of subsidiaries, then one will most probably not want to lift the corporate veil for the sake of an audit fee.

How can we help?

These changes have removed the legal requirement to have a statutory audit from many ‘small’ companies, as a result Ward Williams can provide you with a more flexible service. 

Contact: enquiries@wardwilliams.co.uk

Tax highlights from the Chancellor's Autumn Statement

George Osborne delivered his Autumn Statement on 5 December 2012.  The key tax announcements included a crack down on tax avoidance and evasion, generally positive corporate tax measures, changes to personal tax bands and cuts in tax relief for pension contributions.

Personal Tax highlights:

·         For 2013/14 the personal allowance will increase by £235 more than previously announced and will now be £9,440.

·         The Higher Rate income tax threshold will increase to £41,865 in 2014/15 and £42,285 in 2015/16.  As announced in the 2012 Budget the Higher Rate threshold will decrease in April 2013 from it’s current level of £42,475 to £41,450 which, according to the Treasury, will drag an additional 400,000 people into the 40p rate of tax.

·         The Capital gains annual exempt amount will increase to £11,000 in 2014/15 and by 1% to £11,100 in 2015/16. 

·         The IHT nil rate band (which has been frozen for several years) will increase from £325k to £329k in 2015/16.

·         As announced on 8 October 2012 the Government has introduced a new employee shareholder status.   Employee shareholders will have different employee rights to other employees and will receive a minimum of £2,000 of shares.  The Government will introduce legislation to exempt gains on up to £50k of shares acquired by employees taking up the new employee shareholder status from April 2013.  The Government is also considering options to reduce income tax and NICs liabilities that arise when employee shareholders receive their shares.

·         The previously announced fuel duty increase of 3.02 per litre which was due to take effect in January 2013 has been cancelled.

·         From 2014/15 the lifetime allowance for pension contributions will reduce from £1.5m to £1.25m and the annual allowance will fall from £50k to £40k.

Corporate Tax highlights:

·         The main rate of corporation tax will now be 21% from April 2014 rather than the previously announced 22%.   The main rate of corporation tax is currently 24%, will fall to 23% in April 2013 and 21% in 2014.

·         The capital allowances annual investment allowance will increase for 2 years from 1 January 2013 from £25,000 to £250,000.

·         As previously announced in Budget 2012 the Government will introduce corporation tax reliefs from April 2013 for the video games, animation and high technology TV industries, subject to state aid approval.

Measures to tackle Tax Avoidance and Evasion:

·         HMRC will create a unit dedicated to tackling offshore evasion and a comprehensive offshore evasion strategy will be announced in the spring.

·         As previously announced the UK’s first ever General Anti-Abuse Rule (GAAR) will be introduced to provide a significant new deterrent to abusive avoidance schemes and strengthen HMRC’s means of tackling them.  Guidance and draft legislation on the GAAR will be published later in December 2012.  

·         4 tax avoidance loopholes will be closed down immediately.

·         HMRC is conducting a review of offshore employment intermediaries being used to avoid tax and NICs and will provide an update on this work at Budget 2013. 

·         The Government are consulting on the introduction of significant new information disclosure and penalty powers to target the promoters of aggressive tax avoidance schemes.

For further information/advice on any issues discussed in this article please contact Sarah  

t: 01932 830664, e: sarah.brock@wardwilliams.co.uk