What are the Practical Considerations for Becoming a Real Living Wage Employer?
Peter Robertson,
24th May 2024
Employment Law
Today’s evolving landscape of employment standards, the real living wage has emerged as a crucial benchmark for fair compensation. At Dixcart UK, we’re dedicated to providing practical guidance to our clients across various sectors. Join us as we look into the implications of the real living wage for employers and offer insights to navigate this transition effectively.
Understanding the Real Living Wage
Unlike statutory minimum wage regulations, the real living wage is a voluntary commitment undertaken by employers. It aims to ensure that employees receive compensation reflecting the actual cost of living. Updated annually, this wage seeks to bridge the gap between minimum wage standards and the economic realities faced by workers.
For employers considering adopting the real living wage, careful evaluation is essential. While the potential benefits, such as attracting top talent and enhancing workforce morale, are evident, practical considerations must be taken into account.
Financial Assessment
Before committing to the real living wage, conduct a thorough financial assessment of your business. Analyse your current wage structure and revenue streams to determine if you can afford to meet the real living wage rates. Consider potential adjustments to your budget and financial projections to accommodate increased wage costs.
Addressing Challenges
Transitioning to the real living wage may pose challenges for employers, particularly in sectors with tight profit margins. Anticipate potential hurdles, such as renegotiating contracts with clients or adjusting pricing strategies, to ensure financial sustainability. Our pragmatic approach equips clients with the tools to navigate these challenges effectively.
Engaging Employees
Effective communication with employees is crucial during the transition to the real living wage. Engage your workforce in transparent dialogue, explaining the rationale behind the decision and addressing any concerns they may have. Fostering a culture of inclusivity and transparency is key to a smooth transition.
Moving Forward with Confidence
Embracing the real living wage reflects a commitment to fair and equitable employment practices. At Dixcart UK, we’re dedicated to supporting employers as they navigate this transition. By aligning values with actions, our clients can enhance their reputation and cultivate a motivated workforce.
In conclusion, adopting the real living wage requires careful consideration and planning. At Dixcart UK, we stand ready to assist employers in making informed decisions that promote fairness and prosperity for all stakeholders.
To find out how we can help your business, or if you have any questions regarding the transitioning to the real living wage, please contact us.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
This month our employment news has been rolling in from all levels of the courts...
News & Views
Ceasing to be UK Tax Resident – Don’t Get it Wrong!
Peter Robertson,
23rd May 2024
Case Study
It is January 2025 and two people are sitting at the departure gate at Heathrow waiting for their (inevitably) delayed flight to the Bahamas. They start a conversation and talk about why they are flying to this Caribbean island.
Person A, Mrs Sunseeker, explains to Person B, that she had lived in the UK for a long time as a resident “non-dom,” but that expected changes to the tax rules for longer term residents had meant that she had decided to leave the UK and cease being tax resident; “My friend told me I just had to spend fewer than 90 days each year in the UK.” she declares.
Fortunately for Mrs Sunseeker, Person B, Mrs Tax, is, by nominative determinism, a tax adviser and explains that the old ‘90 day’ rule does not apply anymore and suggests that she takes a look at the UK statutory residence test – link to STR.
Background for Mrs Sunseeker
Mrs Sunseeker moved to the UK in the early 2010s, as a student. After graduating, she was offered a job in the financial services industry. She has been very successful and accumulated significant personal wealth.
In 2015, she inherited the shares of a large family business, back home in Dubai, which started to generate a regular dividend income of around £5 million a year which she has kept in her bank account in Dubai. As a UK remittance basis of taxation user, the Dubai dividends have not been taxed in the UK, as Mrs Sunseeker never remitted them into the UK.
However, with the UK non-dom rules changing, remaining in the UK was going to be just too expensive for income and inheritance tax purposes. She has therefore decided to move to a warm country. Mrs Sunseeker is planning to carry on working for the same employer (taking advantage the fact that her firm realises she can work remotely) and, indeed, is likely to be working very hard on the days that she returns to the UK.
She is married. Her husband is British and does not want to spend as much time outside of the UK as his wife. His only source of income is in the UK and he still enjoys his work. As he is going to stay, they will keep their home and Mrs Sunseeker will live there when she returns to visit him.
What is Mrs Sunseeker’s Tax Status and Why?
While waiting for the flight, Mrs Sunseeker takes a look at the residence test rules. She realises that the first two parts of the test, the ‘Automatic Tests’ do not apply to her and reads on to the ‘Sufficient Ties’ section. Mrs Sunseeker has four such ties, or connections:
Spent more than 90 days in the UK in both of the previous two tax years;
Will have available accommodation in the UK;
Has a UK tax resident spouse and will continue to do so;
Will work in the UK for more than 40 days under the definition of the test.
What Will the Tax Impact Be?
As she has four ties, Mrs Sunseeker will be tax resident in the UK, for at least the first two years after she leaves, by spending just 16 days per year in the UK, far lower than the 90 she had anticipated.
The next time she receives her large dividend, she would still be considered UK tax resident and will suffer UK income tax. It may be even worse, if she has not paid this tax on time she would receive a late payment penalty, which is quite likely because she no longer believed she was UK tax resident and she could be liable for penalties under the ‘offshore assets’ rules too.
The problem would become further compounded were Mrs Sunseeker to sell her shares in the family business in Dubai for a large gain, while she believed she was not UK resident.
Other Considerations
Please note for completeness, that the UK ‘split year rules’ are not being considered, nor are the tax implications of Mrs Sunseeker continuing to receive a salary for work she undertakes when in the UK. Dixcart, would of course advise on these, where relevant. The Bahamas does not have a double tax treaty with the UK, and there is therefore no tie breaker clause to consider in this scenario either.
So, What Could Mrs Sunseeker Do?
Can you believe it, the flight is still delayed!
Mrs Sunseeker picks up her phone and calls Mr Sunseeker. Whilst he loves his job, he now understands that there will be a high tax cost if his wife does not properly exit UK tax residence. He packs his things and heads to the airport. While on his way, he calls his employer and resigns, and then calls an estate agent to list the home for immediate rental.
The repercussions of the two actions above, would be to reduce the number of UK ties that Mrs Sunseeker has, from four to two:
90 days in both of the previous two tax years; and
Work tie (assuming she still works, when back in the UK).
Now she would be able to spend up to 90 days in the UK per year and lose her UK tax residence status.
Very lucky!
Whilst everyone else on the flight was cursing the delay, Mrs Sunseeker had struck lucky. However, had Mr and Mrs Sunseeker started to plan earlier than at the airport departure lounge, there would have been more options to consider around their employment situation and their home status, and they might have avoided having to take such extreme steps.
How Can Dixcart Help?
Dixcart’s team of lawyers, accountants, immigration and tax professionals would have assisted Mr and Mrs Sunseeker with:
Pre-departure tax planning;
Ongoing tax planning, to ensure that UK tax residence is not accidentally acquired again in the future;
Employment law advice for both individuals in relation to their ongoing employment contracts, should they wish to continue to work, as well as related UK tax advice regarding the income being earned;
Application for Indefinite Leave to Remain before they leave the UK, so they can be sure that they can return in the future.
Additional Information
If you have any questions and/or would like advice on regarding tax residence in the UK, please speak to Peter Robertson or Paul Webb at: hello@dixcartuk.com or to your usual Dixcart UK contact.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
Background Mr. Smith has been a client of Dixcart’s for many years and he wants to explore the options available to provide financial help to his children, as they get […]
Business owners and employers who provide their employees with company vehicles before March 2025 can enjoy substantial tax benefits in the next few years for making the switch to pure […]
A German company is looking to expand into the UK but does not already have a UK company incorporated.
News & Views
Case Study: Navigating Inheritance Tax Pitfalls – A Costly Lesson Learned
Peter Robertson,
19th February 2024
Tax
Introduction
In this scenario a UK resident individual, let’s call him John who was in his early 70’s and a widower, found himself facing a significant Inheritance Tax bill. Having a UK property worth £500,000 and investments amounting to £600,000, John contemplated a strategy to mitigate the inheritance tax (IHT) impact without seeking professional advice.
The Risky Plan
In an attempt to sidestep inheritance tax, John considered selling his house to his son, who resides in Guernsey, a country with no inheritance tax. The plan involved his son, (who had recently sold his business for several million pounds) purchasing the property, and John sending the proceeds back to him as a gift but with John still living in the house. The goal was for John to live for another seven years, hoping to avoid hefty inheritance tax charges.
Professional Analysis
However, our team of expert quickly pointed out the flaws in this plan. The proposed scheme of “selling” the house to the son, only to later gift the proceeds back would not be acceptable to HM Revenue and Customs. The Gift with Reservation of Benefit (GWR) rules state that if an asset is given away but the donor continues to benefit from it, it will still be taxed as part of John’s estate for IHT purposes.
Additionally, the Pre-Owned Assets Tax (POAT) which introduced an income tax charge on benefits received by the former owners of property could also have applied however a way around this is to pay a commercial rent for continuing to live in the house you have gifted.
Essentially, the plan would have been ineffective, and the value of the property would remain in John’s estate for inheritance tax purposes.
Additionally, the son’s residence in Guernsey did not exempt the property from UK-based IHT (since it was UK sited), potentially leading to complexities in the future.
Professional Advice
What if John had sought professional advice from Dixcart UK before embarking on this risky endeavour? Let’s walk through it.
Scenario Planning:
Dixcart UK, with its team of accountants, tax advisers, and lawyers, could have guided John through a comprehensive scenario analysis. By understanding John’s financial situation, Dixcart professionals could have illustrated the potential outcomes of various strategies, highlighting the risks and benefits associated with each.
Strategic Gifting:
Instead of opting for a convoluted plan that involved selling the house and repaying the proceeds, Dixcart could have advised John on more straightforward and legally sound methods of mitigating inheritance tax. One such approach might involve strategic gifting within the allowable limits set by legislation or making Potentially Exempt Transfers (PET’s) of the financial assets owned by John. A gift of cash for example would be a PET and so if John was to survive for 7 years from making the gift then the PET escapes IHT altogether. PETs made out of the 7 year period will never be brought into the IHT calculation. Gifts made out of excess income can also be an effective strategy.
Utilising Tax Allowances
Dixcart UK could have helped John leverage his nil-rate band (£325,000), his late wife’s nil-rate band (potentially up to £325,000), along with his own residence nil-rate band (£175,000) and his late wife’s (£175,000), making a total of £1 million in allowances. Exploring options like gifting a portion of his investments within this allowance could have been a more tax-efficient and transparent strategy.
Long-Term Planning:
Moreover, Dixcart UK could have assisted John in developing a long-term inheritance tax mitigation plan. By understanding John’s financial goals and family situation, the professionals could have provided guidance on how to structure his estate in a tax-efficient manner, ensuring a smoother transition of assets to the next generation.
Conclusion
John’s case serves as a powerful illustration of the pivotal role professional advice plays in navigating complex financial decisions. Seeking guidance from Dixcart UK could have potentially saved John from the complications and financial pitfalls he faced. The case underscores the importance of consulting professionals in accounting, tax advisory, and legal services to ensure individuals make informed decisions and avoid unnecessary financial burdens.
By exploring the hypothetical scenario where John had come to Dixcart UK first, we emphasise the proactive role professionals can play in securing a sound financial future and mitigating risks associated with inheritance tax. This case study aims to reinforce the value of expert consultation and strategic planning in safeguarding individuals from unforeseen financial consequences.
Get in Touch
If you have any questions regarding the tax implication and inheritance planning, please get in touch at: hello@dixcartuk.com
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
With the Budget now set for the 30th October, it is apparent that there may well...
News & Views
Taxing Tactics: Navigating the Premier League and the UK Taxman – The Jordan Henderson Conundrum
Peter Robertson,
17th January 2024
Tax
There has been much written about Jordan Henderson in recent weeks. He has expressed a desire to leave his current club in the Saudi Pro League and return to playing in Europe. As the Liverpool captain to lift both the Champions League and Premier League trophies, obviously, the footballing side to the story is more likely to take the headlines. However, even as a footballer, nobody can escape the UK tax rules!
The example in this article is only to highlight the considerations anyone leaving or returning to the UK should consider. Whilst Jordan Henderson is a high-profile example of this, the facts analysed are only loosely based on his situation and not specifically him (although it might sound a lot like him!) and, if he happens to be reading this, should not be construed as formal advice. As is always the case with UK tax or legal matters, please take advice at the earliest time possible when a move is being considered!
Statutory Residence Test
The UK tax year commences on 6 April each year (the reason for this is very boring but it involves the Pope and the Gregorian calendar) and runs to the following 5 April. Whether someone is tax resident during that year is assessed in accordance with The Statutory Residence Test. For additional articles on this test, please search here.
It is a complex set of rules but essentially it considers both days spent in the UK, and other connecting factors. A complete analysis of the rules is outside the scope of this article but let’s assume our protagonist is someone who has played Premier League football for over a decade and has ticked all the boxes to be tax resident in the UK right up until the time they look to move to another club in another country.
Leaving the UK
In the summer of 2023, as they are driving home from the last match of the season, they receive a phone call from their agent to be told they have been offered a lucrative contract to play in an emerging league in Saudi Arabia. Not only will the wages be significant, but they will also be tax-free.
They and their family are so excited, they decide to accept the contract, rent out their house and jump on a plane heading for warmer climes. It is, say, 83 days into the tax year, around half of which he has worked on.
Given they have been UK tax resident in the years prior to them leaving and have been in the UK for those days leading up to the move (having not made it to the European cup final in Istanbul in May), they will be UK tax resident at least up until that point. Fortunately, the UK does allow for a taxpayer to “split” a year into a resident and non-resident portion in some circumstances.
As they have moved to Saudi Arabia for the purposes of taking up a new job, we shall assume that the split year rules might apply in this case for illustrative purposes.
This being the case, they will have suffered UK tax on their earnings in the first part of the tax year, but once they have become non-UK tax resident, their ongoing earnings will no longer be subject to UK taxation. Except there are a couple catches…..
The Statutory Residence Test
A full analysis of the rules is outside the scope of this article but let’s assume with 83 days in the UK during the tax year, they have satisfied the residence rules for the year. It is therefore important that the split year rules will apply.
Split year
Where one is looking to apply the split year rules, in a year you are looking to leave the UK, you must not only remain non-resident during the tax year in question, but also be non-UK tax resident in the following year. This being the case, if they return to the UK in the January transfer window, the split year rules will not be applicable and their full year’s earnings will be taxable to UK income tax.
Conclusion
If our unidentified footballer is keen on playing European football to get back into his national team, they should not return to the Premier League and instead consider taking the contract on offer from another European club. A word of caution though, don’t forget to take tax advice in the other country too.
If you require additional information on this topic, further guidance regarding your possible entitlement to use the UK remittance basis of taxation, and how to properly claim it, please contact your usual Dixcart adviser in the UK office: advice.uk@dixcart.com.
Dixcart UK, is a combined accounting, legal, tax and immigration firm. We are well placed to provide these services to international groups and families with members in the UK. The combined expertise that we provide, from one building, means that we work efficiently and coordinate a variety of professional advisers, which is key for families and businesses with cross-border activities.
By working as one professional team, the information we obtain from providing one service, can be shared appropriately with other members of the team, so that you do not need to have the same conversation twice! We are ideally placed to assist in situations as detailed in the case study above. We can provide cost effective individual and company administration services and also offer in-house expertise to provide assistance with more complex legal and tax matters.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
With the Budget now set for the 30th October, it is apparent that there may well...
News & Views
Setting up a Business in the UK: Plan the Tax Now, Benefit Later
Peter Robertson,
18th July 2023
Tax
Starting a new business is very time consuming, especially if the UK is new to you, with different rules and regulations. Dixcart UK can assist with your accounting, tax, legal and immigration requirements as one offering, so that you can focus your time on building your business and not having the same conversations twice with different professional advisors.
In this note, we consider the tax considerations when setting up a business in the UK. There is no aspect of tax planning that is made better by delaying the discussions with your advisor until a later date. The maximum benefit will be enjoyed the earlier the planning takes place – so let’s chat: hello@dixcartuk.com
The opportunities to plan are not exhaustive but in this note we look to touch on some areas of planning that are often overlooked, but could easily have derived some tax savings, had the planning taken place as soon as possible.
Personal financing – Business Investment Relief and Inheritance Tax
Most businesses, start with someone having an idea or seeing an opportunity in a new market place. The business plan and concept often need proving and so personal financing is required. Raising monies, more broadly, is considered further below, but for an individual entrepreneur, who is resident but not domiciled in the UK, looking to invest monies into a new business, there is the option to claim Business Investment Relief (BIR) when investing into qualifying trading companies.
The full detail of the relief is outside the scope of this note but essentially foreign income and gains that are brought into the UK by UK resident non-domiciled individuals taxed on the remittance basis, will usually be subject to UK tax. However, where such income and gains are remitted to the UK by the individual to invest in qualifying companies, no tax charge will arise on those foreign income and gains, provided the conditions for BIR are met.
The benefit of course means that taxes are not immediately triggered, and in addition other non-taxable monies are preserved for personal expenditure.
As well as this relief, another consideration individuals should have when setting up a UK business, is inheritance tax. Shares in a UK company will be considered to be a UK situs asset and therefore, if held personally, and subject to whether Business Property Relief might apply, could be subject to UK inheritance tax. Dixcart UK are very experienced in planning for such matters and would be happy to discuss this further.
Other financing – Enterprise Investment Scheme
EIS fund raising is designed to help your company raise money to grow your business. It does this by offering tax reliefs to individual investors who buy new shares in your company.
Up to £5 million each year (£10m for Knowledge Intensive Companies), and a maximum of £12 million (£20m for Knowledge Intensive Companies) in your company’s lifetime, can be raised through the use of EIS. This includes amounts received from other venture capital schemes.
Comprehensive advice regarding the scheme rules will ensure that your investors claim and retain EIS tax reliefs relating to their shares. Dixcart UK can manage the whole process, from pre-approval to the issue of the EIS certificate.
Corporation tax, like most taxes in the UK, is complex and the detail cannot be explained in these short paragraphs. We have therefore provided a summary of the rules and, as you will see, identified some areas of planning that are interesting for new businesses in particular.
When a new company is incorporated, HM Revenue and Customs will, in most cases, issue a tax reference number to the company at its registered office.
A company tax return, is filed by companies to report their income, profits and corporation tax figures to HMRC.
The company will need to file a company tax return once a year, but – unlike with self-assessment tax returns – there is not a universal deadline. Instead, the due date for your return will depend on your company’s accounting period and is typically due 12 months after that date.
Corporation tax is payable on profits for the same accounting period and the main rate is currently 25%. The deadline for payment is 9 months and 1 day after the end of the accounting period, although there are provisions in place for companies with large profits to make payments on a quarterly basis.
Unlike individuals, companies don’t receive any kind of tax-free allowance, and therefore all profits are taxable. However, there are a number of expenses and deductions that can be claimed to reduce your bill.
A Number of Corporation Tax planning opportunities
Research and Development Tax Credits
New businesses very often invest in a range of research projects, as part of the start-up phase. This is of course a cash cost and puts pressure on a company’s cash flow. The UK rules offer the opportunity to receive money back from the tax authority!
R&D Tax Relief is a Government backed incentive designed to encourage innovation and increase spending on Research and Development activities, for companies operating in the UK.
For SMEs, a deduction of 230% of the amount spent on R&D can be made from taxable profits, reducing the corporation tax due. For loss making companies, the scheme allows up to 33.35% of a company’s R&D spend to be recovered as a cash repayment.
Claims are, however, often overlooked because; business owners over-estimate the level of innovation that is required in order to claim, do not know about the relief, or simply suspect that it is too good to be true!
As is often the case with new businesses, the initial years can be difficult to gain market share and overcome the initial high expenditure. It is very common for businesses therefore to make a loss in the early years.
Relief may be available where you operate your business through a company and you make a loss. The loss may be set against total profits of the current or previous accounting periods or may be carried forward and set against future trading income from the same trade.
A trading loss is computed in the same way as a trading profit and normal rules apply. However, it should be noted that trading income does not include any chargeable gains, so chargeable gains are not taken into account when computing the loss.
Capital Allowances
The UK gives tax relief for businesses in the form of a deduction against profit for expenditure on certain capital items.
Recent Budget announcements in 2023 mean that on top of the normal allowances business will now be able to claim:
Full expensing – which gives 100% relief, in the year of expenditure, to companies on qualifying new main rate plant and machinery investments, from 1 April 2023 until 31 March 2026
The 50% First-Year Allowance for expenditure by companies on new special rate (including long life) assets until 31 March 2026.
Electric Vehicles
Business owners and employers who provide their employees with company vehicles before March 2025, can enjoy substantial tax benefits in the next few years, for making the switch to pure electric vehicles, in advance of the 2030 non-electric ban on new vehicles in the UK.
Other than corporation tax considerations for a new business, Dixcart can also assist with; VAT planning and compliance as well as running compliant payrolls for companies to ensure that all of the appropriate tax obligations are met.
Any business looking to start trading and employing people will have compliance requirements and failing to adhere to the rules can result in penalties. So let’s talk and get it right from the start!
How we can help you
Dixcart UK provides solutions and assistance to the business community in the UK and worldwide.
We can:
Assist with incorporating your business
Assist with tax compliance and planning, including the aspects of UK tax covered in this note
Offer bookkeeping, accounting and auditing services
Offer employment and payroll advice and compliance
Provide immigration advice, if you are looking to relocate yourself or staff to the UK
Support all of the accounting and company secretarial activities of running a business
Advise in relation to commercial legal matters including contractual matters and commercial property.
Further Information
For further information about Dixcart UK, please visit us at www.dixcartuk.com.
If you have any questions regarding the above, or require any assistance, please do not hesitate to contact Peter Robertson: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
With the Budget now set for the 30th October, it is apparent that there may well...
News & Views
Dixcart UK Business Centres – Serviced Offices and Meeting Rooms
Peter Robertson,
30th January 2023
Serviced Offices
Just a reminder that we have spacious meeting rooms and high-quality serviced offices here at Dixcart House.
Dixcart UK Serviced Offices
We offer high quality serviced office space – a useful starting point for several businesses establishing themselves or starting small and then enjoying considerable growth. We offer a peaceful work environment and a cost-effective option for organisations. As well as flexible business accommodation, we can offer meeting rooms, on-site receptionists and sophisticated IT and communication systems.
As you may well know, we are located between Weybridge and the M25 in Surrey. It provides ideal access to London and for international travel. There are fast trains operating from Weybridge station to London Waterloo. You can be in the heart of the capital in 30 minutes. Conversely, there are miles of towpaths to walk or cycle along, two minutes from the Dixcart UK Business Centre.
Dixcart Office Space
The offices are on ground floor level and offer a quiet and modern working environment with plenty of natural light. Each room is fully furnished, with telephone handsets and controlled air conditioning. Additionally, desks are cabled to CAT6 standard and have wireless and hardwired internet access. IT support is available in-house.
The lease also includes local and national phone calls with telephone answering service in your company name (up to a limit). As well as a dedicated serviced office kitchen, where tea, coffee and chilled water are provided. In addition, lunches can be catered for upon request, and there is some on-site parking.
To top it off, Dixcart UK staff are located in the same building and can provide a full range of accounting, tax, and legal expertise to serviced office tenants, if required.
Dixcart Meeting Rooms
We have a large variety of meeting rooms which can be booked through our reception and are available to the public, as well as to our serviced office tenants. We cater for regular Board Meetings, seminars of up to 45 people and smaller meetings ranging upwards from 2 people.
IT support is available in-house. They can assist with access to Wi-Fi and the wall-mounted monitors that are available in several meeting rooms.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
Related News
News & Views
Ceasing to be UK Tax Resident – Don’t Get it Wrong!
Peter Robertson,
12th April 2022
Case Study
It is March 2022 and two people are sitting at the departure gate at Heathrow waiting for their (inevitably) delayed flight to the Bahamas. They start a conversation and talk about why they are flying to this Caribbean island.
Person A, Mrs Sunseeker, explains to Person B, that she had lived in the UK for a long time as a resident “non-dom,” but that changes to the tax rules for longer term residents had meant that she had decided to leave the UK and cease being tax resident; “My friend told me I just had to spend fewer than 90 days each year in the UK.” she declares.
Fortunately for Mrs Sunseeker, Person B, Mrs Tax, is, by nominative determinism, a tax adviser and explains that the old ‘90 day’ rule does not apply anymore and suggests that she takes a look at the UK statutory residence test.
Background for Mrs Sunseeker
Mrs Sunseeker moved to the UK in the early 2000s, as a student. After graduating, she was offered a job in the financial services industry. She has been very successful and accumulated significant personal wealth.
In 2010, she inherited the shares of a large family business, back home in Dubai, which started to generate a regular dividend income of around £5 million a year which she has kept in her bank account in Dubai. As a UK remittance basis of taxation user, the Dubai dividends have not been taxed in the UK, as Mrs Sunseeker never remitted them into the UK.
However, with the UK non-dom rules changing in 2017, remaining in the UK was going to be just too expensive. She has therefore decided to move to a warm country. Mrs Sunseeker is planning to carry on working for the same employer (taking advantage the fact that her firm realises she can work remotely) and, indeed, is likely to be working very hard on the days that she returns to the UK.
She is married. Her husband is British and does not want to spend as much time outside of the UK as his wife. His only source of income is in the UK and he still enjoys his work. As he is going to stay, they will keep their home and Mrs Sunseeker will live there when she returns to visit him.
What is Mrs Sunseeker’s Tax Status and Why?
While waiting for the flight, Mrs Sunseeker takes a look at the residence test rules. She realises that the first two parts of the test, the ‘Automatic Tests’ do not apply to her and reads on to the ‘Sufficient Ties’ section. Mrs Sunseeker has four such ties, or connections:
Spent more than 90 days in the UK in both of the previous two tax years;
Will have available accommodation in the UK;
Has a UK tax resident spouse and will continue to do so;
Will work in the UK for more than 40 days under the definition of the test.
What Will the Tax Impact Be?
As she has four ties, Mrs Sunseeker will be tax resident in the UK, for at least the first two years after she leaves, by spending just 16 days per annum in the UK, far lower than the 90 she had anticipated.
The next time she receives her large dividend, she would still be considered UK tax resident and will suffer UK income tax. It may be even worse, if she has not paid this tax on time she would receive a late payment penalty, which is quite likely because she no longer believed she was UK tax resident and she could be liable for penalties under the ‘offshore assets’ rules too.
The problem would become further compounded were Mrs Sunseeker to sell her shares in the family business in Dubai for a large gain, while she believed she was not UK resident.
Other Considerations
Please note for completeness, that the UK ‘split year rules’ are not being considered, nor are the tax implications of Mrs Sunseeker continuing to receive a salary for work she undertakes when in the UK. Dixcart, would of course advise on these, where relevant. The Bahamas does not have a double tax treaty with the UK, and there is therefore no tie breaker clause to consider in this scenario either.
So, What Could Mrs Sunseeker Do?
Can you believe it, the flight is still delayed!
Mrs Sunseeker picks up her phone and calls Mr Sunseeker. Whilst he loves his job, he now understands that there will be a high tax cost if his wife does not properly exit UK tax residence. He packs his things and heads to the airport. While on his way, he calls his employer and resigns, and then calls an estate agent to list the home for immediate rental.
The repercussions of the two actions above, would be to reduce the number of UK ties that Mrs Sunseeker has, from four to two:
90 days in both of the previous two tax years; and
Work tie (assuming she still works, when back in the UK).
Now she would be able to spend up to 90 days in the UK per annum and lose her UK tax residence status.
Very lucky!
Whilst everyone else on the flight was cursing the delay, Mrs Sunseeker had struck lucky. However, had Mr and Mrs Sunseeker started to plan earlier than at the airport departure lounge, there would have been more options to consider around their employment situation and their home status, and they might have avoided having to take such extreme steps.
How Can Dixcart Help?
Dixcart’s team of lawyers, accountants, immigration and tax professionals would have assisted Mr and Mrs Sunseeker with:
Pre-departure tax planning;
Ongoing tax planning, to ensure that UK tax residence is not accidentally acquired again in the future;
Employment law advice for both individuals in relation to their ongoing employment contracts, should they wish to continue to work, as well as related UK tax advice regarding the income being earned;
Application for Indefinite Leave to Remain before they leave the UK, so they can be sure that they can return in the future.
Additional Information
If you have any questions and/or would like advice on regarding tax residence in the UK, please speak to Peter Robertson or Paul Webb at: hello@dixcartuk.com or to your usual Dixcart UK contact.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
Background Mr. Smith has been a client of Dixcart’s for many years and he wants to explore the options available to provide financial help to his children, as they get […]
Business owners and employers who provide their employees with company vehicles before March 2025 can enjoy substantial tax benefits in the next few years for making the switch to pure […]
News & Views
Don’t Forget the Boring Stuff When Starting a Business!
Peter Robertson,
25th November 2021
International Services
Whether you are an overseas business looking to expand into the UK, or already in the UK with an exciting new business planned, your time is valuable. Getting the compliance and administrative elements setup at an early stage is crucial to allow the business to grow efficiently but can be a drain in terms of the time required.
At the Dixcart office in the UK, our combined team of accountants, lawyers, tax advisers and immigration consultants make this process as easy as possible for you – meaning you do not have to have the same conversation twice.
Bespoke Advice
As every business is different, there will always be some specific items to consider for your particular business and taking bespoke professional advice at an early stage will always be the right thing to do.
Please see below a checklist regarding the key compliance matters that every new UK business looking to take on employees needs to consider.
Starting a Business Checklist
Immigration: Unless you are looking to only employ workers already with the right to work in the UK, you may need to consider business related visas, such as a sponsor license or sole representative visa.
Employment contracts: all employees will need to have an employment contract compliant with UK employment laws. Many businesses will also need to prepare staff handbooks and other policies.
Payroll: UK income tax rules, benefits-in-kind, pension auto-enrolment, employer’s liability insurance, all need to be understood and implemented correctly. Administering a UK compliant payroll can be complex.
Book-keeping, management reporting, statutory accounting, and audits: well- maintained accounting records will help provide information for considered decision-making and financing and remaining compliant with Companies House and HMRC.
VAT: registering for VAT and filing, in compliance with requirements, will help ensure there will be no unexpected surprises and, if dealt with promptly, can help with early-stage cash-flow.
Commercial contracts: whether an agreement with a; vendor, supplier, service provider or customer, a well prepared and robust contract will help protect your business and ensure it is well placed for any future exit strategy.
Premises: whilst many businesses are operating more and more online, many will still require office or warehousing space. Whether renting or purchasing space we can assist. We also have a Dixcart Business Centre in the UK, which may be helpful if a serviced office is needed, with professional accounting and legal services being available, in the same building.
Conclusion
Failing to take the right advice at the right time when starting a business can prove costly in terms of time and finance at a later stage. By working as one professional team, the information Dixcart UK ascertain from one service we provide can be shared appropriately with other members of the team, so you do not have to have the same conversation twice! We can help!
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
Background UK tax resident, non-domiciled, individuals who are claiming the remittance basis of taxation, do not pay UK tax on foreign income and gains, as long as these are not remitted to […]
News & Views
UK Remittance Basis of Taxation – Don’t Get It Wrong!
Peter Robertson,
14th October 2021
Tax
Background
UK tax resident, non-domiciled, individuals who are claiming the remittance basis of taxation, do not pay UK tax on foreign income and gains, as long as these are not remitted to the UK.
It is, however, crucial to ensure that this tax benefit is properly planned for and claimed. For more information regarding formally claiming the remittance basis, please see article UK Remittance Basis – It Needs to be Formally Claimed.
Failure to plan properly, before arriving in the UK and becoming UK tax resident, could mean that the benefits available are lost and an unwelcome letter from HM Revenue & Customs (HMRC) might be received.
Case Study
To clearly highlight the risks of not taking the right advice, at the right time, please see a case study below regarding an individual moving to the UK.
1 March 2021 (Day 1)
Mr and Mrs Non-dom decide to leave their current home in Australia and move to the UK during the summer of 2021, so that their two minor children can start school early in September 2021.
They speak to their Australian tax adviser and make sure that they carry out local tax planning in preparation for leaving Australia. They have been told by a friend, who had already moved the previous year, that “as they are not originally from the UK, they will be taxed on the ‘remittance basis’, and therefore their non-UK source income will not be taxed in the UK”.
They are pleased as they believe this means:
Assumed: NONE of the following would be taxed in the UK:
income from the rental property they have in Australia; and
dividends (from their large share portfolio) held in a Hong Kong bank; and
interest on the equivalent of £2million cash savings, currently sitting on long term deposit (until the summer of 2022), at the same Hong Kong bank as above.
At this point, they do not seek any UK tax advice.
What a shame!
10 August 2021 (Day 2)
Having arranged the correct visas, they move to the UK ready for the new school term.
They had £50,000 of cash in an Australian current account, that they now remit to their new UK bank account. They use this for rent and living expenses.
10 August 2022
Having lived in the UK for a year, and with the children now well settled in school, they decide that they will be staying in the UK until such time as both children have completed their education. They therefore decide to purchase a house.
Since Day 2, they have continued to receive rental income from their Australian rental property, as well as from the family home that they left behind. This income has been paid into an Australian bank account.
The dividend income has carried on being received into the Hong Kong bank account. The long-term deposit of £2million, plus accrued interest, has expired and this income is now earning very little interest in the Hong Kong current account. They therefore decide to put these monies back on deposit for a further three years.
They need £1million to buy the new home in the UK, along with a further £250,000 for stamp duty, renovation costs and school fees.
They therefore sell the rental property in Australia. The sale proceeds of £1.1million (which includes £100,000 capital gain), are placed in the same Australian bank account as the rental income. Their dividend income, held in the Hong Kong bank account total £150,000. They decide to remit the money in both of these accounts to the UK, in order to purchase the property.
10 April 2023
Mr and Mrs Non-dom awake one morning to find a brown envelope, sitting ominously on their doorstep, from the UK tax authority, HMRC.
That afternoon, they visit a local chartered accountant who has the rather difficult task of informing the couple that they owe £28,000 of UK capital gains tax and more than £300,000 in income tax. This could partially be reduced by double tax relief, but there would still be a substantial unnecessary tax liability. On top of this, they were late filing their UK tax returns for the tax year 2021/2022 and have therefore also incurred fines and penalties.
Turn Back Time: The Potential Positive Effects of Good Planning
The above unfortunate chain of events started on Day 1, in March 2021.
The outcome could have been so different and could have resulted in a UK tax liability of ZERO.
When Mr and Mrs Non-dom heard about the ‘remittance basis’ from a friend and looked up some articles online, they should have taken advice from a UK adviser, as well as taking advice from their Australian tax advisor.
The UK tax advisor would have told them:
they would become tax resident in the UK from 6 April 2021 (having moved to the UK on 10 August 2021), and would therefore have been liable to file a tax return by 31 January 2023 and pay any taxes due; and
on Day 1, they should have instructed their Australian bank to pay new rental income into a new bank account (with the same bank); and
on Day 1, they should have instructed the Hong Kong bank to keep dividend income and interest from that cash deposit, in new separate accounts; and
when they sold the Australian rental property, they should not have remitted this income to the UK.
Instead, they should have remitted £1,250,000 of the £2million, from their original cash savings, to purchase their new home in the UK and to cover the stamp duty, renovation costs and school fees.
Had they taken the final step detailed above, they would have retained the same value of investments in Australia and Hong Kong as if they had not taken the UK advice.
However, they would have remitted capital that they had PRIOR to becoming UK tax resident, which would NOT therefore have been taxable.
The steps recommended above, are not complicated, and many international banks are capable of implementing this account segregation for their UK resident clients.
Summary and Additional Information
The remittance basis of taxation, which is available for non-UK domiciled individuals, can be a very attractive and tax efficient position, but it is crucial that it is properly planned for and formally claimed. Mr and Mrs Non-dom did not take appropriate UK advice and paid the price.
If you require additional information on this topic, further guidance regarding your possible entitlement to use the UK remittance basis of taxation, and how to properly claim it, please contact your usual Dixcart adviser or speak to Paul Webb or Peter Robertson in the UK office: advice.uk@dixcart.com.
Dixcart UK, is a combined accounting, legal, tax and immigration firm. We are well placed to provide these services to international groups and families with members in the UK. The combined expertise that we provide, from one building, means that we work efficiently and coordinate a variety of professional advisers, which is key for families and businesses with cross-border activities.
By working as one professional team, the information we obtain from providing one service, can be shared appropriately with other members of the team, so that you do not need to have the same conversation twice! We are ideally placed to assist in situations as detailed in the case study above. We can provide cost effective individual and company administration services and also offer in-house expertise to aid with more complex legal and tax matters.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
With the Budget now set for the 30th October, it is apparent that there may well...
News & Views
UK Statutory Residence Test – Don’t Get It Wrong!
Peter Robertson,
23rd June 2021
Accountancy
Background
“Don’t worry, I never spend more than 90 days in the UK”.
This test for UK tax residence was replaced with a statutory residence test, but it is still commonly believed that the above statement is correct.
It is not and, whilst in many cases, the test might result in an individual triggering UK tax residency without expecting it, in many other circumstances, they might have been limiting themselves to the wrong number of days.
For anyone renting or buying property in the UK and starting to spend more and more time in the UK, they should seek advice to be clear what their day pattern in the UK should or can be.
Mr Overseas has lived in Europe his whole life. Having sold his successful overseas business a number of years ago, he took early retirement. He is not married.
Having retired, he wants to spend more time in the UK as he has nephews and nieces whom he enjoys seeing more of.
He also feels that the UK real estate market might be a good investment, so he purchases an apartment that he lives in when he is here. It is empty the rest of the time.
Thinking he is doing some clever tax planning, he chooses to limit his days in the UK to 85-89 days, because everyone tells him that if he stays in the UK for fewer than 90 days, he won’t become tax resident.
Mr O Should Take Some Advice!
The part of the UK statutory resident test (Test) relevant to him is part 3, the Connecting Factors. In the first year he starts spending time in the UK, he does not have a tax resident family member, he has not exceeded 90 days in the UK in either of the two previous tax years, and he does not work in the UK for more than 40 days each tax year. He does have available accommodation though, so he has just one Connecting Factor. In the first year, he could spend up to 182 days in the UK without becoming UK tax resident, double what he had originally thought.
In the second year, he would still have available accommodation but also now would have spent more than 90 days in one of the previous two tax years. His day limit is now 120 days, still more than the “90 days rule” he had been told about.
Once he discovers this, he starts spending up to 115-119 days in the UK
However – The Rules Need Constant Review
As Mr O is now spending more time in the UK, he meets someone special and gets married. He also gets bored of early retirement and starts a consulting role for most of the days he is in the UK.
Thinking that he has now taken his UK tax advice about residence, he doesn’t think to check it again.
Mr O now has a tax resident spouse, he works for more than 40 days in the UK, he has spent more than 90 days in the UK in at least one of the last two previous tax years and he still has available accommodation.
His tax circumstances have changed dramatically and, in fact, if he wants to still remain non-resident in the UK, his day count would be capped at 45 days!
Whilst Mr O’s circumstances shifted during the course of this case study, it is interesting to note that at no point in time was Mr O’s day count cap at 90 days, despite the common belief that those are the rules for UK residence.
The remittance basis of taxation, which is available for non-UK domiciled individuals, can be a very attractive and tax efficient position, but it is crucial that it is properly planned for and properly claimed at the right time.
If you require additional information on this topic, further guidance regarding your possible entitlement to use the UK remittance basis of taxation, and how to properly claim it, please contact your usual Dixcart adviser in the UK office: advice.uk@dixcart.com.
Dixcart UK, is a combined accounting, legal, tax and immigration firm. We are well placed to provide these services to international groups and families with members in the UK. The combined expertise that we provide, from one building, means that we work efficiently and coordinate a variety of professional advisers, which is key for families and businesses with cross-border activities.
By working as one professional team, the information we obtain from providing one service, can be shared appropriately with other members of the team, so that you do not need to have the same conversation twice! We are ideally placed to assist in situations as detailed in the case study above. We can provide cost effective individual and company administration services and also offer in-house expertise to provide assistance with more complex legal and tax matters.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
