Understanding Tax Relief on Surgery Costs for Self-Employed Business Owners
Paul Webb,
24th January 2025
Tax
Client Situation
A client who is a social media influencer has incurred significant costs for both back and cosmetic surgeries. She argues that the cosmetic surgery is necessary for her industry and the back surgery is needed to enable her to sit for extended periods during video shoots. How should these expenses be treated for tax purposes?
General Principles
First, it is crucial to determine the purpose of the expenditure. The key question is: what is the taxpayer’s motive for the surgeries? If the expenditure is incurred solely for business reasons, then it may qualify as an allowable expense under the “wholly and exclusively” test. However, if the expenditure serves dual purposes (both personal and business), it is unlikely to be deductible.
Back Surgery
According to HMRC, medical expenses aimed at ensuring or restoring good health generally have a dual purpose—both personal and business—making them non-deductible. However, there are exceptions. For example, in the Parsons case, a stuntman successfully claimed the cost of a private knee operation and other treatments as business expenses, as they were deemed necessary to return to work quickly.
Cosmetic Surgery
Cosmetic surgery costs are more complicated. HMRC guidance states that if the purpose of cosmetic surgery includes a personal desire to improve appearance, it is unlikely to be deductible. The case of Daniels, where a dancer successfully claimed expenses for various beauty treatments, suggests that if there is compelling evidence that the expenditure is solely for business purposes, it might be allowable.
Summary
Determining the tax treatment of surgery costs is not always straightforward. Business owners should assess whether the expenses are incurred wholly and exclusively for the business (if there is a dual purpose, the expense is not deductible) and should carefully document the reasons for the expenditure so evidence can be provided to HMRC if challenged.
As is always the case, tax advice cannot be taken soon enough, so please contact your usual Dixcart contact to discuss each specific case: 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.
On Wednesday 30th October, Chancellor Rachel Reeves delivered the UK’s Autumn Budget...
News & Views
The End of UK Non-Dom Tax Benefits: Should You Stay or Go?
Paul Webb,
16th December 2024
Tax
Introduction
The talk around the taxation of non-domiciled individuals in the UK has been a hot topic for a few years in the press and more recently in the political arena. In March, the previous government announced a new proposal, effectively scrapping the exiting remittance basis regime and replacing it with a residence-based system. Following a lot of debate, a general election, and a new government, the new rules have now been finalised.
As with most UK tax laws, they are not simple, and this article is not intended to set out every element of the new rules in detail, but rather help answer some common questions that are on the non-dom community’s lips. For more information on the new regime, and other announcements in the Budget of 30 October 2024, please visit our Autumn 2024 Budget Summary here.
Below is a hypothetical example of an individual whose situation closely mirrors that of many non-doms currently living in the UK.
Mrs Non-Dom
Mrs Non-Dom (known as ND by her friends and family) has lived in the UK for 12 years, having been born overseas to non-UK parents, making her a non-UK domiciled (non-dom) under the current rules. She has enjoyed living in the UK enjoying the great food and even better weather. She is a member of the promoter family of an overseas listed entity and owns 10% of the shares worth the equivalent of $100 million. Each year she receives a dividend of $1 million and has bank accounts with $5 million in them, paying $250,000 interest per year.
Before moving to the UK, she took some great advice and created a healthy pot of clean capital to live off. She has claimed the remittance basis in her UK tax returns and has lived off her clean capital.
A few years after arriving in the UK, she settled a non-UK Trust with some of her non-UK assets and is a discretionary beneficiary of the Trust along with her spouse and children. She also owns 100% of the shares in a non-UK company which has some passive investments.
Current position
As a remittance basis user, she has only been paying tax on her UK source income and gains as well as the UK’s remittance basis charge. ND has correctly segregated her clean capital from new income and gains, and these have not been remitted into the UK.
Her Trust is an excluded property Trust meaning the assets held within the Trust are protected from inheritance tax at the time she becomes deemed domiciled after living in the UK for 15 years.
The income and gains generated in her investment company are not taxable for her in the UK as she claims the remittance basis.
Position post 5 April 2025
As she has already been tax resident in the UK for more than 4 years, she will not be eligible for any benefits under the new FIG regime. As a result, her overseas dividend and interest will be taxable in the UK from 6 April 2025.
As a settlor interested Trust, the tax position of the Trust will now follow her UK tax position. While she remains a UK tax resident, the income and gains in the Trust will be taxable. The underlying assets will also now fall into her UK estate for inheritance tax purposes as she has been resident in the UK for more than 10 years.
The income and gains generated by the investment company will also now be taxed directly. The value of the company itself will also fall into her UK inheritance tax estate, as will all of her overseas assets as she has been UK tax resident for more than 10 years.
What steps can she take?
Income and gains
She will be able to benefit from the proposed Transitional Provisions which will firstly allow her to designate pre-6 April 2025 income and gains and pay 12% UK tax on them (with no foreign tax credit) up to 5 April 2027, and then 15% for the following tax year. It will also mean any assets sold at a gain post 6 April 2025 can be rebased to April 2017.
This may mean she will want to bring some income forward (where possible) to before the new tax rules take effect so they can then be used in the UK at a lower tax rate under these transitional provisions.
She should also consider the position of any assets she is considering selling. Each position will be subjective, and the financial and commercial aspects of the decision should not be ignored, but some may be better sold before 6 April 2025 (and then designated under the transition provisions at the 12%/15% rates) or some may be better sold under the new rules and, whilst then taxable at the prevailing capital gains tax rates (now 24% for most assets), may benefit from the rebasing. Each scenario should be assessed separately as each asset may fall into a different category.
Whilst new income and gains will be taxable on a worldwide basis from 6 April 2025, she should consider any foreign taxes she also suffers (and as a remittance basis user has perhaps not considered previously) to ensure she is able to claim any foreign tax credits. Please note that credit for foreign taxes paid is not possible under the Transitional Provisions.
The UK has an extensive Double Tax Treaty network, and she should consider whether she can avail any benefits under these.
Inheritance tax
Alongside the UK’s extensive Double Tax Treaty network, it has 10 Estate Tax Treaties, and she should consider whether she can avail any benefits under these, for Inheritance tax purposes.
The more traditional inheritance tax planning opportunities of lifetime gifts and gifts out of excess income should not be ignored.
Under the new rules, now she has been UK tax resident for more than 10 years, if she were to leave after 6 April 2025, she would be subject to UK inheritance tax for a further 3 years. This would be the case if she left after 13 years too but after that, this “tail” will follow her for an extra year, per year of residence. So, for example, if she leaves after 16 years, the tail will be 6 years and will continue increasing by a year up to a maximum of 10 years.
Leaving the UK
The new rules will result in Mrs Non-Dom being exposed to higher UK taxes than she has been previously. She may therefore decide to relocate to a more tax-friendly jurisdiction. As with any relocation, the tax consequences in both jurisdictions must be considered.
The UK Statutory Residence Test will dictate how many days she can continue to remain in the UK. She should take advice and develop a plan for her days in the UK for the coming years, to be sure she does become non-UK tax resident. There is more detail information in our note here.
She may discover that where she has chosen to move to is no more efficient from a tax perspective. Dixcart is able to offer the immigration and tax support in a number of tax efficient jurisdictions and would be happy to assist. More information can be found here.
Conclusion
The new FIG regime is a significant shift in the tax laws and more importantly in many UK tax resident individual’s lives. Dixcart UK, and the wider Dixcart Group, can assist with providing advice on the new rules and developing a plan for the future, sadly perhaps not in the UK.
As is always the case, tax advice cannot be taken soon enough, so please do reach out to your usual Dixcart contact, or through our contact page to start these discussions: 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.
On Wednesday 30th October, Chancellor Rachel Reeves delivered the UK’s Autumn Budget...
News & Views
2024 Autumn Budget – Payroll Changes from April 2025
Edita Rendall,
7th November 2024
Tax
Tax and National Insurance (NI)
Employer’s NI will rise by 1.2%, reaching 15% from 6 April 2025.
Employer’s NI secondary threshold the level at which business start paying National Insurance on each employee’s salary will drop from £9,100 a year to £5,000, which means employers may have more NIC costs.
Employment allowance will be increased from £5,000 to £10,500 and be extended to all eligible employers due to the removal of the £100,000 cap, allowing more employers to benefit from this allowance.
Income tax and NI threshold freeze won’t be extended beyond 2028/29.
National Living Wage (NLW) and National Minimum Wage Increases
From April 2025, the NLW will rise by 6.7%, taking the hourly rate from £11.44 to £12.21 for workers over 21.
The National Minimum Wage will also rise for younger workers, with 18 to 20-year-olds seeing a record 16.3% increase from £8.60 to £10.00 per hour.
Rates of Vehicle Tax
Company car tax rates will be set for 2028/29 and 2029/30 to allow business to plan long term.
Zero emission and electric vehicles will increase by two percentage points in each year rising to 9% in 2029/30.
Cars with emissions between one and 50g of CO2 per kilometre will rise to 18% in 2028/29 and 19% in 2029/30.
All other bands will rise by one percentage point in both 20218/29 and 2029/30.
Company cars tax rates being available this far in advance is good news for companies looking to plan their fleet strategies and budgets. The tax rates for cars with emissions between one and 50g of CO2 per Km may see substantial increase in 2028/29.
Benefits in Kind
Confirmed plans to mandate payrolling benefits in kind via payroll software from April 2026.
Employment related loans and accommodation will remain processed via P11D and P11D(b) forms as these can be difficult to value accurately within the tax year.
HMRC stated that they intend to make changes in the future to mandate the payrolling of these benefits, but for the time being employers will have the option to continue with the P11d and P11d(b) forms process if they require.
Other
Reform of Overseas Workday Relief (OWR) was also announced with the relief being extended to a four-year period to align with the new FIG regime. Claims for OWR will be subject to an annual limit of the lower of £300,000 or 30% of the employee’s net employment income and requirements for the relevant income to be kept offshore will be removed.
The Employment Rights Bill was published on 10 October 2024. This introduced 28 significant reforms to a range of measures. These changes are set to reshape the landscape of employment law. The majority of reforms are anticipated to take effect from 2026, with most consultations expected to begin in 2025 and our Legal team can provide more details of these if required.
Additional Information
If you would like any further information on the changes and how they might affect you or your business, please do not hesitate to contact your usual Dixcart UK contact or enquire 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.
On Wednesday 30th October, Chancellor Rachel Reeves delivered the UK’s Autumn Budget...
News & Views
Autumn Budget 2024: The Key Announcements and What you Need to Know
Paul Webb,
31st October 2024
Tax
Autumn Budget 2024
On Wednesday 30th October, Chancellor Rachel Reeves delivered the UK’s Autumn Budget, marking an historical occasion as the first budget to be delivered by a female Chancellor. The Budget outlined Labour’s plans to address the UK’s economy.
The Budget set out £40 billion in tax raises, the largest in a generation, with the majority of those rises being borne by employers through the increasing of the rate of employer’s national insurance from 13.8% and the reduction of the thresholds at which contributions apply. This means that the cost of employing an employee on average wages increases by approximately £1,000.
As expected, non-doms were also targeted with the previously announced measures largely being introduced as part of the abolition of domicile as a concept in the UK’s tax system.
Capital Gains Tax increases and reforms to Inheritance Tax (IHT), including reforms to Business and Agricultural Property Reliefs, were announced, as were increases to the ‘national living wage’. Inherited Pensions will also move into the scope of IHT meaning that most unused pension funds and death benefits will be included in the value of a person’s estate for IHT purposes.
There were no changes to the main rates of income tax, VAT or employee’s national insurance, and Ms Reeves announced that from 2028 to 2029 the income tax thresholds will be updated in line with inflation. Interesting, just ahead of the next scheduled election.
There was little in the way of incentives for businesses apart from a previous commitment to maintain full expensing and the £1 million annual investment allowance, and a commitment to not raise the corporation tax rate above the current 25%.
More details of the specific measures can be found in our Budget Summary.
To find out how we can help your business, or if you have any questions regarding the 2024 Autumn Budget, 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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Autumn Budget – What Might be Instore?
Paul Webb,
29th August 2024
Tax
With Chancellor Rachel Reeves’s first Budget scheduled for Wednesday 30th October 2024, we have set out below, our thoughts on some of the rumoured tax rises required to address the nation’s £20 billion deficit.
While Reeves has pledged not to raise income tax, national insurance or VAT, other tax increases and spending cuts may still be on the horizon, especially in light of a £22 billion shortfall, public sector pay rises, and other recent financial commitments. Though details will not be confirmed until the Budget is officially released, Labour’s manifesto has hinted at potential changes in key areas. We have summarised the most relevant updates for you below:
Furnished Holiday Lets (FHL)
The Government has already confirmed that the rule changes for FHL, proposed in the Spring Budget, will come into effect from April 2025.
Key changes include the removal of pension relief, further restrictions on Business Asset Disposal Relief (BADR), and the reduction of full interest relief claims. These adjustments could significantly impact your profits, so it is important to be prepared.
There have been discussions about aligning Capital Gains Tax rates with Income Tax rates, which could result in significant changes. With recent reductions in the CGT allowance, further adjustments may be on the table.
If you are planning any major sales or considering the closure of your business, it may be beneficial to act quickly, as any changes could take effect after the Budget. In many cases, contracts exchanged before the announcement may still follow the current rules.
Please see our article concerning Capital Gains Tax for more information.
Gift Holdover Relief
This relief allows for the deferral of Capital Gains Tax when business assets are gifted. If the Government seeks immediate revenue, this relief could be a target. If you are considering gifting business assets or shares to family members, it might be worth completing this before the Budget to ensure you benefit from the current rules.
Inheritance Tax (IHT)
There have been a lot of rumours regarding the reform of Inheritance Tax and while some of the speculation involves complex changes to the system, several areas of Inheritance Tax could easily be targeted including:
The removal of Agricultural Property Relief (APR) and Business Property Relief (BPR): APR can help reduce IHT on agricultural assets, which has been a key tool for farmers to allow the passing down of land and buildings. BPR provides relief from IHT on certain assets such as shares in unquoted companies.
Reform or Removal of Potentially Exempt Transfers (PETs): PETs allow gifts (over the normal exempt limits) to be made without triggering immediate IHT and can exempt these gifts entirely if the donor survives seven years. There is speculation that the Government may remove this exemption and so thought should be paid to making any intended significant gifts before the 30th October.
Our new private client team can assist on these matters as well as any other IHT or Will related advice.
Pensions
It is possible that the Government may remove or amend pension tax relief for individuals who make higher and/or additional pension contributions and instead introduce a flat rate regardless of the saver’s income. If you are a higher rate taxpayer making personal pension contributions it may be wise to seek financial advice and consider making your contributions before the 30th October.
The standard lifetime allowance was abolished in April 2024, and while it is unlikely this will be reversed, it is always worth being aware of any potential changes.
For expert advice and support in relation to this matter, please enquire or contact us 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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Important Changes to Furnished Holiday Let Tax Reliefs
Paul Webb,
20th August 2024
Tax
The Government have announced the removal of tax reliefs for Furnished Holiday Lets (FHL), set to take effect from the 6th April 2025. This change marks a departure from the tax regime that has been in place since 1982, which was designed to offer favourable tax treatment to owners of FHL properties.
Background of Furnished Holiday Lettings Tax Regime
The FHL tax regime was introduced over four decades ago, and provided significant tax benefits, including:
No restrictions on the deduction of interest and finance costs,
Eligibility for plant and machinery capital allowances,
Access to business asset reliefs for Capital Gains Tax (CGT).
These benefits made FHLs an attractive option for property owners, especially with the rise of platforms like Airbnb, which facilitated short-term holiday rentals.
What is Considered a Furnished Holiday Let?
According to HMRC, a furnished holiday let is defined as a furnished commercial property in the UK that meets specific criteria:
Available for letting for at least 210 days per year,
Commercially let as holiday accommodation for at least 105 days per year,
Not occupied by guests for more than 31 days at a time.
Implications of the New Rules from April 6th, 2025
Starting from April 2025, these changes will have several implications for FHL owners:
Business Asset Disposal Relief (BADR): Currently available on qualifying FHL properties, BADR allows gains to be taxed at a reduced CGT rate of 10%. Under the new rules, FHL owners will be subject to standard residential CGT rates—18% for gains within the basic rate band, and 24% thereafter.
Capital Allowances: These will no longer be available for fixtures and furnishings. Instead, relief may only be claimed for the replacement of domestic items, in line with rules for long-term lets.
Mortgage Interest: Mortgage interest will no longer be deductible from profits. Instead, it will be claimed as a tax reducer at 20% of the interest costs, eliminating the potential for higher rate tax relief on these expenses.
Pension Contributions: FHL income will no longer count as relevant earnings for pension contributions, limiting the tax relief available.
Transitional Relief Measures
Despite the removal of many benefits, the Government has introduced the following to ease the transition:
100% annual investment allowances can still be claimed in the current year.
Losses from FHL businesses can be carried forward beyond April 2025.
Existing pools of allowances, as of April 2025, can continue to be claimed after the changes take effect.
These upcoming changes represent a significant shift for FHL owners. Proper planning and timely actions can help mitigate the impact and take advantage of any remaining benefits before they are phased out.
For more information from us, or if you wish to discuss tax reliefs, enquire or contact us 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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Members’ Voluntary Liquidation, Capital Gains Tax and the 2024 Budget
Paul Webb,
14th August 2024
Tax
With the Budget now set for Wednesday 30th October 2024, it is apparent that there may well be a change to Business Asset Disposal Relief and/or Capital Gains rates. This may affect business owners looking to sell or close their companies, and one strategy may be to bring forward a Members’ Voluntary Liquidation (MVL) for those clients who maybe considering using this in the near future.
What is a Members’ Voluntary Liquidation (MVL)?
A MVL is a process used to wind up a solvent company, typically when the directors and shareholders decide the business has reached the end of its useful life, or the owners wish to retire or pursue other interests.
MVL’s are beneficial for shareholders as they allow for a structured and tax-efficient way of distributing the company’s assets. For instance, shareholders might benefit from tax reliefs like Business Asset Disposal Relief (BADR), which can significantly reduce the amount of Capital Gains Tax payable.
Optimising Business Asset Disposal Relief During a Members’ Voluntary Liquidation
When business owners decide to close their company through a MVL, maximising tax efficiency is often a priority. Business Asset Disposal Relief (BADR) provides a significant opportunity to reduce Capital Gains Tax (CGT) liabilities during this process, offering a lower tax rate of 10% on qualifying business disposals.
What is Business Asset Disposal Relief (BADR)?
BADR is a tax benefit available to business owners, allowing them to pay a reduced CGT rate when disposing of qualifying business assets up to a value of £1m. To benefit from this relief, it is essential to meet specific conditions:
Ownership Duration: You must have owned the shares or assets for at least two years before the liquidation date.
Trading Status: The company should be a trading company or the holding company of a trading group.
Significant Shareholding and Role: You need to hold at least 5% of the company’s shares and voting rights and be an officer or employee of the company for a minimum of two years leading up to the liquidation.
Next Steps
If you are considering closing your business, given the complexities involved in qualifying for BADR and navigating the MVL process, it is essential to seek professional guidance.
For expert advice and support in relation to this matter or any other aspect of company or personal taxation, please enquire or contact us 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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Navigating the Non-Dom Landscape with Dixcart Group
Paul Webb,
12th July 2024
Tax
In today’s globalised world, the movement of individuals and families across borders has become increasingly common. For non-domiciled individuals in the UK considering a move abroad, navigating the complexities of tax, legal, and professional planning can be daunting. At Dixcart, we specialise in providing seamless, comprehensive support to ensure a smooth transition from the UK to your new destination, leveraging the extensive resources of the Dixcart Group.
Understanding the Non-Dom Status
Currently, non-domiciled individuals living in the UK currently enjoy tax advantages under the remittance basis of taxation. This allows non-doms to pay UK tax only on the income and gains they remit to the UK, while their offshore income and gains remain outside the UK tax net until they are remitted into the UK. However, the landscape is shifting and it is widely expected that many of these benefits will be reduced or removed in the coming years.
Seamless Transition: From Exit to Arrival
At Dixcart, we pride ourselves on offering personalised, expert advice tailored to the unique needs of non-dom clients. Our approach ensures that every aspect of your move is managed efficiently and effectively, providing peace of mind from the moment you decide to relocate until you are fully settled in your new country.
Pre-Move Planning: We provide guidance on the UK’s statutory residence test (SRT) and help you understand the implications of your tax residency status. We also assist in preparing for departure by advising on the timing of disposal of assets.
Exit Strategy: Our team works closely with you to develop a detailed exit strategy, ensuring all legal, and tax considerations are addressed. This includes understanding split-year treatment, managing ongoing UK obligations, and planning for any other tax implications.
Arrival Coordination: Upon arrival in your new country, Dixcart continues to provide support through our local offices. We assist with settling into the new tax regime, and ensuring compliance with local laws.
One Group, One Team
Dixcart UK is part of the larger Dixcart Group, a global network of offices providing specialized services to individuals, families, and businesses for over fifty years. Our international presence includes offices in Cyprus, Guernsey, Isle of Man, Malta, Portugal, Switzerland, and the UK. This extensive network allows us to offer a wide range of services and local expertise to support your move and ongoing needs in your new country of residence.
With Dixcart, no matter where you are, you will receive consistent, high-quality service from a dedicated team of experts. This integrated approach ensures that all aspects of your relocation are handled smoothly and efficiently, without the need to coordinate between multiple service providers.
Our International Services
The Dixcart Group offers comprehensive support across various jurisdictions, including:
Residence and Citizenship: Assistance in obtaining residence and citizenship in various countries, ensuring compliance with local regulations and optimizing tax benefits.
Corporate Services: Business formation and management, including accounting, corporate secretarial services, legal, and immigration support.
Private Client Services: Family office support, trust and foundation administration, and registration of aircraft, ships, and yachts.
Linking to Expert Guidance
For more detailed information on the implications of the UK non-dom status and how we can assist you, visit our dedicated page on Guidance for UK Non-Doms Considering a Move Abroad. This resource provides valuable insights and practical advice to help you navigate the complexities of relocating from the UK.
Contact Us
At Dixcart UK, we are committed to providing expert, personalized support to ensure a smooth and efficient transition from the UK to your new home. For more information on our services and how we can assist you, please contact us or reach out to one of our offices within the Dixcart Group.
By choosing Dixcart, you gain access to a wealth of expertise and a global network dedicated to supporting your needs every step of the way.
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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Understanding Tax Residence Certificates: A Guide by Dixcart UK
Paul Webb,
25th June 2024
Tax
Tax residence is a fundamental aspect of international taxation, and understanding it is essential for individuals and businesses to effectively manage their tax obligations. One crucial document in this context is the Tax Residence Certificate (TRC). A TRC serves as official proof from a relevant tax authority of an individual’s or entity’s tax residency status in that jurisdiction, enabling them to benefit from tax treaties, claim tax refunds, and avoid double taxation. By establishing tax residency, individuals and businesses can navigate the complexities of international tax laws more efficiently, ensuring compliance and optimizing their financial positions.
In this article, we will delve into the concept of the Tax Residence Certificate, discussing its definition, significance, and common uses. Additionally, we will provide guidance on the application process, supported by a practical case study to illustrate the real-world application and benefits of obtaining a TRC.
What is a Tax Residence Certificate?
A Tax Residence Certificate (TRC) is an official document issued by the tax authorities of a country to confirm that an individual or entity is a tax resident of that country. This certificate is crucial for individuals and businesses involved in cross-border transactions as it helps in establishing the tax residency status for the purposes of Double Taxation Avoidance Agreements (DTAAs).
Key Uses of a Tax Residence Certificate
1. Avoidance of Double Taxation The primary use of a TRC is to avail benefits under DTAAs. These agreements are made between two countries to avoid double taxation on the same income. With a TRC, a taxpayer may claim tax relief or exemption on income earned in a foreign country.
2. Proof of Residency For individuals and businesses operating internationally, a TRC serves as proof of tax residency. This is particularly important when dealing with foreign tax authorities or financial institutions who need to hold such proof to comply with the Common Reporting Standards.
3. Reduced Withholding Taxes In many cases, the withholding tax on income such as dividends, interest, or royalties can be reduced if a valid TRC is provided. This ensures that the taxpayer does not pay more tax than necessary.
How to Apply for a Tax Residence Certificate
The process of applying for a TRC can vary depending on the country, but typically involves the following steps:
1. Determine Eligibility Ensure that you meet the residency criteria of the country in question. This often involves physical presence, permanent home, or significant economic ties.
2. Prepare Documentation Gather necessary documents such as proof of residency, tax returns, and any other required forms. The specific requirements will vary by country.
3. Submit Application Complete the application form and submit it along with the supporting documents to the relevant tax authority.
4. Await Approval The tax authority will review the application and, if satisfied, issue the TRC. The processing time can vary.
Case Study: John’s Journey to Obtaining a Tax Residence Certificate
To illustrate the importance and application process of a TRC, let’s consider the case of John, a UK-based entrepreneur who has expanded his business operations to France.
John has been living in the UK for the past several years and has established significant ties to the country. However, his business activities in France have grown, and he is now receiving substantial income from French sources. To avoid or mitigate double taxation on his French source income, John needs to obtain a TRC from the UK tax authorities.
Steps John Took:
1. Eligibility Check John confirmed his eligibility by reviewing the UK’s statutory residency test and ensuring that he meets the conditions for being considered a UK tax resident.
2. Documentation He collected his proof of residency, including his UK tax returns for the past few years, and details of his business operations in France.
3. Application Submission John’s accountant completed the necessary application form (available from HM Revenue & Customs) and submitted it along with the supporting documents.
4. Approval After a few weeks, John received his TRC, which he then submitted to the French tax authorities to claim relief under the UK-France DTAA.
Conclusion
A Tax Residence Certificate is a vital document for anyone engaged in cross-border financial activities. It helps in avoiding double taxation, proving tax residency, and reducing withholding taxes on income earned abroad. At Dixcart UK, we assist our clients in navigating the complexities of international tax laws, including obtaining TRCs. If you need help with your tax residency matters, feel free to contact us for expert guidance and support.
For more detailed information and assistance, please contact us
This article is intended to provide a general overview and does not constitute legal or tax advice. For specific circumstances, it is advisable to seek professional guidance.
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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Understanding UK Corporate Tax Residency: Key Points and Implications
Paul Webb,
31st May 2024
Tax
From a UK perspective, the determination of corporate tax residency is crucial for understanding a company’s tax obligations. A company is considered a UK tax resident if it is either incorporated in the UK or if its central management and control (CMC) actually resides in the UK. This residency status dictates the scope of the UK’s taxing rights over the company.
Criteria for UK Tax Residency
Incorporation in the UK: Any company incorporated in the UK is automatically deemed a UK tax resident.
Central Management and Control: A company not incorporated in the UK can still be considered a UK tax resident if its central management and control abides in the UK. This criterion involves determining where the company’s ‘paramount authority’ is exercised, which typically involves the board of directors.
Tax Implications for UK Tax Resident Companies
UK tax resident companies are subject to UK corporation tax on their worldwide income and gains. This means that all profits, regardless of where they are generated, are taxable under UK law. In contrast, non-UK tax resident companies are generally only subject to UK corporation tax on profits attributable to a UK permanent establishment. Additionally, they are liable for UK income tax on certain UK-source income.
Determining Central Management and Control
The question of where a company’s central management and control resides is a factual one. Key points to consider include:
Exercise of Paramount Authority: The central management and control is where the company’s paramount authority is exercised, usually by the board.
Influence vs. Control: Influencing the board does not equate to controlling it. The distinction is crucial in determining the true locus of control.
Rubber Stamping: Courts are vigilant against scenarios where the board merely rubber-stamps decisions made by others, which would indicate that the real management and control lie elsewhere.
Dual Tax Residency
A company can be dual tax resident, meaning it is considered a tax resident in two countries. In such cases, the corporate residency rules of both countries must be examined. If a dual residency situation arises, a tax treaty (if one exists) between the two countries will typically determine which country has the primary taxing rights. These treaties often provide mechanisms to resolve dual residency conflicts to prevent double taxation.
Conclusion
Understanding where a company’s central management and control resides is essential for determining its tax residency and, consequently, its tax obligations in the UK. Companies must carefully assess their management structures and operations to ensure compliance with UK tax laws and to navigate the complexities of dual tax residency effectively. This explanation is a simplified overview, and there are many additional factors that can come into play. Therefore, it is always advisable to contact a tax professional to obtain tailored advice and ensure all specific circumstances and nuances are properly addressed.
For more information from us, or if you wish to discuss corporate tax residency, enquire or contact us at hello@dixcartuk.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Anticipated Shifts in Company Size Classifications for 2024
Paul Webb,
12th April 2024
Tax
Introduction:
Recent statements from the Prime Minister announced forthcoming changes to company size classifications, promising to streamline reporting obligations for businesses nationwide. These adjustments, stated to take effect later this year, aim to simplify both non-financial and financial reporting processes for Small and Medium Enterprises (SMEs), aligning with evolving post-Brexit regulatory freedoms.
Key Developments:
As of March 18, 2024, the government revealed plans for significant deregulatory measures, including a noteworthy 50% increase in the thresholds dictating company sizes. This adjustment is poised to redefine the classification of a substantial number of businesses, potentially granting relief to around 132,000 entities by alleviating certain non-financial reporting burdens.
Proposed Changes:
The proposed modifications to company size thresholds, stated for implementation for financial years starting October 1, 2024, are summarised in the table below:
Additionally, governmental initiatives will:
Streamline reporting obligations by eliminating redundant or outdated requirements from the Directors’ Report and the Directors’ Remuneration Report and Policy.
Facilitate the transition to digital annual reports for companies.
Address technical intricacies in the audit regulatory framework stemming from the integration of EU law into UK legislation.
Future Considerations:
Looking forward, the government plans to further engage in consultations regarding additional measures, with a particular focus on medium-sized companies. These discussions may encompass exemptions from producing strategic reports and potential adjustments to the employee size threshold, possibly raising it from 250 to 500 employees.
Conclusion:
The forthcoming adjustments to company size classifications underscore the UK government’s proactive stance in fostering a regulatory environment conducive to business growth post-Brexit. By simplifying reporting requirements and alleviating administrative burdens, these measures aim to bolster the resilience and prosperity of SMEs while ensuring regulatory compliance. As businesses brace for these impending changes, staying informed about updates and guidance will be paramount for navigating the evolving regulatory landscape effectively.
To find out how we can help your business, or if you have any questions regarding the changes in Company size classifications, 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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Government U-turn on benefit in kind tax treatment of ‘Double Cab Pick Ups’
Paul Webb,
18th March 2024
Tax
The Government has responded to the views of farmers and the motor industry who were potentially going to be negatively affected by the proposed change to the benefit in kind tax treatment of Double Cab Pick Ups (DCPUs).
What Was the Previous Guidance?
Following a 2020 Court of Appeal judgment, the guidance had previously confirmed that, from 1 July 2024, DCPUs with a weight load capacity of one tonne or more would be treated as cars, rather than goods vehicles for both capital allowances and benefit-in-kind purposes.
New Guidance
The government has recognised that the 2020 court decision and resultant guidance could have had an impact on businesses and individuals in a way that would be detrimental to the government’s wider aim to support businesses, including essential motoring, such as van drivers, and the farming industry.
On 19 February 2024, HMRC announced that its previous guidance would be withdrawn, meaning that DCPUs will continue to be treated as goods vehicles rather than cars, and businesses and individuals can continue to benefit from its historic tax treatment.
The government has made it clear that it will be legislating to ensure that DCPU vehicles continue to be treated as goods vehicles for tax purposes and will consult on the draft legislation to ensure that this is achieved, before introducing it in the next available Finance Bill.
Tax Implications
The tax on the benefit-in-kind will now not increase, when employers provide such vehicles to their employees.
In addition, the capital allowances available in the first year of use will now not be reduced when a business purchases this vehicle for use in their trade.
The Exception
This update is only with reference to DCPUs with a payload of one tonne or more. DCPUs with a payload of less than one tonne will continue to be treated as cars.
Additional Information
If you would like to discuss any matters in relation to Double Cab Pick Ups, raised in this article, please contact Paul Webb: 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.
From April 2025, significant changes to payroll changes will take effect...
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 experts 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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Minimum Global Tax on Multinational Businesses
Paul Webb,
19th February 2024
Tax
As of 1 January 2024, Pillar 2 (BEPS 2.0) came into effect, as recommended by the OECD, where multinational companies are subject to a global minimum tax of 15% which will apply for the first time for certain large economies – agreed by more than 140 countries under the OECD Inclusive Framework.
In the digital age and face of globalisation, the global economy has transformed – with countries facing pressure to lower their corporate income tax rates to offer incentives to compete for capital and investment. Building on BEPS actions and placing a floor under tax competition, the OECD, together with member countries, have addressed the collective action problem for the so-called race to the bottom.
A series of interlocking rules apply to companies taxed below the 15% rate in one country (with the possibility of other countries being able to apply a top-up tax), which is summarised below in six steps:
Step 1: Determination of Multinational Groups in Scope
The following steps apply in determining which multinational groups are in scope:
Internationally active groups – determination as to whether the group has entities or permanent establishments in more than one jurisdiction, is required;
Groups with annual revenue of €750 million or more, in at least two out of the four prior years immediately preceding the fiscal year being tested; and
Identify excluded entities from the application of the Pillar II rules (but note that these are not excluded from the revenue threshold calculation above).
Public interest entities, such as governmental and non-profit organisations, tax-neutral entities (such as pension and investment funds), and certain asset-holding companies are excluded.
Step 2: Allocation of Income to Constituent Entities on a Jurisdictional Basis
The multinational group needs to determine the income (abbreviated as FANIL for Financial Accounting Net Income or Loss – determined by accounting standards for financial reporting) and the location of each constituent entity, to identify the respective local tax treatment.
Step 3: Calculation of GloBE Income
Global Anti-Base Erosion (GloBE) income is calculated by making adjustments to FANIL to align the tax base for the global minimum tax with those that are typically applied for local tax purposes. Types of adjustments include:
Adjustments to financial accounting income to better align with taxable income – net taxes, dividends (avoid double counting profits within a group), equity gains and losses (unrealized – no impact for GloBE; realized – may need adjustments for timing differences between accounting and tax), asymmetric forex gains and losses (differences in treatment between accounting and tax require reconciliation to align with taxable income), pension expenses (use of tax accounting principles), stock-based compensation (portion deductible for tax added to GloBE income);
Correct allocation of income between jurisdictions is adjusted for – such as transfer pricing adjustments and intra-group financing;
Policy-based adjustments – such as the disallowance of illegal payments such as bribes, or payments of fines and penalties (only allowed to a maximum of €50,000).
Step 4: Determination of Adjusted Covered Taxes
For each constituent entity, the GloBE income or loss is calculated. The tax associated with the income must then be calculated using the following steps:
Determination of covered taxes – the current tax expense as shown in the financial accounts (includes incomes taxes, but does not include non-income-based taxes such as indirect taxes, payroll and property taxes);
Adjustment to covered taxes – to consider taxes that are not recorded in the tax line of the profit or loss statement and exclude taxes not related to GloBE Income or Loss, addressing of temporary differences as well as tax credits;
Cross-border allocation – adjustment to allocate certain cross-border taxes to the proper constituent entity (like taxes imposed under a CFC regime, distribution taxes, withholding tax on dividends paid, or other taxes paid);
Post-filing adjustments – in the case of post-filing adjustments, generally an ETR recalculation is required for the relevant fiscal year (examples include audit or transfer pricing adjustments).
Step 5: Computation of ETR and Calculation of Top-Up Tax
GloBE income or loss and covered taxes (steps 3 and 4 above) from the same jurisdictions must be added together to determine the jurisdictional effective tax rate (ETR).
Note an exemption applies for multinationals that have limited operations, namely, below the de minimis thresholds of €10m for revenue and €1m for income.
From GloBE, a substance-based income exclusion is deducted to reduce the potential burden on multinationals with genuine operations and investments in a jurisdiction. A percentage of tangible assets and payroll expenses is applied for the purpose of the substance-based income exclusion.
The top-up tax percentage is due on the difference between the 15% minimum rate and the ETR in the jurisdiction – the delta which is applied to the GloBE income or loss in the jurisdiction, after deducting a substance-based income exclusion.
Each constituent entity, with GloBE income, is subsequently allocated top-up tax.
Step 6: Charge the Top Up Tax under QDMTT, IRR, or UTPR
A member jurisdiction has a liability towards a top-up tax for a multinational group under three types of provisions, in the following agreed rule of order:
If your domestic tax already hits the global minimum, you won’t be hit with extra “top-up” taxes from other countries – referred to as the Qualified Domestic Minimum Top-Up (QDMTT);
If the jurisdiction where the low-taxed constituent entity is located does not have a domestic minimum top-up tax, the ultimate parent entity, in proportion to its ownership interest, might collect the top-up tax under IRR (Income Inclusion Rule);
If the ultimate parent entity is in a jurisdiction that has not implemented a domestic minimum top-up tax, then the top-up tax will be levied on the next entity in the ownership chain that is located in a jurisdiction with an IRR following a top-down approach;
Where IRR does not apply, the Under-Taxed Payment Rule (UTPR) becomes applicable. UTPR acts as a back-up to the IRR, ensuring a top-up tax payment within jurisdictions applying this rule.
Specific Rules for Each Jurisdiction
Members will need to implement the GloBE rules in a way that is consistent with the outcomes provided in the agreed rule order, to ensure transparent and predictable outcomes across jurisdictions. Note that the legislative draft GloBE rules accommodate a wide range of multinational groups and tax systems. The OECD have recommended Pillar 2 rules to become effective in 2024.
Conclusion
The implementation of Pillar 2 marks a significant step towards creating a more level playing field and addressing tax challenges arising from the digital economy. Ultimately, Pillar 2 represents a critical step towards a more equitable and sustainable global tax system. Its impact will depend on effective implementation, addressing potential concerns, and continuous evaluation to ensure it meets its intended goals.
Additional Information
If you would like to discuss any of the matters raised in this article, please contact Paul Webb 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.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Mandatory Payrolling of Benefits from April 2026
Paul Webb,
13th February 2024
Tax
The reporting of benefits in kind (BiK) has transformed over the past few years. Gone are the days of paper based P11Ds, having been replaced by online reporting and the option of ‘payrolling’ BiKs through payroll systems.
On 16 January 2024, the government announced a package of measures to support its ambition to simplify and modernise the tax system, using the efficiencies of digital service to drive public sector productivity and to make the tax system simpler and fairer.
One of the measures announced was that the government will mandate the reporting and paying of Income Tax and Class 1A National Insurance Contributions (NICs) on benefits in kind, via payroll software from April 2026.
How it currently works
Currently, employers have two ways of reporting their BiKs:
To report via P11D submission to HMRC, annually, before the deadline of 6 July following the tax year in which the employee received the benefit. Payment of Class 1A employer national insurance contributions (NICs) must be paid before 22 July (if paying electronically). Using the information reported on the P11D, the employee pays the associated income tax through self-assessment, or it is collected by way of an adjustment to the employee’s tax code in the tax year after the benefits or expenses are received.
To payroll benefits, allowing benefits to be reported in real time through pay as you earn (PAYE), meaning no mid-year changes to tax codes as tax is deducted throughout the year. Class 1A employer NICs still need to be reported on P11D(b) by 6 July after the end of the tax year.
One of the drawbacks of the traditional, or legacy, P11D submission is that an employee could wait over a year before seeing any tax related benefits they’re receiving being deducted from their pay. Any change to an employee’s tax code being made so long after the benefit has been received often causes confusion.
Conversely, the payrolling of benefits allows for the tax on BiKs to be collected in real-time via the employee’s pay, reducing the confusion for the employee, however the system is currently not fool-proof and currently employer-provided living accommodation, and interest free/low interest (beneficial) loans cannot be payrolled.
What should employers consider now?
Less flexibility – employers will no longer have the option to payroll only certain BiKs or employees, with all benefits requiring to be reported. This could have a direct cashflow impact on the employee.
Data management – employers will need to be able to easily access the reportable monthly data so they can provide it to the payroll department ahead of payroll processing cut-off dates.
Increased PAYE risk – compulsory reporting of benefits increases the risk of monthly non-compliance and tax driven penalties.
Employee impact – the employee might experience a cashflow impact in 2026/27 when the mandatory payrolling of BiKs and PAYE code adjustments for the prior year overlap.
Employee communication – upcoming changes to the BiKs reporting system will need to be communicated to employees.
Payroll impact – can your current payroll software/outsources payroll provider cope with the change? Will there be an increase in fees?
Process impact – it has yet to be determined how beneficial loans and employee-related accommodation benefits will be reported. What will the impact be for leavers, if processed before payroll cut off?
Next steps
HMRC has confirmed that government ministers will not be putting the change out to public consultation, but instead will be liaise with key stakeholders such as the Chartered Institute of Payroll Professionals (CIPP), to discuss the forthcoming change at length, ahead of implementation come April 2026.
CIPP are seeking to address the following key issues:
Ensuring calculation methods for employer-provided living accommodation and beneficial loans are updated and can be processed via payroll software.
Ensuring working sheets are available for employers and agents to help with calculating values to be used.
Being mindful of the changes required for payroll systems, and the time taken for software companies to implement the changes.
Pushing for real-time payments of Class 1A employer NICs, to eliminate the need for the P11D(b).
Let’s Talk
If you would like any further information on the changes and how they might affect you or your business, please do not hesitate to contact your usual Dixcart UK contact or enquire 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.
From April 2025, significant changes to payroll changes will take effect...
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.