The Taxman Cometh – Soon – Andrew Parkes
We have mentioned previously (see our January 2022 Newsletter) that the UK will seek to tax any income from a trade carried on in the UK by a non-resident, but that this is blunted where there is a Double Taxation Agreement (DTA) between the UK and the country of residence of the trader. Where there is a DTA, usually (and I’ll come back to that in a minute) the UK is only able to tax the nonresident on income earned through a permanent establishment (PE) or, if an employee, on wages from a UK employer.
However, where there is a DTA, or a one-sided DTA such as that with the BVI, which generally protects the UK’s right to tax, any trade income from the UK, or employment income in respect of duties carried out in the UK, are strictly taxable here.
Consider the following example: two traders come to the UK to sell their goods at one of the UK’s Christmas Markets. They will be here for 6 weeks. Paul is from Monaco and Jean is from France. As there is no DTA with Monaco, all of Paul’s profits are liable to UK taxation, while as Jean is in the UK for too short a time to create a PE (probably, but that is for another newsletter) his profits are not taxable.
Or consider a more extreme example: Rob works for a corporate service provider in the BVI. One of his clients asks him to fly to London for a meeting, which he does, and due to the times, he can fly into London in the morning, have the meeting and fly home again the same day. Here, the profit of his employer relating to the meeting is taxable in the UK as business income and Rob’s earnings in respect of his visit to London are liable to UK tax too.
Up to now, HMRC has not sought to tax people in these situations as they did not have the information or the capacity to do so. However, as the data they collect gets better, and their ability to manipulate it goes from strength to strength, people can no longer rely on HMRC effectively turning a blind eye. This is sort of the situation with non-residents and capital gains on UK property: for years HMRC was not able to collect the tax on such gains even if they were able to find out who owned the property, therefore they didn’t try. However, once they were able to reliably find, tax and collect from the non-resident owners, they soon brought in the tax charge. In Rob’s case, HMRC already has the legislation, and could impose penalties too were they minded (and subject to the facts and circumstances).
If you work in the UK either as a business or an employee and are based in a country with which the UK does not have a DTA or, as with the BVI, is one sided, we recommend you review your working practices and consider any historic UK liability. We can assist with disclosures to HMRC and restructuring to streamline any future reporting requirements and liabilities.
Photo by Marcin Nowak on Unsplash.