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Robert Hodkinson, Partner in Global Employer Services at
Deloitte said “Overall it is gratifying that the process of consultation
with HMRC has resulted in a number of helpful relaxations of the draft
legislation issued in January, including counting days for tax residence
purposes, the exclusion of children from the £30,000 charge, the
creditability of the £30,000 charge for US tax purposes and a promise
not to increase the proposed charge for long term residence over the
next two Parliaments, (assuming Labour win the next election).
Behind the headlines there remain many practical difficulties for
employers in adjusting their policies and procedures to take account of
the changes, with limited time to think things through.
Superficially most companies employing expatriate staff will assume not
much has changed, with your normal 2-3 year assignees not having to
worry about the £30,000 charge. But what about the loss of the personal
allowance and capital gains tax exemption, which will increase payroll
costs and impact certain expatriate employees’ net income?
Although most multinationals adopt tax equalisation, with any increase
in tax due to the loss of a personal allowance being passed on to the
employer, this is not always the case. It is not uncommon for expatriate
employees to be provided with a guaranteed gross package in the UK,
uplifted for tax and cost of living, which is set at the outset of an
assignment.
Where the £2,000 foreign income limit is exceeded the loss of the
personal allowance for gross paid individuals will reduce their net
income. The employer needs to do something, if only communicate the
impact of the new rules. In particular employers will need to consider
what to do if the assignee’s offshore income exceeds £2,000 but is less
than £5,435. Will the employer be willing to fund the additional
professional fees to prepare the return of the remittance basis of
taxation is not claimed, to enable the assignee to benefit from his or
her personal allowance? Will the remittance basis be claimed before the
employee is tax equalised on employment income but not on remittance
basis investment income? The cost the employer may exceed the benefit to
the employee.
It is disappointing that the Chancellor was unwilling to listen to those
impacted by these rules, and offer additional time to evaluate the full
impact of the changes. Many will need to rush through policy changes
without sufficient analysis of the impact.” |
