The Low Income Tax Reform Group has, according to Accountancy Age said that:
Migrant workers and foreign students could be the unintended victims of the changes to non-dom tax rules.
The claim that low-paid workers and students from abroad could find themselves caught in the complex and uncertain reforms of tax rules for foreign residents.
There are good things about the LITRG statement. For example, they seem to agree with my estimate that there might be 7 million non-domiciled people in the UK.
But unfortunately, their claim is erroneous and I have problems de-linking it from the Chartered Institute of Taxation position on this, which is to oppose change to the domicile rule. The CIOT backs the LITRG. The LITRG has said:
that informing low-paid migrants and students of the changes to tax rules would be ‘a massive educational challenge’.
I simply don’t agree. They just have to know that they won’t affect them for seven years. That’s long enough to do first degree, masters and PhD. How much more time does one need?
I am sorry to note that I think the LITRG is being used as cover here for a broader agenda, and I question whether that is appropriate.
18 Comments
To be honest, I am not so worried about the change in the legislation as to the inability of the government to issue the draft legislation in relation to the changes.
This creates uncertainty and uncertainty in any legal system is not a good thing. If people are packing their bags now, it is probably not because of the changes in the the legislation. Because the rules have not been defined, they would rather opt for certainty rather than this complete mess.
I mean, how are we supposed to advise clients?
“I’m sorry, but you’ll justy have to wait”?
I’m afraid there are lot more innocent victims of the new way of counting days than you think: 10,000 lorry drivers cross the channel each week to the UK, and spend a night in the UK. All will become UK tax resident under the 90 day rule.
And what about Monsieur Dupont, a French resident, who did a 2 year course in fine arts in the UK. In each of 2005/6 and 2006/7 he spent 140 days in the UK completing his studies, and he is now working in his father’s antique shop in France. In 2007/8 he plans to come to London each week to buy antiques at the Bermondsey Antiques market which opens at 4 a.m. each Thursday. He will become UK tax resident in 2007/8 and thereafter.
And don’t even mention the thousands of aircrew who of necessity have a weekly overnight stay in London. Many of these come from countries without a double taxation treaty, which further complicates things. Add in the couriers and tour guides who visit on a weekly basis and I think you’ll easily double or even triple the HMRC estimate of people affected.
The only solution is to change the 90 rule to a 180 day rule as in most other European countries.
Peter
Are you ignoring the relevance of tie breaker clauses here?
Richard
sorry, I’m afraid I’m not familiar with this (I’m not an accountant I’m afraid). Can you explain what is meant by this?
Under a tie break clause when two countries can claim one person as resident there are mechanisms for determining which has the best claim and it is in that territory that the main liability arises.
Richard
you are being disingenious in your attack on CIOT. They are not complaining about the tax burden but the paper burden in proving one’s position! To suggest that Andrew is using the position of low income people to protect high eqarners is quite disrespectful for no particular reason… impugning people’s integrity is all too easy. His claim is simply .. there is no tax worth the name at stake yet these people will now have additional paperwork burden imposed… if they have to seek advice that in effect is a tax burden!!!
African Boy
I am not being disingenuous
For seven years no one has any more paperwork
In that case temporary workers and students should not be affected by the new rule
Why claim they are?
That was my point.
Richard
But alas, not all countries have “tiebreaker” agreements with UK, nor do all countries have tax treaties with the UK.
This means that some people are liable to be taxed to the maximum both in the UK and in any other place where the tax authorities claim that the person is resident.
Worse, unless a double taxation treaty exists, UK does not allow tax already paid to be credited against UK tax due (although an offset -against income- of such tax may be allowed, but that is not at all the same as allowing credit against tax due , and results in quite a punitively high aggregate rate of tax, even on quite moderate incomes).
No wonder people like to claim non-domiciled status.
John
John D
What you ahve written is not true. The UK always gives credit for tax paid at source and it is never the case that the maximum tax is paid twice.
Your comment is ill-informed and is misinformation.
Richard
I sent an earleir response but it appeasr to have got lost .. shouldn’ t type at 3am! The temp workers that Andrews is focussing on are not those who come for 3 years and then leave. He is focussing on low paid workers who come for several months a year every year .. as he says, people who still have small holdings in their country of origin. We are probably talking fruit and veg pickers and such like. Many of them will be caught immediately by the 7 year rule even though no tax worth the name will be involved … only paper work!
Richard
Please, reread what I wrote
(on 14-Jan-08 at 12:14 pm).
Or if I may reiterate:
In cases where no Tax Treaty exists,
the UK does give “credit” for tax already paid at source,
BUT that credit is not against the amount of UK tax assessed,
it is granted as an allowance against income that is to be taxed,
before UK tax is assessed.
This particular way of giving credit for tax paid causes quite a difference in the total amount of tax levied.
If you check this (say, by making a specimen calculation) you may then find I that what I originally wrote is true, and not ill-informed, and not misinformation.
Best wishes anyway.
John D
There is general concensus that a small di minimis is needed where the rule need not apply
I stress small
After that - sorry - if you want to live and work here you face the reality of it
Seven years living and working here shows a dependence on the state that creates an obligation to the state
Perhaps you are overlooking that?
John D
And I reiterate, you are wrong
The credit is for tax already paid on the same source of income
Richard
Richard
I am open minded about the new proposal.. .In your view the extra paper work is justified. Perhaps. My only point was that Andrews was not engaged in misinformation to protect the wealthy.
This change will not just affect the rich foreigners. It will affect every single foreign worker (no matter how rich they are) that is working in the UK.
The £1,000 doesn’t cut it. Imagine this, a man from the US or another country comes to London to work for 2 years on an average wage. He leaves his home and rents it out while he comes to London and finds some place to rent.
Now his income from his own place overseas needs to be declared in the UK and taxed in both jurisdiction. He then has the hassle to actively claim for double tax treaty (IF there is one between the two countries).
Am I missing something that this will affect the whole UK market as the finance capital of Europe??
John
You are missing the seven year exemption period - which is too long in my view, but even I accept the need for a transition period.
As such, your comment is wrong.
Richard
Richard
Thank you very much for that.
That put a new light on a whole load of things.
Thank you again.
I now have a different tax advisor
to the one I had
when when I wrote my earlier comments.
Best wishes.
John D
This situation is not clear to me. I an a US citizen and work in the UK. When I am in the US I earn a few thousand dollars per year. I have to report this on my US income tax. The US tax on it is lower than the UK tax and a tax treaty exists between the US and the UK. Does this mean that I will have to pay the difference between the amount I am taxed in the US and the amount I would have to pay in the UK? Thanks!
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