This heretical thought occurs as the debate within the Treasury and government circles on how to tax the foreigner resident in the UK - the non domiciled or 'non dom' - rumbles on. We wrote about our concerns in an earlier article.
Since then the impact of some of the proposed measures have been brought into focus by different sectors of industry and “fixes” are proposed. The uncertainties magnify; the law becomes more complex; an adviser’s ability to explain it to the “man on the Clapham omnibus” diminishes exponentially.
Foreign workers and students
There are at least 2 million foreign workers who have come to the UK in the last few years. There are around 500,000 international students here at the present time. Pretty much all of these people are mobile; not rich by anyone’s standards and most of them are taxed under the PAYE system on their UK earnings. Almost all of them are non-doms; a significant proportion of them will have assets or income outside of the UK, usually not much, but something.
But as we watch the Treasury taking the previous “remittance” rules for the non-domiciles and tightening them to prevent exploitation by the better off it is becoming increasingly clear that claiming the benefit of the “remittance basis” for the ordinary worker is starting to look like an unattractive option. This is because the ordinary, low paid, worker, especially one that travels back “home” from time to time, could lose their personal tax allowance on their UK income and also have to take a lot of care over what counts as a remittance.
This means that the foreign worker/student has to put up with the law that applies to the rest of us and pay UK tax on their worldwide income, as it arises.
If that strikes you as not unreasonable, bear in mind that the vast majority of us do not have to decide whether we are resident or ordinarily resident in the UK; we do not have our bank accounts overseas or our main residence there; nor do we have most of our family there. These factors add enormously to complexity.
To some extent that is why the “remittance basis” (only being taxed on overseas income you bring to the UK) was invented; to remove the complexities and let the foreigner - wealthy or otherwise - come and go without having to enquire into their overseas affairs. In those days past you did not get the low income student or worker going back and forth across national borders.
The relative simplicity of this remittance concept is to stop at the 6 April 2008. But for those who are wealthy enough to employ the best advisers, it may still be possible to be shielded from much of the new complexity.
The migrant worker and student will have to battle with a tax system that is not designed to cope. If they have a few Euros of bank interest overseas (and taxed there) HMRC will insist upon sending them a Self Assessment tax return. The fact that the UK government participated in an agreement with our European neighbours to tax such bank interest at source, in France or wherever, will cut no ice; that is not UK tax.
How are they to know?
So the visitor will have to complete a lot more forms (and read many pages of impenetrable Helpsheets); HMRC will have to process a lot more forms; HMRC will have to answer a lot more queries about double taxation relief; and enter into lots more correspondence about residence and ordinary residence. The one thing that is pretty certain is that HMRC will not collect a lot more tax (bear in mind that there will be offsets for the UK tax bill for tax already paid abroad).
But it is even more problematic than that. How do HMRC communicate these new rules to the relevant people, bearing in mind that they are due to start in 6 weeks time? HMRC do not know who these people are if they are only in the PAYE system, so are we going to see advertisements on every rural road where the migrant farm workers are working? Will every building site around the growing Olympics complex be supplied with an HMRC adviser? Will a man in an egg-timer be appearing on TV to explain it all? We fear not.
How can it be right that new law which is so complex will not be explained to the people for whom it is relevant, the vast majority of whom are amongst the lowest paid people in the UK? What Human Rights issues does this raise? Will there be hundreds of thousands of temporary visitors who will be made into tax defaulters because they were not told? Will they be jeopardising their immigration status? The new citizenship Green Paper published by the Government this week emphasises repeatedly that economic migrants must demonstrate their contribution to paying taxes and obeying the law if they are to be allowed to remain in the UK.
How can HM Treasury downplay the issue and HMRC sit back and do nothing? We wish we had some answers.
This is a proposal which must be deferred or rethought.
To see the LITRG response please use the link below
Contact: John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)
To open the file click below:
LITRG submission on residence & domicile