Working in the UK for a UK employer

This section is intended to help you if you are working in the UK for a UK employer.

Before you read on you might find it useful to look at An introduction to working in the UK on the United Kingdom Government's Directgov web site which explains a range of non-tax issues about which you should be aware.

The topics we cover in this section include:

• Does this section apply to me?

• Introduction

• National Minimum Wage

• Income Tax on my earnings

• Does my domicile matter if I am working in the UK?

• Am I liable to tax on my earnings in the UK?

• What is included in taxable earnings?

• What amount will I pay tax on?

• What tax allowances will I get if I am working in the UK?

• When will I have to pay tax on my wages or salary and what is Pay As You Earn (PAYE)?

• What rates of tax will be charged on my salary after allowances?

• What should I do if my home country also taxes my employment income?

• Will I need to complete a Self-Assessment return?

• National Insurance Contributions (NIC)

• What are National Insurance Contributions (NIC) and how do they affect me?

• How do I get an NI number?

• Do I have to pay NIC?

• Coming from EU, Norway, Iceland, Liechtenstein or Switzerland

• Coming from other countries with whom the UK has a social security agreement

• NIC earnings limits

• What are the rates of NIC?

• How do I pay my NIC?

• How do my NI contributions affect any benefits I could claim?

• Do I need to fill in any forms when I arrive in the UK?

• Getting a national insurance number

• Form P86

• Having income and/or gains outside the UK

• The importance of a non-domicile status

• Relying on the remittance basis

• Resident in the UK for seven years

• The amount of overseas income/gain

• Remittances to the UK

• Ordinary residence

• Tax credits

• Capital gains

Does this section apply to me?




We want to help you understand the basics of the UK tax and benefits systems when you first come to this country to live and work. This guide will cover your situation if you:

• are resident in the UK; and
• you do all of your work in the UK; and
• you work only for a UK employer

This situation will apply for most people coming to the UK to work.

These terms resident and UK employer are explained in another section of our web site, called What do we mean by? which explains all the terms used where we cannot avoid using technical language. It also sets out to give you the basic information on the most frequently used phrases that you will come across in this guide.

Your employer should be able to tell you whether they are a UK employer, but if there is any doubt, you can ask them to contact HM Revenue & Customs (HMRC) or you can do it yourself.

HMRC is the UK Government department which manages the tax system in the UK. You may hear it referred to as the Revenue.

We shall add further sections in due course to cover those who are not resident or not ordinarily resident in the UK, or who work for a non UK employer.




Introduction

• Your tax position after arriving in the UK can be complicated in the first few years until you become familiar with the different ways that HMRC have of dealing with your tax affairs.

• Your tax life becomes even more complex if you have income or gains arising outside the UK whilst you are resident here. This might happen if, for example, you sometimes work outside the UK, you have a bank account overseas on which you have interest being paid, or perhaps you have rental income coming from a house you have back in your home country.

• If you have income or gains outside the UK then your domicile in the UK becomes much more important and you are faced with more choices to make as regards your UK affairs.

• If you have income or gains outside the UK please ensure you read our commentary at the end of this section.

National Minimum Wage




• The National Minimum Wage provides a legally binding minimum hourly rate of pay to workers aged 18 or over – with few exceptions.



Back to the top





Income Tax on my earnings

Does my domicile matter if I am working in the UK?




• Your domicile will not usually affect how you are taxed on your wages if you do all of your work for your employer in the UK. It may affect the tax you pay on any other income or capital gains you may have.

• Most people coming to the UK for the first time will have a domicile outside the UK.

Am I liable to tax on my earnings in the UK?



• If you do all of your work in the UK for a UK employer your income will be liable to income tax.



• The UK has tax treaties called double taxation agreements with a large number of countries. You can see the lists of these agreements on the HMRC website. An agreement with your home country would be used to decide which of the UK and your home country could tax your employment income if both countries claimed to be able to do so, so that you do not pay tax in both countries on the same income.



• There is an exception from this rule for some teachers. Some double tax agreements contain special rules which provide that if you come to the UK for a period of 2 years or less to teach or carry out research you may be exempt from UK tax on your earnings. Any temporary absences from the UK in this period are still counted as part of the 2 years. You should study the agreement for the country you have come from since the terms of agreements vary.



• Similarly some double tax agreements give exemptions for students studying in the UK. Once again you should study the relevant agreement..



• It is also possible for there to be more than two countries involved for example you may be a national of X country and have been living in Y country until recently and are now living in the UK.



What is included in taxable earnings?



• Taxable earnings include your wages or salary, plus any taxable expenses payments and benefits which you receive, less any deductible expenses which you incur. We explain about expenses and benefits elsewhere on our web site.



What amount will I pay tax on?



• You will pay income tax on the amount of your taxable income less any allowances to which you are entitled.




• Taxable income is all the income that you receive which is taxable. It includes:

  • income from employment before any tax or NIC has been taken off; plus
  • other income such as dividends and bank interest.


• In some cases, the payer of income, for example your building society or bank, takes off tax before you receive the income and pays it to HMRC for you. You will need to add this to the figure of income you receive to get the taxable income. The tax which has already been taken off will be set against the tax due to determine what you owe or, except in the case of dividends from UK companies, what should be repaid to you.

Example James receives income from his part time job and bank interest. He works out his total taxable income by looking at each source independently and adding them up. James received: bank interest of £100 after tax of £25 had been taken off. wages of £500 per month after tax and NIC of £100 had been taken off. We work out James' income like this: Wages (£600 x 12) = £7200 Interest (£100 plus tax taken off of £25) = £125 So James's total taxable income is £7,325 From this total we then take off his personal allowances to come to the figure on which James will pay tax.





What tax allowances will I get if I am working in the UK?



• If you are resident in the UK you will be eligible for certain allowances which will help reduce the amount of tax you pay on your income. The amount and type of allowances you get will depend on your own circumstances.



• The allowances to which you are entitled are not reduced if you come to the UK part way through a tax year.



• Normally, you will be given your allowances automatically under the PAYE system for collecting the tax on your wages and salary.



• They are shown in your tax code (form P2) which HMRC should send to you. You should check that they are correct and inform HMRC if they are not. If you have not received a P2 ask HMRC for one.



• If you do not receive your correct allowances in your PAYE code and you have not already written to HMRC you must claim them within 5 years from the 31 January following end of the tax year for which you are claiming. For example, if you wish to claim allowances for the tax year 2010/11 which is the year ended 5 April 2011, you must claim them by 31 January 2017. If you complete a self assessment return, you can claim your allowances in the return. Otherwise, you should write to HMRC.



• From 6 April 2008 it is possible to lose your main personal allowances (and other reliefs) if you claim the benefit of the remittance basis and have unremitted overseas income and gains in excess of £1,999 in a tax year. As we explained in the Introduction above this complication arises where you have income or gains outside the UK and we explain the rules later on - use the link to have a look at this.



When will I have to pay tax on my wages or salary and what is Pay As You Earn (PAYE)?



• You should pay some income tax on your wages or salary each time you are paid by your employer, or, if you have paid too much income tax earlier in the tax year, you may receive a repayment. This is known as the PAYE system and all employers are required by law to operate it, by deducting the tax you owe from your wages or adding any repayment due to you.



• The PAYE system aims to deduct the correct amount of income tax due for year from your wages. Each time that you are paid wages or salary, your employer uses information provided by HMRC to calculate the amount of income tax on the wages or salary paid to you to date from the beginning of the tax year. This calculation aims to spread evenly throughout the year your allowances and the 20% tax band. Have a look here at how this works.



• More detailed information is given elsewhere on our web site about how the PAYE system works and what documents you can expect to receive in connection with it.




• Here is a simple example showing how a PAYE code is calculated.

Marcus who is single came to the UK four years ago to work for an engineering company based here. For 2010/11 he has a basic personal allowance of £6,475. Marcus pays deductible professional subscriptions of £105 in connection with his job. His code number will look like this: Allowances Personal Allowance £6,475 Subscriptions £105 Total £6,580 The number part of Marcus's code will therefore be 6,580 divided by 10 = 658 and the letter will be L as this tells Marcus's employer that Marcus is a single person. The code of 658L will be shown at the foot of the Coding Notice.





What rates of tax will be charged on my salary after allowances?



• The first part of your income up to £37,400 is taxed at the basic rate of 20%.



• The remainder of your income over £37,400 is taxed at the higher rate of 40%.



Example Paulo has taxable income in the year 2010/11 being his wages from employment of £16,475. Deducting his personal allowance of £6,475 from this amount leaves him with taxable income of £10,000. Income tax on £10,000 @20% is £2,000. Paulo will also pay National Insurance which will be deducted by his employer from his wages.

What should I do if my home country also taxes my employment income?

• The UK has tax treaties called double taxation agreements with a large number of countries. You can see the lists of these agreements on the HMRC website. An agreement with your home country would be used to decide which of the UK and your home country could tax your employment income if both countries claimed to be able to do so, so that you do not pay tax in both countries on the same income.



• If you are resident in the UK under UK law and do all of your work here for a UK employer, your employment income will be taxed in the UK. If your employment income is also taxed in your home country, you will have to take action to reduce your tax burden.



• Most double taxation agreements would allow the UK to tax your employment income. Therefore, you would have to ask the tax authorities in your home country either to stop taxing your income there, or, depending on their rules, to deduct the tax you pay in the UK from the tax you are liable to pay in your home country.



• If the tax authorities in your home country refuse both of these requests, you should contact HMRC for help.



• If there is not a double taxation agreement with your home country, your employment income is taxable in the UK. You would have to ask the tax authorities in your home country either to stop taxing your income there, or, depending on their rules, to deduct the tax you pay in the UK from the tax you are liable to pay in your home country.



• If the tax authorities in your home country refuse both of these requests, you should contact HMRC to see whether they can offer any help.

Will I need to complete a Self Assessment return?

• If:
  
  • your only income is from your job; and
  • all of your income and any expenses and benefits are dealt with under the PAYE system, so that all the tax that you owe is collected under PAYE; and
  • you have no capital gains;

  you will not normally be required to complete a self-assessment return.

• We have listed examples where you will need to complete a self assessment return and you should check these to see if any of them apply to you. If any of these do apply to you, you must notify HMRC by 5 October following the end of the tax year so by 5 October 2011 for the tax year 2010/11 (the year to 5 April 2011);
  
  • if your liability to tax will not have been covered in full under PAYE or by tax withheld at source; or
  • if you have a capital gain to report.

  This will cause HMRC to send you a return. Also if you have income or gains arising overseas this will probably require you to complete a self assessment return.

• If you have paid too much tax, you should ask HMRC to repay you and this may require completion of a repayment claim. Various time limits apply to claims and you should contact the HMRC as soon as possible after the end of the tax year if you think that a repayment is due to you, and certainly before the end of five years from 31 January following the end of the tax year (by 31 January 2017 for the tax year 2010/11).

Back to the top

National Insurance Contributions (NIC)

What are National Insurance Contributions (NIC) and how do they affect me?

• You can read about NIC for employed people here and there is a straightforward introduction here. In the UK, the State retirement age is currently 65 for men and 60 for women.

How do I get an NI number

• You can read how to obtain an NI number on the Directgov website

Do I have to pay NIC?

• If you are working in the UK and your earnings exceed the lower limit, you will need to pay NIC on your income unless, exceptionally, you are covered under a social security scheme in another European Union (EU) country or a country with which the UK has a social security agreement.

Coming from EU, Norway, Iceland, Liechtenstein or Switzerland

• If you have come to the UK from another EU country or from Norway, Iceland, Liechtenstein or Switzerland, you may not have to pay NIC but, instead, you could continue to pay social security in the country where you were formerly employed, provided that:

  • your UK employer hired you there;
  • you were then sent to the UK to do your present job working for the same employer;
  • it was expected, at the outset, that your employment in the UK would not be for a period of more than 12 months, although it is sometimes possible to extend this period subsequently;
  • you are not replacing another employee who has completed a tour of duty in the UK; and
  • you also satisfy other conditions regarding your nationality and residency.



• If you think that this might apply, you should ask your employer obtain a certificate E101 from the social security authorities of the country where you want to continue to pay social security contributions, which is based on your own circumstances.



• The E101 certifies that you remain liable to contribute to the social security scheme only in the country which issued it and for the period of time mentioned in it.



• If you do not have to pay NIC because you continue to pay into your home country scheme under the EC agreement (the E101 procedure), you will not lose entitlement to social security benefits.



• The EC agreement contains detailed rules for different types of benefit and you should contact the Department for Work and Pensions (DWP) in the first instance to determine whether you will receive benefits from the UK or from your home country.



• If, as in most cases, you were hired in the UK, these EU rules will not apply and you will have to pay NIC. Contributions paid to the social security authorities of the UK in accordance with the EU agreement will count towards benefits payable by the UK (see also How do contributions affect benefits?) or your home country as provided under the rules of the agreements.



• You should contact the Department for Work and Pensions (DWP) for more information.

Coming from other countries with whom the UK has a social security agreement

• If you have come to the UK from a country with which the UK has a reciprocal social security agreement or a double contributions convention (DCC) which covers contributions, (click here for a list and HMRC commentary), you may not have to pay NIC under the terms of the specific agreement.




• Although you will have to study the terms of the agreement with the country by whose social security system you were previously covered to determine what your own circumstances are, in general, these agreements will provide that you will have to pay NIC unless:

  • you were employed by your UK employer in the country from which you came to the UK;
  • you were insured under the social security legislation of that country; and
  • you were sent to the UK by that employer to work for him here for a time expected to last no more than the time specified in the agreement.



• If, as in most cases, you were hired in the UK, this will not apply and you will have to pay NIC. In that case:

  • If you are covered by a reciprocal agreement, contributions paid to the social security authorities of the UK and the home country in accordance with the agreement all count towards benefits payable by each country under the rules of the agreements. You should contact the Department for Work and Pensions (DWP) for details.
  • If you are covered by a DCC, contributions paid to each country will count towards benefits in that country only according to each country's own rules. There is no amalgamation of contributions for benefit purposes.


• If you do not have to pay NIC because you continue to pay into your home country scheme under a reciprocal agreement, you will not lose entitlement to social security benefits. The agreement contains detailed rules for different types of benefit and you should study the agreement to determine whether you will receive benefits from the UK or from your home country.



• If you do not have to pay NIC because you continue to pay into your home country scheme under a DCC, you will not qualify for any UK benefits which depend on contributions but you should qualify for benefits under the rules in your home country.



• In How do contributions affect benefits?, we refer to the UK benefits which are dependent on contributions. You should bear in mind the comments we have made above about agreements and conventions when you read this.

NIC earnings limits

• There is a lower limit, and if your income equals or falls below this you will not need to pay any contributions. For 2010/11 this limit is £110 a week, if you are paid weekly. If your earnings are below £95 a week you will not be contributing to any state benefits that are based on NIC (see How do contributions affect benefits?).



• Unless you are a director of a company, each employment you have with a different employer is looked at separately and each has its own lower limit.

What are the rates of NIC?

• Class 1 contributions are paid if you work for an employer and your earnings are above the lower limit of £110 in a week or £476 a month (in 2010/11). The NIC is taken off your wages before they are paid to you. The employer also has to pay contributions based on your earnings but you need not worry about these. For 2010/11 the rates of Class 1 NIC for employees are as follows:

  £0 to £110 – 0%
  £110 to £844 – 11%*
  Above £844 – 1%
  

  [* - If you belong to your employer's pension scheme which is contracted out of the Second State Pension, your NICs at the 11% rate are reduced to 9.4%. You can read more about pensions, including the Second State Pension, using the link.

  You should always consider carefully what type of pension provision is right for you and take advice where necessary]

• Class 1A contributions are only paid by employers. In very broad terms, you only pay NICs on earnings paid to you in cash or if your employer pays your bills for you, for example, your fares to or from work. If you receive any earnings in the form of benefits other than cash, on which you have to pay income tax, your employer has to pay NICs on those, which are called Class 1A.



• Class 1B contributions are only paid by employers. Your employer might, exceptionally, enter into a special arrangement with HMRC to pay the income tax and NICs on some part of your earnings and those of his other employees. If this happens, your employer would pay Class B NICs on the total amount, plus the income tax on it, and you would not have to pay Class 1 NICs on your earnings which had been included in the special arrangement. Your employer should tell you what amounts, if any, have been dealt with in this way.



• Class 3 contributions are voluntary contributions you can pay if you do not have to pay Class 1 but you want to protect your rights to some state benefits. You can read more about how UK benefits are affected by your NIC here.



• Class 3 contributions can be paid by quarterly bill or monthly by Direct Debit or you can pay a lump sum at the end of the year. For 2009/10 the rate is £12.05 a week.

How do I pay my NIC?

• Class 1 NIC that you pay on your employment income is taken out of your gross wages by your employer so that he just pays you the net amount.



• Class 3 NIC contributions can be paid by quarterly bill or monthly by Direct Debit or you can pay a lump sum at the end of the year.

How do my NI contributions affect any benefits I could claim?

• Click here for more information on this. However, you should also look again at what we have said about the effects of the EU and other social and double contribution agreements.



• There may also be restrictions in some cases where you have come to the UK from abroad.

Back to the top

Do I need to fill in any forms when I arrive in the UK?

Getting a national insurance number

• You should apply for a national insurance number before you start work, or as soon as possible after you start.



• A National Insurance number is unique to you throughout your life but it is not a form of identity. It is made up of 2 letters, 6 numbers and a final letter for example ZY 98 76 54 A. For information on how to apply for a number please use the link.

Form P86

• You will possibly need to fill in a form called Arrival in the United Kingdom form P86 for HMRC when you first arrive in the UK. This will be sent to you by HMRC if they think it is necessary.



• It helps HMRC to determine whether you are resident in the UK and whether you are entitled to allowances which can be deducted from your income to work out your UK tax.



• Filling out the form also helps to establish for HMRC whether domicile, is likely to be relevant to your income tax or capital gains tax position.



• If you do not have a National Insurance number do not delay in sending in the form.



• Questions 4 and 6 on the form P86 ask about a civil partner. A civil partner is a member of a same sex couple who have had their relationship legally recognised under UK law, known as a civil partnership.



• In Part B Question 5 you are asked for your nationality – this is asking for the country of which you are a citizen, which should be the country where you hold a passport. If you have dual nationality you will need to show both countries at question 5.



• In question 5b, the grounds for claiming this nationality may be that you were born in the country or you were admitted to citizenship of that country.



• Most of the other questions in Part B are straightforward but if you have any problems HMRC can help.



• If your only employer is a UK employer and you do all of your work in the UK, you should answer no to questions 8 and 9.

Back to the top

Having income and/or gains outside the UK

The importance of a non-domicile status

• If you have income or make gains outside the UK as a migrant to the UK your tax life becomes complex and you need to obtain advice. It is easy to suggest that a migrant gets rid of all their overseas sources as soon as they set foot in the UK. However, it is a fact of life for the short-term migrant to the UK that they often retain bank accounts back in their home country; they may have some earnings arising outside the UK; they may have rented out their home property; or they may dispose of an overseas asset while in the UK (for example, a property or shares overseas).
• However, by establishing that you are not domiciled in the UK you can avoid some of the complexity that arises from having overseas sources.
• In general terms, having a domicile which is outside the UK (a non-domicile status) gives a person resident in the UK greater flexibility in relation to their tax affairs and can provide UK tax exemption from income and gains arising outside the UK within certain limits and provided detailed rules are followed.
• We do not intend to go into great detail about the planning opportunities deriving from a non-domicile status. Instead we wish to give practical advice for those on low incomes who, if they do not use their non-domicile status, may get subjected to very complex procedures by HMRC (and similarly by tax authorities in their home country).
• If you do not claim to use your non-domicile status (known as adopting a remittance basis) then you will be subjected to UK taxation in the same way as the UK domiciled person (this is known as a worldwide or arising basis). This is not a particular problem if all your income and gains derive from the UK. Tax life becomes complicated if you have income or gains overseas as this will almost always place you within the UK's Self Assessment system and require you to notify HMRC about these sources and provide them with a lot of information.
• In order to complete the Self-assessment return accurately the taxpayer may have to do the following things:
  • Establish their residence position for the tax year concerned which will include counting days of presence in the UK
  • Consider whether any double taxation agreement establishes that the individual is not resident in the UK for the purposes of that international agreement
  • Consider whether any double taxation agreement provides for an exemption from UK taxation for any relevant overseas income source or, failing that, provide a credit for overseas taxes paid
  • Establish which overseas basis period is appropriate for crediting of foreign taxes as other countries may have tax years that end on a different date to the UK. The UK tax year ends on 5 April
  • Consider whether any double taxation agreement provides for a re-instatement of UK personal tax allowances
  • Consider whether there is unilateral relief in the UK for overseas taxes paid
  • Find the appropriate exchange rates for the income or gains arising overseas in order to convert to £
  • Compute any overseas income/gain on a UK basis of assessing income/gains
  • Consider whether UK law gives any special reliefs for the overseas sources held by the individual, for example, overseas pensions attract a 10% deduction

• In addition the individual needs to understand that is possible that any tax charge arising in the UK may become a deduction or credit for the purposes of their tax situation back in their home country.
• As can be seen, depending upon individual circumstances, this can be extremely complex and needing specialist advice. Anyone in this situation should seek help from HMRC Residency .

Relying on the remittance basis

• The alternative to the worldwide or arising basis for the non-domiciled individual who has income or gains outside the UK is to claim the remittance basis.
• In order to do this it is necessary for you to know your domicile status.
• You can consider whether HMRC are likely to agree your status by referring to the definition of domicile.
• Once you have HMRC agreement to your status you can consider the steps that you need to take with confidence. Without this initial agreement you face the prospect of an HMRC challenge after some time and when it has become too late to change your approach.
• With your non-domicile established you can then consider the three main sets of rules which apply. These concern:
  • how long you have been in the UK
  • the amount of your overseas income/gains
  • whether you have remitted any of that overseas income or gain to the UK

Resident in the UK for seven years

• If you have been resident in the UK for seven out of the last nine tax years then there is the potential for incurring a £30,000 annual charge if you claim the remittance basis. This is only relevant to those with very large incomes or gains outside the UK. More detail can be found on the HMRC website.

The amount of overseas income/gain

• Since 6 April 2008 the amount of your income or gain arising overseas matters if you want the remittance basis to apply to you and for you not to be taxed on your income/gain overseas.
• If your overseas income/gain in a tax year is less than £2,000 then provided you have not remitted (see below for what this means) any of that income/gain to the UK then there is nothing further for you to do and you will not pay any UK tax on that income/gain.
If your income/gain in a tax year is more than £1,999 and you have not remitted any of that income/gain to the UK then you risk forfeiting your personal allowances (primarily the individual personal allowance, blind person's allowance, married couple's allowance and the capital gains annual exemption) if you claim the remittance basis. It may be to your benefit, in this circumstance, to remit some funds to the UK to take the amount overseas below £2,000 or to suffer the loss of your personal allowances etc.because of the size of overseas income/gain You will need in this situation to seek professional advice or obtain help from HMRC.
• In all such cases these judgements cannot be made without considering your overall tax position in the UK and the impact of double tax agreements or recognising overseas taxes that may have been paid. In the end it may be beneficial to adopt the worldwide or arising basis for that particular tax year.

Remittances to the UK

• If you adopt a remittance basis then you have to understand what a remittance is. This is not simple at all, even though the basic concept may be.

• In broad terms, if you have overseas income or gains and you bring them directly or indirectly to the UK so that you enjoy the benefit of their existence in the UK then that will constitute a remittance here.

• To take two of the simplest examples possible.

Robert has come to the UK from Romania to work on a farm in Lincolnshire. His only income in the UK is from the farmer who employs him on the national minimum wage. He sends his spare cash back to Romania where it goes into his only bank account there. His bank in Romania pays him 6.5% interest on any balance that he holds; this produces the equivalent of £120 in 2010/11. Robert uses his Romanian debit card to draw out £50 from a High Street cash machine in Lincoln when he left himself particularly short. Robert has made a remittance of £50 of his Romanian bank interest. The consequences of this are as follows: He has a UK tax liability on the Romanian interest to the extent of £50 He will be required to notify HMRC of this liability and request a Self assessment form He will need to establish the Romanian withholding tax deducted from his Romanian interest by his Romanian bank He will need to claim a double taxation credit against his UK liability of £10 (£50 at 20%) which may eliminate his liability.





Pierre is a French student studying at London University. He works evenings and the odd weekend in a local supermarket and will earn £7,200 in 2010/11 which is taxed under PAYE. Whist back in France over Christmas he works as a ski instructor for a week and earns 300 Euros. He treats his friends to a few beers and buys himself the latest mobile phone/mp3 player for 250 Euros. He returns to College in January to resume his studies and brings his new phone with him. Pierre has made a taxable remittance of 250 Euros of his French earnings. The consequences of this are as follows: He has a UK tax liability on the French earnings to the extent of 250 Euros He will be required to notify HMRC of this liability and request a Self assessment form He will need to convert his Euro liability into £ sterling at rates dictated by HMRC He will need to establish whether he had any French tax deducted He will need to examine the UK/France Double Taxation Agreement to see which countries have the right to tax him under the provisions of the agreement.




• Once we enter the realm of gifts or loans or the differences between the remittance rules for capital gains/ investment income/employment income then immense complexity emerges.
• The best advice for most low income individuals who wish to use the remittance basis is not to make remittances to the UK.
• But who is to explain these strange rules to migrants to the UK? At the present time HMRC do not even tell the short-term visitor to these shores that they have to disclose their overseas income sources. Normally we might refer the reader off to the HMRC website for guidance; but at the present time there is none for the low income migrant.
• Government Ministers promised that there would be simple guidance for the likes of Robert and Pierre, but as yet it has not emerged. Similarly HMRC said that they were going to use their management discretion to ensure that no undue burdens were placed upon low income migrants. Unless this discretion extends to ignoring small remittances (after HMRC issue guidance in simple terms defining a remittance) then not a great deal will be achieved.

Ordinary residence

• If a migrant to the UK is not ordinarily resident in the UK roughly the same rules as described above for those non-domiciled apply. It is a status which need not worry the low income migrant who is not domiciled here.

Tax credits

• It is appropriate to mention tax credits here. Tax credits have their own rules about what is and what is not income. However the migrant who is claiming tax credits should be aware that a remittance basis does not exist for tax credits so effectively a worldwide or arising basis is imposed, regardless of what basis is adopted for income tax. Very confusing.

Capital gains

• One of the most unfortunate results of the legislation which started on 6 April 2008 is that it will apply to someone who is resident in the UK who disposes of assets situated outside the UK. If the gain when combined with other income/gains exceeds £1,999 then the full complexity described above will follow.
• Not only that, the basis of gain calculation has to follow UK calculation methods and be carried out in £. This can give rise to unexpected results due to currency fluctuation and the requirement to ascertain the original base cost (there is no provision to take the value of the asset on arrival in the UK, so the UK can effectively tax a gain that arose during a period of overseas residence).

Back to the top