Hypothetical tax.....WTF Please help

[vfr into cloud]

HI ALL,

The Leagal Eagles out there may be able to help?

After leaving the Military I embarked on a new career with a British company which sees me working all over the world for up to 12 weeks at a time on each project. I find out now that the said company has a tax equalization policy. This means I pay the same PAYE and NI out of my pay slip as normal, but ....and this is the thing, they appear keep the payments and dont submit to HMRC.....they appear to use this PAYE as a means of offsetting there own tax due in host nations.

I have tried to research this issue but just get deeper into the hole I find myself in as Im no tax expert.

So,

Does this mean I am "Non Resident" for Tax Puposes in HMRC?

How does this affect my Tax code?

Will it mess with the tax on my Military pension, child benefit and so on?

How can this be leagal?

What does this mean for my Self Assesment Tax form submitions?

Are there any other tax implications?

Thanks for your help in advance

VFR

[Al R]

.. have you read this?

http://www.hmrc.gov.uk/helpsheets/hs212.pdf

[vfr into cloud]

Al.R

Yes i have, it is more to do with working in the uk as Non resident than working out side.

I cant find anything for UK peeps working oversees

[Fareastdriver]

Twelve weeks a year makes you resident in the UK and fully liable for taxes. You have to be out of the country for something like nine months during a TAX YEAR with no more than thirty days in the UK at any one time.

There is no way you are non-resident for tax purposes so do your self assessment as if you stayed in the UK all the time.

Should you be running 12/4 roster then you could get away with non-resident status by going direct to an overseas holiday from your work on one of your breaks. If you are in receipt of a military pension get a tax accountant; they will get you back more than they will cost. That includes any tax that your company may have paid.

Remember the period is only for a complete tax year. You start on April 10th and finish on 6th April you can claim zilch.

[Pontius Navigator]

May I suggest you invest in Achora Software (formerly Which?) TaxCalc. The 2013 version is due out in the next week or so. There are links there to HMRC forms and there is their own help system too.

If you care to send me some dummy values for your income streams, you don't need to include interest sums or capital gains. I can plug them in and see what spins up.

Not an FSA but I have a casual relationship with taxcalc.

[Shack37]

vfr,
Consult a tax accountant. He/she will know what you're entitled to and can advise if your employer is ripping you off. As mentioned before this will save you more than the fees incurred.
As an offshore worker I had to be out of the country a total of 183 days in the tax year.
If you are doing a routine of projects of twelve weeks abroad and eg a month at home on leave you should soon accumulate a cushion of away days.
The tax year is about to start, good time to...........

Talk to a tax accountant.

[oldpax]

My company (USA) have the same thing.They are paying the tax of the country I am working in and subtract a hypothetical UK equivelent which they keep!They have a table of hypo UK tax for salary brackets etc.I dont live in the UK any more but the company say as you hold a UK passport then we class you as a UK citizen even if you do not live there.Funny thing is the americans working with me are not in this scheme!!

[Top Bunk Tester]

Haven't been in this situation since 2007, but then (I don't think it's changed though) you could only spend 91 days in the UK in any given tax year to be classed as non-resident for tax purposes. Always remember travelling days to and from your overseas location are treated as though you were still out of country and are timed from your front door opening outbound to front door closing inbound, this is very important and I suggest you make up and keep up to date a spreadsheet of all your travelling, leave and overseas time. To qualify as non-resident you have to have a complete tax year (April 6 - April 5) in your pocket minus the 91 days you can then back claim the previous part year or future part year. In countries that have a dual taxation agreement with the UK you will still be liable for tax in one country or the other. I believe you will only get full refunds if residing in a non dual taxation country eg Iraq, Afganistan whis s where I was. Our company also operated a tax equalisation scheme where my tax was paid via PAYE and the company then intended to reclaim this tax to subsidise, for example, an expat worker in Sweden where the local taxes are horrendous, bearing in mind this worker would go home to his family each night in a nice house with a roaring fire whilst we were sitting under a nightly mortar/rocket barrage. We though this was somewhat unfair so we ignored the company, all got ourselves tax accountants who all had the same outlook as we did. When the company went to reclaim the tax the cupboard was bare. :O

Despite various threats, no-one has since been successfully pursued for any repayment :D

Bottom line: Get a tax accountant, worth every penny :ok:

[Heathrow Harry]

Once worked for an outfit with a similar scheme - in theory its fair as you "pay" the same tax you would as if you were at home instead of somewhere like Norway where the tax burden is astronomical

Eventually it fell over through the complexity - 50 nationalities based in 30 countries meant that they could never keep up with the changes in tax - I don't think I ever had the same pay packet two months in a row................

They decided to pay everyone as if they were based in head office

[Biggus]

Fareast,

He said "up to 12 weeks at a time on each project...", which is not the same as 12 weeks in a year. He didn't say how many projects he may do in any one year, and how long he spends out of the country overall.

His status, in terms of resident or non-resident, for UK tax purposes has not yet been fully established as far as I can see! Of course, I could be wrong..... it wouldn't be the first time!!

[Pontius Navigator]

Biggus, I think that should have been to Shack :)

Old Pax, the reverse seemed to be true of my SiL. She lived and worked in UK and worked for an international publishing house. She did not pay UK income tax but tax in some other way. She has now retired on a full UK pension - don't ask me any details :)

[Two's in]

vfr,

It's not illegal, just apparently unfair. The principle they (your employer) are using is that as a pseudo UK resident you pay the same tax as one of your UK based colleagues. In your case, your temporary country obviously has a lower tax bracket so you pay more as a UK tax payer, but if you were in a country with a higher tax rate than the UK (is there such a place?) you might not feel as strongly about "tax equalization". In a similar situation we moved everybody in the same boat as you onto local terms and conditions so they paid local tax only, the difficulty is foreign based salaries are often uplifted to compensate for being away, if you move onto local terms you would expect less salary - you just get to keep more of it.

In theory your Income Tax is a personal responsibility, so you could elect to migrate from the tax equlaization scheme. But the reality is many employers make it a term and condition of employment that you toe the party line on tax - of course they do - you end up subsidizing them from your over payments of tax.

It's probably worth spending some money on a Foreign Income Tax specialist, but check your employment terms as well, it might not be that straightforward.

[F.O.D]

It is worth noting that tax residency rules have recently changed. There is guidance on the HMRC website and depending on the number of factors that apply to you, you can be classed a UK tax resident with as little as 90 days per year in UK. Factors include whether you were a UK resident in the previous tax year, whether you have dependents in UK and whether you have access to a property in UK. It is best to check one's own situation with an expert or HMRC as some of the old rules mentioned earlier are no longer in force.

Best wishes

[vfr into cloud]

guys

thanks for the comments and advise, all very interesting and usefull.

just for the record;

i am overseas at present in a location with no tax but still having Paye deducted at 40% and NI

I dont know how many days this next tax year i will be overseas, but estimate it to be well over the 183 days mensioned

I dont know how much i will get paid either

i will never qualify for a "tax free year" as my company deduct PAYE at uk rates regardless of location "hypotax"

My company has its own Tax Advisers contract that hound and pester the workforce to signed over there lives too.

My company users my Paye to fund there overseas projects by taking from me at uk rate but paying "on my behalf" locally at local rates, normally far less than the uk

it is stated in my contract that this tax equalization is required for employment ...if i didnt sign up i didnt get a job.

All that said, i see the advantages and disadvantages of the scheme, but fail to see the leagality of it.

i dont want to be handed a large tax bill from HMRC next year for all the PAYE that my company hasnt paid to HMRC but has used it through the "Tax Eqauliztion scheme"

surely if im still resident for uk tax purposes, which i believe i am, then i need to pay HMRC their dues ....?

I dont ever remember Aunty betty using hypothetical tax on any of my overseas deployments over the past 25 years

i spent 3 years in germany and paid uk tax as far i can remember

so back to my original Questions

is it going to mess up my pension ?

is it going to cost me in term of child ben and tax credits?

oh, and will my P60 from the company actually reflect what Paye i paid or just what they deducted ?

cheers

VFR

[Pontius Navigator]

so back to my original Questions

is it going to mess up my pension ?

is it going to cost me in term of child ben and tax credits?

oh, and will my P60 from the company actually reflect what Paye i paid or just what they deducted ?

1. Define mess up.

2. Probably.

3. Possibly.

On 2., are you entitled if you are not resident in UK?
On 1., HMRC will issue a notice of coding to you and to your pensions provider. In the absence of known UK income they will probably offer you the chance to have all your tax free allowance applied to your pension. The residual will then attract tax at the standard and higher rates if applicable.

The 40% withhold on your overseas payments should then see you clear with owing HMRC any additional tax. But . . .

If your UK income (pension) falls significantly below the 40% tax threshold then you will have a margin of your overseas pay that should have been taxed at 20% and not 40%. That difference might be reclaimable against UK tax paid on your pension.

[vfr into cloud]

PN,

I am UK resident, I have a house with a mortgage, a gaggle of kids, i live in the uk, i only go on relativley short term deployments overseas just as i did when serving in the military.

I have all my tax free allowance assigned to my pension

Pension doesnt add up to much, not as much as yours anyhow

I am entitled to child ben and child tax credits as is every uk family

I dont earn much over the 40% threshold but what i do earn i expect to pay my tax dues to HMRC and not into the coffers of a greedy company who appears to be doing, if not unlawful, pretty unethical practices when it comes to employee PAYE by the use of Hypotax.

I want to pay my tax to HMRC, the right amount of tax, no more no less and not into the company coffers, especialy if it may mean i end up paying more tax on my hard earned military pension as a result.......:ugh:

rant over

VFR

[Dan Winterland]

''I am UK resident, I have a house with a mortgage, a gaggle of kids, i live in the uk, i only go on relativley short term deployments overseas just as i did when serving in the military''..

In your stated case, HMRC will probably classify you as "Resident", if not "Ordinarily Resident'' and you are liable for UK tax and NI as well. As your employer is a British company and if they have their HQ in the UK, they should be paying your PAYE to HMRC. If they're not, I would get onto your HR department ASAP and find out why.

However good the advice on PPRuNe seems (and that goes for mine too) it may not be correct as it may not fit your exact circumstances. Good adice is that if you have any queries about overseas working tax issues, I would strongly suggest consulting an accountant versed in such matters. You may well be able to offset the expense with a few savings - and you will be in the clear as having his signature on the bottom of your tax return gives you a reasonable excuse for any errors or misenterpretations. Accountants can be liable for incorrect advice and you are usually covered.

[Fareastdriver]

i only go on relativley short term deployments overseas just as i did when serving in the military.

On that basis you will not qualify for non resident status as I pointed out before. They will deduct your PAYE an NI at source and at the end of the financial year will give you a P60. This will show how much tax they have deducted. This will match up with what they have on your pay slips; they cannot hide this. As you have assigned your £9,440 to your pension HMRC will send you employer a tax code reflecting this. You may well, depending on you pension, find all you salary taxed.

Companies are pretty good at tax. The days when they sent you overseas and left you to sort out your tax affairs are gone. They can get into trouble for aiding tax evasion.

[The Old Fat One]

it is stated in my contract that this tax equalization is required for employment ...if i didnt sign up i didnt get a job.

So pretty transparent and up front then.


...not into the coffers of a greedy company who appears to be doing, if not unlawful, pretty unethical practices when it comes to employee PAYE by the use of Hypotax.

Then leave...it's a free country.

[Shack37]

PN


Biggus, I think that should have been to Shack http://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/smile.gif


No, it was directed correctly:ok:

[Arm out the window]

Tricky choice you are faced with ...

1. Seek advice on internet forum; or

2. Go and see a reputable tax specialist ASAP and get it sorted out.

[Heathrow Harry]

One reason to go to a specialist is that when THEY write on your behalf to the revenue its unlikely to be thrown in the circular file

As someone who was once a non-resident resident in the USA I can tell you that good tax advice is worth every penny you spend in such a situtation.................

[Rob To Service]

I also work for a UK company that has a hypothetical tax policy. Due to this I am also assigned an accountant (outside agency) by the company, at no cost to me, who do my tax calculations. It is a pain and my pay chit is confusing as hell but it hasn't affected my military pension (so far).

Might be worth speaking to your HR department about the accountants.

[Pontius Navigator]

AOTW, you are being unfair. RTS has probably given the most succinct advice based on experience.

Remember many Ppruners either had experiences before joining or gained professional experience after leaving or have first hand experience.

For example, on a different forum, I needed advice on Scottish law and this was freely given and enabled me to talk with a Scottish solicitor who was an executor. Every time she pleaded ignorance on a particular aspect I was able to nudge her in the right direction.

[seniortrooper]

VFR:
Fact:
"One" becomes a tax-free resident AFTER they have completed the standard tax fiscal year overseas. The catchall is this: The start dat for this is April 5th. This means you have to pass this calendar date first before the clock for the fiscal tax year starts.
Example:
You start work in a 'qualifying state' overseas on April 4th. You will become "tax free" as of April 5th one year later.
Example:
You start work April 7th. Your 'clock' won't start until almost a year later and then you have to complete that following years worth of work to qualify as a tax free resident. (Theoretically almost 2 year wait).

ALL of this is dependent on whether you are an employee of a "qualifying company" OR self employed. (slightly different rules)
If said company has dual tax ratings for overseas employees, your tax position, I am afraid will not change and you should plan for such.

Why don't you sepak to your company's HR dept, they will tell you what you need to know, surely?

[Thomas coupling]

VFR: contact: Non PC Plod, he's self employed I know but doing what you seem to be doing re the abroad for short stints thing......

[pzu]

Probably off track but:

Back in the '80's, Hypo Tax was commonly used for Brits in the 'oil industry' - particularly in Libya

Allegedly to equalise salaries between US & Brits, supposedly because US citizens can never escape the IRS whereas Brits could legally avoid HMRC (or its predecessors)

In theory the company would if necessary settle ones UK taxes, in practice they didn't

PZU - Out of Africa (Retired)