The FKGB Guide. UK Tax Returns

Transcription

1 The FKGB Guide to UK Tax Returns F K G B Accounting info@fkgb.co.uk FKGB Guide to UK Tax Returns 2015

2 The FKGB Guide to UK Tax Returns Contents 1.Who needs to complete a tax return? How to get a tax return? UK residence and tax Work out your residence status Your residence status when you move If your situation changes 'Non-domiciled' residents Working out your domicile Tax if you re non-domiciled If you work in the UK and abroad If you re seconded to the UK Paying tax on foreign income Filling in your tax return Foreign income that s taxed differently If you're taxed twice If you ve already paid tax on your foreign income If you haven t paid tax on the foreign income Capital Gains Tax UK Real Estate Taxes Taxes on Acquisition Taxes on Disposal Taxes on Income from UK Real Estate Penalties for non-compliance Late Filing Penalties Penalties for paying your tax late Questions? FKGB Guide to UK Tax Returns 2015

3 1. Who Needs to Complete a Tax Return? The most common reasons for needing to fill in a tax return are listed below. If HM Revenue & Customs (HMRC) asks you to complete a tax return for any other reason (this will normally to be to make sure that you re paying the right tax and getting the right allowances) you must always do so. If you re self-employed (including being a member of a partnership) you always have to complete a tax return. In addition, you must complete a return if you qualify under any of the following criteria: A company director (unless you re a director of a non-profit organization, for example a charity, and don t receive any payments or benefits) A minister of religion (any faith) A name or member of Lloyd s If you don t already complete a tax return, you ll need to do so if you receive any of the following: Income from savings and investments of 10,000 or more Income from untaxed savings and investments of 2,500 or more Income from property (before deducting allowable expenses) of 10,000 or more Income from property (after deducting allowable expenses) of 2,500 or more Annual trust or settlement income on which tax is still due (even if you re only treated as receiving this income) Income from the estate of a deceased person on which tax is still due You must complete a tax return if you have any foreign income that s liable to UK tax. If you receive total income of 100,000 or more you ll need to complete a tax return. If you are employed and want to claim for expenses or professional subscriptions of 2,500 or more, you ll need to complete a tax return. Some less common reliefs, such as Enterprise Investment Scheme relief or relief on Venture Capital Trusts, can only be claimed by completing a tax return. If you pay tax through PAYE and owe tax at the end of the year, you ll need a tax return if either of the following applies: P a g e 1 FKGB Guide to UK Tax Returns 2015

4 HMRC can t collect the tax due by making a change to your tax code (they ll tell you if this is the case) If you have Capital Gains Tax to pay, for example if you have sold, given away or otherwise disposed of an asset such as a holiday home or shares, you ll need to complete a tax return, including the Capital Gains Tax pages. 2. How to Get a Tax Return? If you ve not received a tax return (or a letter telling you to file online) by the end of April but think you should complete one, you need to get in touch with HMRC. If you re self-employed you need to register as self-employed first you ll then also be registered for Self Assessment and will get a tax return. If you re not self-employed, you need to use Form SA1 to register for Self Assessment before you can get a tax return. 3. UK Residence and Tax The tax rules for UK residents and non-residents are very different, and one of your first requirements is to determine your tax residency status in the UK. It is important to remember that even if you are officially a resident in another country, you may still be a tax resident in the UK. Non-residents only pay tax on their UK income - they don t pay UK tax on their foreign income. Residents normally pay UK tax on all their income, whether it s from the UK or abroad. But there are special rules for UK residents whose permanent home ( domicile ) is abroad Work out your residence status On the 6th April 2013 the Statutory Residence Test was introduced by HMRC to determine the residence status of individuals with connections to the UK. Ultimately, the purpose of the Statutory Residence Test is to determine whether an individual is a resident in the UK for tax purposes. Even if you were or were not considered a non-uk resident before the Statutory Residence Test was introduced in 2013, your status may have changed since its introduction. P a g e 2 FKGB Guide to UK Tax Returns 2015

5 The Statutory Residence Test, while complex, is extremely useful when it comes to understanding the residence status. Whether you re UK resident usually depends on how many days you spend in the UK in the tax year (6 April to 5 April the following year). You re automatically resident if either: You spent 183 or more days in the UK in the tax year Your only home was in the UK - you must have owned, rented or lived in it for at least 91 days in total - and you spent at least 30 days there in the tax year You re automatically non-resident if either: you spent less than 16 days in the UK (or 46 days if you haven t been classed as UK resident for the 3 previous tax years) you work abroad full-time (averaging at least 35 hours a week) and spent less than 91 days in the UK, of which less than 31 days were spent working Due to the complexity of the Statutory Residence Test it is always advisable to seek professional advice from a tax expert with experience in correctly determining your residence status Your residence status when you move When you move in or out of the UK, the tax year is usually split into 2 - a nonresident part and a resident part. This means you only pay UK tax on foreign income based on the time you were living in the UK; this is called split-year treatment. Advice should be taken for you specific circumstances as there are issues such as entitlement to the UK personal allowance, remittance basis income and antiavoidance provisions to take account of If your situation changes Your status can change from one tax year to the next. Check your status if your situation changes, for example: you spend more or less time in the UK you buy or sell a home in the UK you change your job your family moves in or out of the UK, or you get married, separate or have children P a g e 3 FKGB Guide to UK Tax Returns 2015

6 4. 'Non-domiciled' Residents UK residents who have their permanent home ( domicile ) outside the UK may not have to pay UK tax on foreign income. The same rules apply if you make any foreign capital gains, e.g. you sell shares or a second home Working out your domicile Your domicile s usually the country your father considered his permanent home when you were born. It may have changed if you moved abroad and you don t intend to return. There are additional rules for domicile and Inheritance Tax Tax if you re non-domiciled You don t pay UK tax on your foreign income or gains if both: they re less than 2,000 in the tax year you don t bring them into the UK, e.g. transfer them to a UK bank account If this applies to you, you don t need to do anything. If your income is 2,000 or more You must report foreign income or gains of 2,000 or more, or any money that you bring to the UK, in a Self Assessment tax return. You can either: pay UK tax on them - you may able to claim it back claim the remittance basis Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, but you: lose tax-free allowances for Income Tax and Capital Gains Tax (some dual residents may keep them) pay an annual charge of 30,000 if you ve been resident of the UK for at least 7 of the previous 9 tax years (this rises to 50,000 once you ve been here 12 of the previous 14 years) P a g e 4 FKGB Guide to UK Tax Returns 2015

7 4.3. If you work in the UK and abroad There are special rules if you work both in the UK and abroad. You don t have to pay tax on foreign income or gains (even those you bring into the UK) if you get the foreign workers exemption. You qualify if: your income from your overseas job is less than 10,000 your other foreign income (e.g. bank interest) is less than 100 all your foreign income has been subject to foreign tax (even if you didn t have to pay, e.g. because of a tax-free allowance) your combined UK and foreign income is within the band for basic rate Income Tax you don t need to fill in a tax return for any other reason If you qualify, you don t need to do anything to claim. 5. If You Are Seconded to the UK You may be able to claim Overseas Workday Relief if your employer sends you to work in the UK on secondment. If you qualify you: pay UK tax on UK employment income based on the number of days you ve worked here don t pay tax on income from days you work abroad (as long as you don t bring it into the UK) 6. Paying Tax on Foreign Income You usually need to fill in a Self Assessment tax return if you re a UK resident with foreign income or capital gains. You don t need to fill in a tax return if your only foreign income is dividends under 300 in total and you don t have anything else to report. Different rules may apply if your permanent home ( domicile ) is abroad. P a g e 5 FKGB Guide to UK Tax Returns 2015

8 6.1. Filling in your tax return Use the foreign section of the tax return to record your overseas income or gains. Include income that s already been taxed abroad to get Foreign Tax Credit Relief, if you re eligible. HM Revenue and Customs (HMRC) has guidance on how to report your foreign income or gains in your tax return in Foreign notes (2014) Foreign income that is taxed differently Most foreign income is taxed in the same way as UK income, but there are special rules for: pensions rent from property certain types of employment income Pensions You have to pay tax on pensions if you re resident, or were resident in any of the 5 previous tax years. You ll usually only pay tax on 90% of your foreign pension payments (10% is exempt from tax). Check with your pension provider to find out how you ll be taxed. You pay UK tax on unauthorized payments from your foreign pension, e.g. some lump sums and early payments Rent from property You pay tax in the normal way on overseas property. But if you rent out more than one, you can offset losses against other overseas properties Certain types of employment income You usually pay tax in the normal way if you work both in the UK and abroad. There are special rules if you work: on a ship or in the offshore gas or oil industry for the EU or government, or as a volunteer development worker P a g e 6 FKGB Guide to UK Tax Returns 2015

9 7. If You Are Taxed Twice You may be taxed on your foreign income by the UK and by the country where your income is from. You can usually claim tax relief to get some or all of this tax back. How you claim depends on whether your foreign income has already been taxed. There s a different way to claim relief if you re a non-resident with UK income If you ve already paid tax on your foreign income You can usually claim Foreign Tax Credit Relief when you report your overseas income in your tax return. How much relief you get depends on the UK s double-taxation agreement with the country your income s from. You usually still get relief even if there isn t an agreement, unless the foreign tax doesn t correspond to UK Income Tax or Capital Gains Tax What you ll get back You may not get back the full amount of foreign tax you paid. You will get back less if either: a smaller amount is set by the country s double-taxation agreement the income would have been taxed at a lower rate in the UK HMRC has guidance on how Foreign Tax Credit Relief is calculated, including the special rules for interest and dividends in Foreign notes (2014). You can t claim this relief if the UK s double-taxation agreement requires you to claim tax back from the country your income was from If you haven t paid tax on the foreign income You have to apply for tax relief in the country your income s from if: the income is exempt from foreign tax but is taxed in the UK, e.g. most pensions required by that country s double-taxation agreement Ask the foreign tax authority for a form, or apply by letter if they don t have one. You ll then need to prove you re eligible for tax relief by either: P a g e 7 FKGB Guide to UK Tax Returns 2015

10 completing the form and sending it to HMRC - they ll confirm whether you re resident and send the form on to the relevant country including a UK certificate of residence, if you re applying by letter 7.3. Capital Gains Tax You ll usually pay tax in the country where you re resident and be exempt from tax in the country where you make the capital gain. You won t usually need to make a claim. You have to pay Capital Gains Tax on UK residential property even if you re not UK resident When to claim relief There are different rules if your gain comes from an asset that either: can t be taken out of the country, e.g. land or a house you re using for business in that country You ll need to pay tax in both countries and get relief from the UK. 8. UK Real Estate Taxes An overview of UK taxes on an individual neither resident nor domiciled in the UK who acquires, holds and/or disposes of UK real estate Taxes on Acquisition On the purchase of residential real estate in the UK (other than Scotland), stamp duty land tax (SDLT) is payable at rates up to 12%. The SDLT rates apply to 'slabs' of the consideration. There is no SDLT on the first 125,000, 2% on the next 125,000, 5% on the next 675,000, 10% on the next 575,000 and 12% on any amount over 1.5 million. There is no value added tax (VAT) chargeable on a supply of residential property Taxes on Disposal If the UK real estate is held as a passive investment (not held for property development, etc.) by an individual not resident in the UK, there was no UK tax on a gain realised on a disposal before 6 April But gains over market value on 5 April 2015 (or subsequent cost) realised on disposal of UK residential real estate are now subject to capital gains tax (CGT). P a g e 8 FKGB Guide to UK Tax Returns 2015

11 The CGT charge is at 18% for basic rate taxpayers and at 28% for higher and additional rate taxpayers. The applicable rate will be determined by reference to the non-uk resident individual s UK income levels for the relevant tax year. They will be entitled to the CGT annual exemption Taxes on Income from UK Real Estate Any rental income is taxable in the UK irrespective of where the owner of the property lives. Income tax on the rents, net of deductible expenses, is subject to income tax at from 20% to 45% (that top rate being reached if the owner s annual UK income exceeds 150,000). The expenses deductible in arriving at the profit include local property taxes, insurance, repairs, rental agents commission, etc., but not depreciation or capital expenditure. If the property business is financed by a loan, the interest on that loan is also deductible as an expense. In certain cases, if the loan is secured from an overseas lender, UK tax must be deducted at source in paying the interest. 9. Penalties for Non-Compliance 9.1. Late Filing Penalties Day one: You will be charged an initial penalty of 100, even if you have no tax to pay or you have already paid all the tax you owe Three months late: You will be charged an automatic daily penalty of 10 per day, up to a maximum of 900 Six months late: You will be charged further penalties, which are the greater of 5 per cent of tax due or 300 Twelve months late: You will be charged yet more penalties, which are the greatest of 5 per cent of tax due or 300. In serious cases you face a higher penalty of up to 100 per cent of the tax due 9.2. Penalties for paying your tax late Thirty days late: You will be charged an initial penalty of 5 per cent of the tax unpaid at that date P a g e 9 FKGB Guide to UK Tax Returns 2015

12 Six months late: You will be charged a further penalty of 5 per cent of the tax that is still unpaid Twelve months late: You will be charged a further penalty of 5 per cent of the tax that is still unpaid These penalties are on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until your payment is received. 10. Questions? Expert UK accountants at FKGB Accounting stand ready to help you if you have any questions on the information provided in this booklet. This information is correct to the best of our knowledge on the date of publication (November 2015). It is intended to provide general guidance and should not be regarded as a basis for ascertaining tax liability or as a legal opinion. In such situations, specific advice should be taken. About FKGB FKGB Accounting is a UK accountancy practice based in Tel Aviv that offers a full UK accounting service, including structuring and incorporating your UK company, setting-up and running the VAT payments, paying UK staff, and filing all required accounts and tax returns to the UK authorities. FKGB specialises in helping Israeli companies to set up, trade and expand their businesses in the UK and Europe. They work with many established companies in the UK and Israel, as well as with new start-ups and small businesses. There are many cost benefits to using off-shore UK accountants. For example, we don t charge VAT on personal UK tax returns, so our clients pay 20% less. Contact us today to find out how we can help you and your company. Contact us at info@fkgb.co.il P a g e 10 FKGB Guide to UK Tax Returns 2015