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By default, UK residents are subject to UK tax on a worldwide basis – meaning that their UK and overseas income and gains are subject to UK tax.

Anyone claiming to be domiciled outside the UK who is a resident in the UK for tax purposes should seek expert advice on the matter. A very brief outline of the current tax regime for UK residents and non-domiciled individuals is set out below.

What is The Remittance Basis of Taxation?

Individuals who are UK residents but non-UK domiciled can elect to pay tax on the ‘remittance basis’ which refers to paying UK tax only on UK sources of income and gains and those remitted to the UK from foreign sources.

The rules concerning what constitutes a taxable remittance are complex. However, to summarise, any foreign income or gains are subject to tax in the UK if those funds are transferred or effectively enjoyed by the non-dom in the UK by any means. This also applies to the case of a close family member such as a spouse, child, or grandchild under 18 who has the effective employment of the funds following a gift outside the UK.  In addition, bringing money to the UK through a trust or company can also give rise to a UK tax liability.

Claiming for The Remittance Basis of Taxation

Once a non-dom has been a UK resident for 7 out of the previous 9 tax years, the remittance basis of taxation will only be available if they make a lump-sum payment of £30,000 for the year concerned.

This charge increases to £60,000 for those who have been a UK resident for 12 out of the past 14 tax years.

Once the individual has been a UK resident for 15 out of the past 20 tax years, the remittance basis will no longer be available and the individuals will be treated as ‘deemed’ UK domiciled for all tax purposes and their worldwide estate would also fall within the scope to UK Inheritance Tax.

A decision on whether or not to pay the remittance basis charge can be made on a year by year basis, but it should be appreciated that foreign income or gains of a year for which the remittance basis is claimed and not remitted to the UK will still be subject to UK tax in a subsequent year if it is remitted to the UK.

Any claim for the remittance basis for any tax year will mean that the usual income tax personal allowance and capital gains tax annual exemption will not be available.

However, those with modest amounts of foreign income or gains (under £2,000 per annum) are not required to pay the charge and they may continue to benefit from the remittance basis of taxation (and also preserve their entitlement to the personal allowance and annual exemption).

Earlier this year, the Chancellor Rishi Sunak announced a new super-deduction to encourage businesses to make additional investments and to bring planned investments forward.

Chancellor Rishi Sunak said: “With the lowest corporation tax in the G7, we need to do even more to encourage businesses to invest – for decades we have lagged behind our international peers. We need to unlock cash reserves so today I can announce the super-deduction. For the next two years when companies invest, they can reduce their tax bill with super deduction by 130% of the cost.”

Between 1 April 2021 and 31 March 2023, companies can claim a super-deduction in the form of first year relief of 130% on qualifying plant and machinery additions.

This means a company spending £100,000 on qualifying assets would have £130,000 deducted against its taxable profits, resulting in a tax saving of £24,700 per £100,000 of expenditure.
Companies can also claim a 50% first year rate deduction for qualifying special rate assets, such as long-life assets and integral features. This would mean a £50,000 upfront deduction for every relevant £100,000 that’s spent, with the remainder attracting allowances at 6% per annum.

WHAT TYPE OF EXPENDITURE CAN BE CLAIMED?

The type of expenditure which can be claimed in respect of the 130% super deduction and 50% first year allowance is generally quite wide.

Any plant and machinery which would generally qualify for the main rate pool allowance and special rate pool allowance will qualify for the super deduction and first year allowance respectively. This can include:

• Kitchen equipment, fridges, ovens
• Computer equipment and servers
• General fixtures and fittings such as tables, chairs, paintings etc.
• Air con units
• Lighting

The list is not restrictive to what has been mentioned above, however these are just some examples. Certain assets such as cars and second-hand equipment and leased plant & machinery do not qualify.

WHAT TYPE OF BUSINESSES CAN BE CLAIMED?

Most types of businesses can claim, including the fit-out, repair or refurbishment of offices, retail and shopping centres, factory and manufacturing plants, mixed use developments, restaurants, nursing homes, hospitals, hotels and banks.

SUPER-DEDUCTION TAX EXAMPLE

The super allowance can particularly be useful for restaurants, bars and hotels.

For example, a hotel spends £1m on qualifying plant and machinery as part of their refurbishment and decides to claim the super-deduction. This will mean the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits. Deducting £1.3m from taxable profits could save the company up to 19% of that – or £247,000 – on its corporation tax bill.

DATE OF EXPENDITURE

The general rule is that the expenditure must be incurred on or after 1 April 2021 and before 1 April 2023. Expenditure is “incurred” on an asset as soon as there is an unconditional obligation to pay for it. Typically, this is the date of delivery, but it can also be the date when a certificate is issued.

Earlier this year, HMRC issued a statement, warning individuals that they will soon be issuing ‘nudge letters’ which are specifically targeting cryptocurrency investors.

A copy of the letter which has now seen by Prysm Financial, states “We have information that indicates you hold or have held, investments in crypto assets (also known as cryptocurrency)” and prompts the recipient to review their Capital Gains Tax (CGT) position.

It was reported back in August 2019 that crypto exchanges that do business in the UK, including Coinbase, eToro and CEX.IO had received letters from HMRC requesting customer data and transaction histories. HMRC regularly gathers data from a range of information sources using powers provided by Parliament.

TAX ON CRYPTOCURRENCY

Despite HMRC previously suggesting that some cryptocurrency transactions may be exempt from tax as gambling profits, in December 2018, HMRC clarified that for most investors, cryptocurrency will be subject to CGT at either 10% or 20% depending on whether the investor is a basic or higher rate taxpayer.

This means individuals must calculate the gain or loss whenever they “dispose” of a cryptocurrency at the sterling equivalent value, on the day of disposal.

HMRC further clarified that a “disposal” arises when: –

• Selling cryptocurrency for money (e.g., GBP, USD, EUR)
• Exchanging cryptocurrency for a different cryptocurrency (e.g., exchanging Bitcoin to Ripple)
• Using cryptocurrency to pay for goods or services
• Giving away cryptocurrency to another person

Most cryptocurrency investors would benefit from an annual CGT tax free allowance of up to £12,300, however this allowance is accumulated with any other disposals such as stocks, shares or property.

In certain circumstances, for example a day-trader involved in high-frequency buying and selling of cryptocurrency, mining or airdrops, may be considered as trading and will therefore subjected to Income Tax.

Overseas businesses without a UK base, who wish to hire their first UK employees can ensure that their staff are paying their national insurance and tax through a DPNI scheme.

DPNI SCHEME OVERVIEW

Overseas employers with no base in the UK are unable to set up a UK payroll for their UK-based employees, meaning that the employees are responsible for this. However, the process of setting up a UK payroll can be complex and such individuals are usually required to use a PAYE Directs Payments procedure (DPNI) scheme, if eligible. Registering for the DPNI scheme ensures the direct payment of national insurance and tax contributions to HMRC

WHAT THIS MEANS

Although all UK residents are obliged to pay income tax and national insurance, it is usually the responsibility of the employer to deduct national insurance contributions from their employee’s salary, however, this is not the case for employers who are based overseas (with no base in the UK) – meaning that the responsibility falls on the employees. However, such employers should understand the DPNI schemes so that they can advise their employees based in the UK and eliminate any anxiety they may be having around ensuring their compliance with tax and national insurance regulations. Employers with no base in the UK are also not responsible to set up auto-enrolment pensions, however, should an employer wish to provide a pension or benefits, they can voluntarily opt for a standard PAYE scheme.

REGISTERING FOR A DPNI SCHEME

Checking eligibility for a DPNI scheme as well as registering for it can be a lengthy and complex process as various requirements must be filled – which can take up to 2 months to complete. The complexity involved in setting up a DPNI scheme will vary depending on where an employer is based as well as if any other income is generated from assets and activities (both in the UK and overseas). All required checks are in place for HMRC to confirm that the employees are required to pay national insurance in the UK and that they are paying the right level of tax.