The Statutory Residence Test was announced by the Treasury in the 2011 Budget and will be introduced on the 6^th April to clarify the definition of a UK resident.

As part of the new Finance Bill, the three-part assessment will determine exactly how many days an individual can spend in the UK before having to pay its taxes.

The Treasury admits existing legislation has been “complicated and unclear”, with experts agreeing that conditions for residential status have been largely decided by court cases.

In 2011, millionaire businessman Robert Gaines-Cooper lost his appeal against HMRC’s decision to classify him as a UK resident. Judges ruled that the Briton, who had moved to the Seychelles, had not made a “clean break” from the UK because he still owned a property in Henley-on-Thames and had made trips to Ascot, among other reasons.

If two initial tests cannot ‘conclusively’ prove your residential status, a third may look more closely at your connections to the UK, such as family, property and work.

The definition of a UK tie will include staying in temporary accommodation with relatives (including siblings, grandparents and children) for at least 16 nights. Furthermore, if a property is available to you for more than 91 days, you may only stay there for one night before it is considered a British tie.

The test, part of a wider crackdown on tax avoidance, may also examine how much time you’ve spent in the UK in previous tax years.

In keeping with the current rules, anyone who is in the UK for 183 days or more in any one tax year, or more than 90 days on average per tax year over four years, is viewed as a resident.  This will also apply if you have a home in Britain for more than 90 days, visit it on 30 separate days and have a period of 91 consecutive days where you do not live in a home abroad for more than 30 days.

From April, some expats may need to correlate the number of days they spend in the UK with the number of British connections they have. Longer periods may require fewer ties if you want to be classified as a non-resident, with only one connection allowed if you spend over 120 days in the country.

Price Waterhouse Coopers says the legislation “represents the most significant change to the UK’s tax residence rules for over 100 years”. It advises expats to anticipate what days they’ll be in the UK during the next tax year and consider “an appropriate way” to record that time.

The firm also believes individuals should consider whether they have any control over a “range of connection factors” that could make them liable for tax after April, such as available accommodation, family circumstances, UK employment and self-employment.

A draft copy of the rules is available on the Treasury’s website (www.hm-treasury.gov.uk)

Company Profile

Which Offshore is an online consumer resource for those seeking information and advice pertaining to matters related to expatriate life and offshore finance. If interested in more information on expat tax, please visit – http://www.whichoffshore.com/offshore-tax

There are many wonderful aspects to working as a contractor. You’ve got the freedom to work the hours that suit you. You can select projects that you are genuinely interested in without having to deal with office politics. If this is a career step you are considering taking, then you have to bear in mind that you’ll also have responsibility for managing all of your tax and administrative matters.

However, if you’re busy tendering for and working on projects (remember that it’s up to you to source contracts) you might well find you don’t have as much time and energy to dedicate to doing all the paperwork as you would like.

As such, it is worth enlisting the help of an accountant to assist you with completing personal tax returns. Even if you’re fairly confident when it comes to filling out forms and calculating how much tax you need to pay, I certainly recommend you seek out expert help. Doing so means you can be sure of meeting all your financial obligations and, as you don’t have to do all your paperwork by yourself, it could free up more time for you to spend with your loved ones or indeed sourcing other contract work.

Hiring an accountant to help file your tax returns ought to make the process simpler and less time-consuming; however, I think it’d be a mistake to automatically select the first company you find in the phonebook or after doing a search online. In much the same way as you would choose a car insurance provider, it’s important to spend time looking at a range of accountants so you are in a position to select one that offers the services you require for a competitive price.

One vital thing that needs considering is the manner in which an organisation charges for their services. Whether it is done on a weekly or monthly basis, I always advise you enquire about this, so you can keep on top of money management. It’s also worth finding out if there are any entry or exit fees attached to their services.

To make sure the organisation that you wish to handle your tax accounts is reputable, you might also want to look to see what, if any, industry accreditations and awards they have.

In addition, I suggest you find out if a payroll and accountancy services provider is approved by organisations such as Investors in People and Customer Service Excellence. Contractors should also check to see if an accountant has links with leading recruitment bodies like the Association of Professional Staffing Companies and Professional Passport.

Other steps worth taking include visiting a company’s testimonial page to read feedback left by previous customers and confirming whether payroll services like invoicing and bank entries are offered.

Whichever adviser or accountant you choose, you ought to bear in mind that you will need to provide them with written permission that permits them to deal directly with HMRC when managing tax affairs. This can be done by completing the tax authority’s 64-8 Authorising Your Agent form, which can be downloaded for free from its website.

As HM Revenue and Customs (HMRC) threatens 300,000 late filers with debt-recovery actions that could include the seizure of goods, accountancy experts have issued a warning to contractors over the looming deadline for the filing of online tax returns for 2011-12.

Tax specialist Nixon Williams has urged all self-employed workers to be aware of the potential fallout that can result from a late submission to HMRC.

Andrew Nixon, Director at the company, offered advice to contractors and freelancers on how to cope with their annual tax burden.

“The introduction of online tax returns has greatly eased the process of filing. However, contractors that fail to meet HMRC’s deadlines risk incurring significant penalties. By using a specialist practice like Nixon Williams, they can ensure that they don’t fall foul of the authorities, as well as gaining peace of mind that all their tax affairs will be in order,” he said.

Those who issue a late submission to HMRC can expect to be stung with a minimum penalty of £100. However, the longer the filing is stalled, the greater the forfeiture.

Tax authorities will exact further penalties following delays of three, six and twelve months – which could see self-employed workers forced to pay sums upwards of £1,600.

Contractors and freelancers that file a late return also risk having their yearly tax contribution estimated by HMRC. This sum will have to be paid, in addition to the interest on any late payments.

When dealing with the growing complexities of tax obligations, self-employed workers need to turn to an accountancy firm they can trust.

Nixon Williams aims to provide the best service available on the market and constantly reviews its processes to ensure it offers value and transparency.

All clients are assigned to a personal account handler and the company’s stance as a specialist practice means contractors and freelancers will be in safe hands.

For more information, visit Nixon Williams’ website today, or get in touch with their friendly team on 01253 362 062.

Media Contact Details

Name: Mark Clarke

Company: Nixon Williams

Email: mark.clarke@nixonwilliams.com

Tel: 01253 362046

Is it inevitable that multinational companies pay pitifully small sums in tax relative to huge profits? Not necessarily because amid growing political and public outrage at how multinationals organise their tax affairs, a new report today suggests there could be an alternative.

Towards Unitary Taxation of Transnational Corporations by Sol Picciotto, emeritus professor at Lancaster University, presents a blueprint for a complete overhaul of international corporate tax rules.

Today multinationals are able to avoid tax because global protocols, known as the Arm’s Length Principle (ALP), treat their extensive networks of subsidiaries as separate businesses. Under ALP, businesses can structure their operations using low tax jurisdictions to help reduce their tax exposure.

It is why, ‘consumer-facing’ companies like Amazon, according to Picciotto, classes its UK consumer operation as a logistics centre fulfilling orders that is supplied by a related, but legally separate Luxembourg ‘sales’ company.

And it is how Amazon, completely legally, last year paid no corporation tax on its £2.9bn net UK sales. Amazon’s profits from its UK online shoppers were funnelled into Luxembourg – widely considered to have an extremely opaque financial and tax system.

Related article: MPs slate HMRC and big business for ‘outrageous’ tax avoidance

Draining profits
Multinationals repeat the same trick with intellectual property (IP). Global businesses establish subsidiaries tasked with the job of owning IP in places like Switzerland. The IP subsidiary charges operating companies belonging to the same company for the privilege of using IP. The effect is the same: a draining of taxable profits.

Earlier this week, the EU suggested tax abuse cost the European economy €1 trillion. And Picciotto pins the blame on the Arm’s Length method, which has dominated global business for 80 years. He argue it is broken and a new way of looking at multinationals is required.

Rather than separate business entities, multinationals should be seen as a single unit with profits ‘apportioned’ in the country where they accrue, subject to legitimate costs, he argues.

Unitary taxation would require a company to publish a global consolidated set of accounts so a true picture of its performance could be established. In this way, tax authorities would be better placed to understand the extent of a company’s economic presence in any one country.

It is a simple concept. But it is not new. In the 1920s, the state of California used a form of Unitary Taxation with profit apportionment to bring to heel rogue film studios in the 1920s who siphoned their profits through neighbouring Nevada.

Only little people pay tax

Last week, respected finance thinker John Kay, in the Financial Times, commented: ‘The repeated revelations that many major companies pay little or no tax, even if they do so by legal means, fuels a public sense that tax is mainly for little people. We need only look at Greece to see how socially, politically and economically corrosive that perception can be. . . . Well conceived apportionment is the best – perhaps only – answer to the problem presented by multiple company tax jurisdictions.’

It is now up to the Paris-based OECD, which is the ultimate global tax authority, to decide whether there is a more effective model of taxation than the current discredited system.

Given how easily big business can downsize profits, at the very least the OECD should consider commissioning studies to establish whether it has something to offer.

Historically, the OECD, encouraged by the UK, has resisted all calls to explore unitary taxation. But it surely cannot ignore a shifting public mood that is demanding change?

Written by Nick Mathiason. This article was first published by The Bureau of Investigative Journalism.

Nick Mathiason, in his capacity as a paid consultant with the Task Force on Financial Integrity and Economic Development, helped with the publication of Towards Unitary Taxation of Transnational Corporations.

The UK arm of US coffee chain Starbucks Corporation (Nasdaq:SBUX) announced today that it would pay more tax and change its current practice of claiming tax deductions for payments made to sister companies overseas.

Responding to criticism of its tax affairs in the UK, the company said that it was making a commitment to pay a significant amount of tax in 2013 and 2014, regardless of whether the company is profitable in those two years.

Starbucks is one of a number of multinational corporations, along with Amazon and Google, that have been accused of tax avoidance in relation to their operations in the United Kingdom.

The coffee company has been trading in the UK for 14 years and has more than 750 outlets across the country. However, it emerged recently that in all that time it has paid just GBP8.6m in corporation tax, and nothing at all in the last three years. Starbucks insists that it has complied with all UK tax laws but the company has faced a backlash from customers, as well as from MPs, the media and tax campaigners, over its position.

Its UK managing director, Kris Engskov, said that changes announced by the company today will result in Starbucks paying higher corporation tax in the UK. In particular, the company will not claim tax deductions for royalties and intercompany charges.

Starbucks estimates that the changes will cost around GBP10m in extra tax annually over the next two years, in addition to the other taxes it already pays.

All four non-executive board members of HM Revenue & Customs (HMRC) have extensive links with big business, leading to wide-ranging calls for HMRC to make its key strategic body more representative of British commerce.

Calls for HMRC governance reform follow widespread public and political condemnation of  the legal tax-avoidance tactics used by multinationals such as Google, Amazon and Starbucks. Today, a powerful committee of MPs told HMRC and the Treasury ‘to get a grip’ on big business’s tax affairs.

The Board

HMRC’s four non-executive board members, responsible for supporting its ‘strategic direction’, have worked in and continue to work in multinationals with turnovers and employee numbers greatly superior to 99 per cent of UK businesses, including KPMG, Tesco, BT Group and Smith & Nephew.

There is no suggestion of financial impropriety by any of the companies or charities with which HMRC’s non-executive directors are associated.

But Brian Binley MP, chairman of the All Party Parliamentary Group for Small Business, said: ’If you’re going to put people on quasi-government boards then for God’s sake make sure they know what business is all about. And the people who know what business is about are the people who build, grow and run small and medium-sized enterprises (SMEs).

‘Corporate business and corporate governance have mutual interests, which are not in the interests of that which will grow Britain, which is the SME sector. We have placed corporates, and particularly multinational corporates, on a pedestal, as though these are the great businessmen of our day.’

Related article: MPs slate HMRC and big business for outrageous tax avoidance 

All four non-executive board members are currently working or have had lengthy experience working for big businesses. And of the 15 companies that they are now working for according to non-updated HMRC profiles and Bureau research (in roles as chairman, board member, non-executive chairman, founder, non-executive director and trustee), only three had a turnover of less than £535,000 – the UK small business average in 2011.

TUC general secretary Brendan Barber said: ‘For the HMRC to be an effective collector of taxes and for it to act in the best interests of all sectors of our economy and society, there is a real case for making the board more balanced than is currently the case.

‘Of course big business has a role to play on the board, but its voice should not be listened to at the expense of everyone else. HMRC must become a tax authority representing the interests of all taxpayers – from the individual right up to the largest multinational. That means small business, civil society and unions need to be as much involved as the large business community.’

‘Guidance and Advice’

The HMRC has an eight-person board that sits a minimum of six times a year. The four non-executive board members receive a base yearly fee of £30,000 and three receive an additional £5,000 for their roles as sub-committee chairs. The role of each non-executive director is to ‘bring guidance and advice ‘ and to support HMRC’s ‘strategic direction’.

‘Non-Executive Directors bring valuable external and commercial experience to HMRC,’ said the non-executive directors in a joint statement. ‘However, they are not responsible for the day-to-day management of HMRC, nor are they responsible for tax policy or for handling confidential individual or corporate taxpayer issues. Furthermore, we require them to raise any potential conflicts of interest whether real or perceived.’

The statement continued: ‘HMRC appreciates the importance small businesses play in the UK economy and has developed a dedicated approach to supporting Small and Medium Enterprises (SMEs). Our specialist SME teams understand their specific needs and support them through help and education, making it as easy for them as possible to get things right, so they can focus on running their business.’

Biased towards big companies?

HMRC claims to help small businesses by improving communication and simplifying tax procedures. Earlier this year, HMRC published a report called Making tax easier, quicker and simpler for small business, which responded to the Treasury’s Office of Tax Simplification two-year review.

Yet small firms continue to complain that HMRC is biased in favour of larger companies. In January, the Federation of Small Businesses (FSB) responded angrily to HMRC plans to scale up spot checks on record keeping. This came in the wake of  criticism that HMRC’s former permanent secretary for tax, Dave Hartnett, allowed Goldman Sachs to avoid paying about £10m in interest.

During a 2010 Public Accounts Committee hearing, Labour MP Austin Mitchell criticised Hartnett, saying he and HMRC gave ‘a big advantage to Goldman Sachs – you would not give such an advantage to any small business’.

‘I think they’re unethical,’ Binley says of multinational corporations currently in the firing line, such as Google, Starbucks and Amazon. ‘They may be legally correct but they are ethically way out of line. I think many people in small business abhor their view of how you should twist the taxpayer in order to achieve your own interests.’

The chair of HMRC’s Ethics and Responsibilities Committee and non-executive board member Phil Hodkinson declined to give an opinion on the ethics of recent big business scandals, telling the Bureau: ‘[T]he HMRC Ethics and Responsibilities Committee is responsible for the ethics and responsibilities at HMRC.’

Registering dissatisfaction

A 2012 HMRC survey of more than 1,100 small businesses found that while many experiences in dealing with HMRC are ‘often more positive than anticipated … a significant minority do not believe that HMRC is really on their side: 11% have experienced difficulties with the tone of communication from representatives of HMRC and 70% of those do not believe HMRC has a genuine interest in helping them as a small business.’

Government statistics show small businesses with fewer than 49 employees make up more than 99% of the UK’s 4.8 million private sector businesses and represent one third of all £3,100bn business turnover. A February survey by the FSB found the average turnover of member businesses in the past financial year was £535,000.

While most recent attention has focused on multinational corporations, a report by the National Audit Office released last week confirmed that HMRC is currently investigating 41,000 cases of tax avoidance by small business and individuals. HMRC estimates that the amount of tax avoided by small businesses and individuals has increased to £10.2bn while the amount of tax avoided by large businesses has decreased.

The US-based Ferraro Law Firm announced said that the US tax collection agency Internal Revenue Service (“IRS”) has awarded USD 38m to one of its clients for providing information about a tax avoidance scheme perpetrated by one of the nation’s largest corporations.

According to the firm, both the name of the company and the name of the whistleblower have remained completely confidential throughout this whole process, and remain so even after payment of this award, so this large payment by the IRS proves that their program can reward corporate whistleblowers without putting themselves and their jobs at risk.

It added that, while the precise amount of the award was USD 38,037,899, the amount of tax the IRS collected from the company was not revealed. However, by law, the IRS must pay an award of between 15 to 30% of the amount it collected from the tax whistleblower.

Through detailed submissions to the IRS Whistleblower Office, The Ferraro Law Firm said it has brought to the government’s attention taxpayers who have collectively underpaid their taxes by more than USD 100bn.

The IRS established the Whistleblower Office in 2007. For more information on The Ferraro Law Firm’s tax group and tax whistleblower submissions visit www.tax-whistleblower.com.

Starbucks has paid just £8.6m in UK taxes over the last 14 years according to a special report by Reuters.

The news agency also reports that the Seattle firm has paid no income tax whatsoever in the past three years despite reporting sales of £1.2bn and telling investors that its UK arm is profitable.

Starbucks is the second largest global restaurant or cafe chain behind McDonalds with a market capitalisation of $40bn (£24.8bn). Its nearest competitors are paying multimillion pound tax bills to the Treasury.

But the company has been using entirely legal tax avoidance schemes to report no profits and so escape paying UK tax.

In a lengthy investigation Reuters uncovered the avoidance scheme by comparing company accounts with transcripts of 46 conference calls with investors and analysts. In doing so it revealed the differences between what the company was reporting in its financial accounts and what it was telling analysts in briefings.

The transcripts show Starbucks officials routinely described their UK business as profitable and a model for the US market. But accounts show it has made almost £150m losses since 2008 in the UK.

In response to the report Starbucks’ chief financial officer Troy Alstead said the company strictly follows accounting rules. And a spokeswoman told the news agency: ‘We seek to be good taxpayers and to pay our fair share of taxes.’

Reuters questioned Alstead on the apparent disconnect between the touted health of the UK operation to investors and its reported losses. He responded by suggesting the UK business was not doing as well as it had in the past. ‘The UK is very troubled, unfortunately. Historically it has performed a little bit better than it does now,’ he said.

He  added the corporation is taking ‘very aggressive’ action to improve the British subsidiary’s performance.

One of many

Starbucks is the latest multinational company in the headlines avoiding tax in the UK.

The so-called ‘Big Four’ technology companies have been reported as paying no or little tax too.

Amazon, Facebook, Google and Apple have in total paid only £22.5m to the UK exchequer, according to analysis by The Sunday Times.

The paper estimates the tech giants’ true tax liability as upwards to £826m. Facebook, which this week launched a development and engineering centre in London, paid just £238,000 tax in 2011 on an estimated liability of £21m.

Last year, too, an undercover sting by Bureau journalists also revealed how global telecom giant Vodafone, one of Britain’s biggest companies, avoided massive sums in UK tax.

The Bureau found billions of pounds of profits were apparently being allocated to Vodafone branches in Switzerland where hardly any business was being done.

The modest tax bills for US firms has spurred outraged calls for action. Labour MP Margaret Hodge, chair of the public accounts committee, said HMRC should look into Starbucks’ tax affairs.

Richard Murphy of Tax Research UK told the Guardian UK tax law has created an ‘uneven playing field’ that means ‘UK businesses are disadvantaged against foreign businesses’.

In February 2012 two schemes devised by Barclays Bank to slash tax bills were shut down by the Government. The Treasury closed two loopholes that were netting the bank hundreds of millions of pounds.

George Osborne changed the rules in his 2012 Budget. The new regulations were retroactive, coming into force days before Barclays began exploiting the loopholes. A Financial Times editorialbridled at this as a ‘step too far’.

The paper said: ‘Instead of trying to undo its past mistakes, the government needs to prevent future ones by fixing a tax system that invites avoidance.’

Written by Jack Serle for the Bureau of Investigative Journalism.

British clients of an HSBC-owned private Swiss bank that is the focus of a major HM Revenue & Customs investigation are alleged to have evaded tax by an amount likely to exceed £200m, according to a report by the Bureau of Investigative Journalism.

The potential scale of the tax loss will heighten pressure on trade minister Lord Green, who was chairman of HSBC’s private banking division during the period the HMRC is investigating. He is already facing questions from MPs about the bank’s links to Mexican drug
cartels and terrorists that came to light this month in a devastating US Senate investigation.

Emails released as part of that investigation showed Green was twice warned about compliance failures and allegations that huge sums were laundered by Mexican drug gangs through a subsidiary of HSBC.

Green, chairman and previously chief executive of HSBC until 2010, when he entered government, last week spoke of his regret at HSBC’s failures to implement anti-money laundering protocols.

Now it has emerged that the sums allegedly evaded by Britons using HSBC’s Swiss bank are massive. HMRC told the Bureau “the early indications are that the amounts are significant”.

The HMRC in 2010 received data smuggled out of HSBC by a former bank IT worker, now under arrest in Spain and facing possible extradition to Switzerland, that contained details of 6,000 UK-linked individuals, companies and trusts. Two senior tax investigators who both worked at HMRC told the Bureau the average amount evaded in the 6,000 accounts is likely to range between £33,000 and £50,000.  Three weeks ago, HMRC secured its first high profile conviction from the HSBC Swiss bank data. Property developer Michael Shanly, estimated to be worth £132m, admitted evading £430,000 in inheritance tax.

HSBC documents show that Green was chairman and a director of HSBC Private Banking Holdings (Suisse) SA for ten years from 2000 — the bank at the centre of HMRC’s investigations. It is unclear if the investigation affects the period when Green was in control.

It has been suggested wealthy Britons have placed £120bn in Swiss banks with £6bn in HSBC Swiss branches. HSBC says it does not condone tax evasion and it is the responsibility of clients to ensure they pay appropriate tax rates.

Labour shadow finance secretary Chris Leslie said: “We learn more and more each day about the network of high risk affiliates and tax haven linkages which HSBC and its senior executives were clearly familiar with. It is therefore more important than ever for those individuals now determining the future of banking culture and policy in this country to set out what they know about these things, and whether they took appropriate steps to defend the rules on tax and propriety.”

Green last week held a series of Olympic-related meetings with world business leaders to secure new contracts and investment for British companies.

Under his tenure, HSBC withstood the global economic crisis without requiring a taxpayers’ bailout. But the bank has in the past faced questions over its anti-corruption compliance. In 2010, a US Senate investigation criticised it for lax oversight of accounts held by Angolans.
HSBC, the biggest western bank in Egypt, last year faced strong criticism for its connections to the Mubarak regime.

A Church of England lay preacher, Green co-chaired the Egyptian British Business Council in 1998, which reported to then British and Egyptian prime ministers Tony Blair and Kamal Ganzouri.

The UK government said on Monday that it planning a new proposal which is designed to force finance companies to hand over the client lists of tax dodgers in a new plan which is intended to curb tax avoidance schemes.

The new proposal by the UK government is said to be part of a consultation intended to curb tax avoidance. According to a report by the BBC released today, treasury minister David Gauke will tell the Policy Exchange think tank that operators of tax avoidance schemes will be “named and shamed” if they do not sticking to the rules.

According to the Treasury tax avoidance is said to represent almost 14% of the tax gap in the UK. Under the new proposals promoters of tax avoidance schemes in the UK will be forced to hand over customer databases in an effort to counteract the difficulties often encountered by officials when investigating schemes which are based off-shore.

Although these schemes are not illegal firms which use them will have to say how all their tax avoidance schemes work, not just the ones for which they are being pulled up. These new proposals are being considered alongside plans to legislate tax avoidance through a general anti-avoidance rule. Companies who flout the new rules could face fines in excess of GBP1m.

Gauke said “We are building on the work we have already done to make life difficult for those who artificially and aggressively reduce their tax bill…These schemes damage our ability to fund public services and provide support to those who need it.”