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Taxing rights
Double taxation relief on employment income.
My client who has been UK resident for all of his life has found employment working in the Kingdom of Saudi Arabia (KSA).
He will work there full time for a Saudi employer. No UK duties are involved and the Saudi employer has no subsidiaries or any UK presence.
He left the UK part way through the tax year (6 November 2020) and meets all of the criteria for split year treatment as at 5 April 2021 and at the date of this article. There are no immediate plans for him to return to the UK and his employment is open ended.
Given that the world is a very uncertain place currently, it is always possible that he could have to return to the UK before 5 April 2022 or after this date he will exceed his maximum UK days; either event would make him UK resident (for the purpose of the question I will ignore HMRCs recent statements relaxing rules for exceptional days).
In such circumstances I would look to a double taxation agreement (where one exists) to see if the foreign country has taxing rights which KSA would have.
My issue is that KSA does not charge income tax and given employment articles effectively give relief by exemption and that the UK doesn’t have treaty taxing rights leads me to the conclusion that should my client become UK resident while still treaty non-resident his salary escapes taxation.
While this would be a happy outcome for my client (and I recognise the UK/KSA treaty would limit this to 183 UK days) the conclusion does seem a little perverse and I would be interested in readers’ opinions.
I look forward to receiving replies from Taxation readers.
Query 19,827 – Laurence of Absurdia.
Shares
Determining the base cost of gifted shares.
I have just taken on a new client, who operates as a consultant. He has told me that he was given shares in a company a few years ago in lieu of a fee for work done for the company.
The company is unquoted and the shares involved amounted to significantly less than 0.5% of the total shareholding. He has told me that the value of the shares received was not included as a receipt in his accounts, on the basis that they were free shares. There is no connection between my client and the company for whom the work was done.
My client has now decided to sell his shares. The company has an estimated value of circa £30m and we are instructed to prepare illustrative calculations of the capital gains tax which will be payable.
I would appreciate readers’ advice on how to determine the base cost of the shares. Should I take a proportionate value of the company at the time of the gift (discounted because of the small minority holding) or should it be the value of the work done?
Is the position affected by the fact that the initial acquisition of the shares was not treated as a trading receipt?
I look forward to receiving replies.
Query 19,828 – Adviser.
NIC classification
Using property income towards National Insurance.
I have a client in her early 60s. She has recently retired after working most of her life, but she has an incomplete National Insurance record.
Class 3 contributions are a possibility, but she does have a property which she is thinking of letting out – it will not qualify as a furnished holiday let.
I know that there was some discussion in the past about income from letting attracting class 2 contributions. What is the latest position here? If she wants to pay class 2 on the income (the amount is unlikely to be large enough to attract class 4) to enhance her contribution record is there anything to stop her doing so?
I look forward to receiving readers’ opinions.
Query 19,829 – Confused.
Compensation deal
Compensation in goods rather than cash – what about VAT?
My client runs a haulage business, which is registered for VAT. The business has recently agreed a compensation deal with a German manufacturer, linked to faulty parts in some of the vehicles, which had to be replaced at a big cost to my client.
Instead of paying a monetary amount, the German supplier has instead agreed to supply three new lorry engines, which will be imported from Germany with a value of £1 shown on the paperwork.
The client has accepted this proposal. However, what do we do about VAT – both import VAT on arrival and also output tax on the client’s next VAT return? Is customs duty an issue as well when the goods arrive at Dover?
My client will be declared as the importer of record when the goods arrive.
Readers’ thoughts would be appreciated.
Query 19,830 – Laurie.
