Tag: Self Assessment

HMRC Worldwide Disclosure Facility (WDF)- India

What to do when you get a nudge letter from HMRC regarding your overseas assets, income or gains.

Do I need to make a worldwide disclosure?

If you receive a nudge letter (which starts as `Your overseas assets, income or gains`) from HMRC and after having checked your tax affairs you find that you need to make a WDF disclosure, you can follow this step by step guide.

`Prevention is better than cure` – It is wise not to wait for HMRC to find out about your worldwide income and send you a `nudge` letter. If you realise that you have undeclared foreign income or gains, immediately contact your tax adviser. Voluntary disclosures attract lower penalty rates.

Step 1 – Where possible, contact HMRC on the telephone number given on the nudge letter. They will give you more information about the foreign income in question, which will help focus the review of tax affairs and help in filing an accurate disclosure.

Step 2 – Send the certificate back to HMRC after ticking box 1.

Please note this is an important step because if the statement turns out to be false this could expose the tax payer; example by increasing disclosure years from 12 years to 20 years.

What actions do I need to take after sending the worldwide disclosure certificate back to HMRC ?

Step 3 – Register for the Digital Disclosure Service (DDS) on Worldwide disclosure webpage of gov.uk.

Please note 90 day time period starts from the date you notify HMRC using DDS not from the date you sent the certificate back mentioned in Step 2.

Step 4 – You have now 90 days to:

  • Gather all information to complete the disclosure.
  • Calculate the total tax bill including tax, duty, interest and penalties on a year by year basis.
  • Fill in the disclosure, using the unique disclosure reference number (DRN) given on WDF notification.
  • Gather information on maximum value of overseas assets you had in the last 5 years.

IMPORTANT: Worldwide disclosure should be full and frank .

What help is available to calculate income and gains ?

I have written a number of blogs on this topic, which you may find useful.

  1. WDF – Taxation of Interest Income from NRE / FCNR Deposits.
  2. WDF : Taxation of LIC Policy in UK.
  3. WDF : Foreign gains via non-resident company
  4. WDF : Foreign capital losses
  5. WDF : TDS on NRO Deposits in India
  6. WDF : Indian provident fund and UK taxation
  7. WDF : Indian Mutual funds and UK taxation
  8. WDF : Computation of Double taxation relief
  9. WDF: Compulsory land purchase in India
  10. WDF: Foreign income less than £2k
  11. WDF : Foreign agriculture income
  12. WDF : Foreign partnership income

  13. HMRC has launched a toolkit for foreign income on 6th December 2022. I have read through it, it’s fairly comprehensive. A simple video on Youtube also jogs client’s memories.
  14. Be aware of the effect of Double Taxation Agreements for this DTAA Digest and HS 263 will come handy.

How many years are covered by worldwide disclosure ?

Taxpayer will also need to self-assess their own behaviour. Based on this assessment, tax payer will be presented with the number of years for which disclosure needs to be made.

12 yearsNon-deliberate (see below)
up to 20 Dishonest behaviour

Time period for offshore assessments was changed in 2019. This overrides RTC Regulations. Earliest year, if reasonable care taken, is 2015/16. If behaviour was careless earliest year is 2013/14. Incase of failure to notify last 20 years need to be included. These time periods changed on 6th April 2021.

This will also have an effect on the quantum of penalty.

What penalties are charged under worldwide disclosure regime?

Details of penalty calculation is given in HMRC guidance CC/FS17

India is not on the list thus falls in the residual category 2.

See Example of Offshore Penalty Calculation

Is there scope of Penalty suspension?

Penalty suspension – Penalty for the year 2016-17 and later years can be requested to be suspended (in case of inaccurate tax returns ) refer to David Testa v Revenue & Customs [2013] on the BAILII Website. BAILII is a small charity making case law freely available.

HMRC’s WDF team can consider penalty suspension in case of full co-operation is provided to HMRC.

When does the tax bill needs to be paid?

You must make full payment in accordance with the disclosure on the same date that the disclosure is submitted, unless a payment plan is needed.

Current rate of interest for late payment of tax is 6.75% since 13th April 2023 [this set at Bank of England base rate plus 2.5%] – source

Please note in case of Time to pay arrangements. Interest on penalties usually start 30 days after the issue of Notice of determination by officer of HMRC. For example a penalty is decided for the year ended April 2015 on 31st March 2023. Interest on penalty will start from 30th April 2023 see TMA 1970 Sec 103A

You will get an acknowledgement from HMRC within 15 days of them getting the completed disclosure. They will aim to tell us of the intended course of action within 90 days of the acknowledgement.

Which exchange rate to be used ?

HMRC has provided helpful guidance on RDRM31190.

As per HMRC guidance, if threshold is breached and you need to include the income in the tax return, exchange rate that needs to be used is of the day that the income arose overseas. In practice it may not be reasonable to calculate in this way, in those cases average rates can be used. See foreign notes SA106.

Do I need an accountant?

Worldwide disclosure involves looking at different income/gains over a number of years. Tax rules are complex and handling HMRC enquiry can be a stressful experience. It is advisable to engage a qualified accountant. I have listed a few reasons for hiring a qualified accountant in our blog – Do i need an accountant ?

Further resources to help you on your worldwide journey:

HMRC Guidance on worldwide disclosure facility

ICAEW page for current and historic exchange rates


Pension contributions for general practitioner – NHS doctors

How to enter pension contributions in the self-assessment tax return for doctors.

Question 1: What’s the pension contributions amount ?

Where a practitioner is self-employed, they are responsible for making both the “employee contribution” and the “employer’s contribution”; for tax purposes, both elements are relievable as member contributions. see BIM 54020.

Question 2: Where in the tax return the figure will be entered?

Go to Form SA100 Page TR 4.

Tax Reliefs: Paying into registered pension schemes and overseas pension schemes

Box 3.

This will result in full deduction of pension contribution from income.

See EIM61025

Bonus

For detailed guidance re Doctors and Dentists see BIM 54000

Employee Benefit – life insurance policies for employees

Group life insurance is a common benefit provided by employers, this blog explains its tax implications.

Group life policies are often purchased by employers see IPTM1125

Employees

Group life policies which insure individuals up to the age of 75 and only provide death benefits for the dependants of that person will not give rise to income tax charges see IPTM7020

For Full guidance see IPTM 7015 to IPTM 7060

A contribution paid by an employer in respect of their employee scheme is not taxable as earnings for the employee concerned; see PTM031100

Employers

Tax relief on employer contributions is given by allowing contributions to be deducted as an expense in computing the profits of a trade and so reducing the amount of an employer’s taxable profit ;
see PTM043100 and see BIM45525

Tax relief can only be given on contributions that have actually been paid. The amount shown in the profit and loss account in respect of the obligations of defined benefit schemes may be substantially different from the amount of contributions paid to the scheme, but it is only the amount actually paid that can be considered for tax relief. see PTM043200

Contributions in respect of members who are directors who are shareholders or connected to a controlling director

Broadly, the employer’s contribution will be wholly and exclusively for the purposes of the trade if the contribution paid in respect of a controlling director or a connected employee is in line with a contribution that would have been made for an unconnected employee in a similar situation.

Case law – Beauty Consultants Ltd v Inspector of Taxes [2002] SpC 321 see BIM45530

General guidance on employer’s contributions in the Business Income Manual at BIM46000.

Directors and PAYE

1.0 Basics

• Directors are employees.

• It is not necessary for Directors to be paid National living/minimum wage.
see HMRC Tax Bulletin 50 with examples and ICAEW Tax guide 07/00.

• Directors usually register for Self-assessment (SA). They will need to complete employment pages of the return.

• Two methods for computing National Insurance Contributions (NICs) for directors:

a) Cumulative ; or

b) Regular employee method

Please note both method give similar results at the end of the tax year.

1.1 Bonus facts

• Directors can register for `Annual Scheme` who are paid on an annual basis to avoid sending (Employee Payment Summary) EPSs every month.

• Dividends can only be paid when there are sufficient profits made in the business this could be current year profits or brought forward reserves.

• NIC is not due on Dividends.

• Record keeping: PAYE records needs to be kept for 3 years.

• Its advisable to keep records for 7 years.

2.0 Paying directors without running payroll
We can put up till £123 (LEL : tax year 24-25) x 52 = £6,396 as director’s wages.

For tax year 2025-26 ; as ST is lower than LEL we can only put £96 x 52 = £4,992 as director’s wages without running a payroll.

See link below:
https://www.gov.uk/paye-for-employers

3.0 Optimum salary for directors
If the employer is eligible for Employment Allowance , which will happen in case there are two directors husband and wife or two friends both directors in the company. We should pay them a salary equal to the personal allowance.

In other cases uptill the NIC secondary threshold.

Maths on the above:

Suppose A earns a salary of £12,500 (tax year 20-21), he pays no tax but NIC @ 12 % above primary threshold (£9,500). Thus he pays 12% on £3,000 i.e. £360.

But as the company does not pay Employer NIC, company can save 19% on £3,000 i.e. £570 , difference £210 saved.

For two directors saving are £210 x 2 = £420 per annum.

4.0 Minimum Salary for State Pension
Any individual (including a director) earning between £120 (LEL) and £183 (PT) a week, is treated as having been paid the contributions to protect your National Insurance record.

  • Employee starts paying NIC on salaries over PT and
  • Employer starts paying NIC on salaries over ST

See link below:
https://www.gov.uk/national-insurance

5.0 Method of payment of directors salaries
Usually Director’s salary is credited in their account via a Journal entry. This is alright when Director Loan Account is in Credit. In case Director Loan Account is in debit i.e. monies have already been withdrawn, it would be necessary to actually pay the salary, which director could transfer back to the company.

6.0 Interest on directors loans
If a director has given loan to his company and charges interest on it, this interest income will be covered by Personal savings allowance.

7.0 Auto enrollment
a) As per Pension regulator “organisation with one or more directors who do not have contracts of employment is not an employer if it does not have any staff other than the director(s).

The company will have no automatic enrolment duties and does not need to complete a declaration of compliance. In this case they should let pension regulator know that they’re not an employer.”

b) Employer can pay full 8% contribution; as per gov.uk .

See link below:
Pension Regulator website

8.0 Starting PAYE during the tax year 

Please see our note on related blog.

Foreign capital losses

What are the rules for setting off foreign capital losses.

Foreign capital losses

A loss accruing to a person in a tax year in which they were non-resident it is not an allowable loss. TCGA 1992 sec 1E subsection (1)

In a split year this rule applies to the overseas part. TCGA 1992 sec 1G subsection (2)

Exception to the above rule is disposal of UK Land (direct or indirect) or UK assets held for the purpose of a UK trade. TCGA 1992 sec 1A subsection (3)


Example

Say, Pavel is a long-term resident of India and moved to the UK in 2022. He is an active investor in Indian stock market. He made capital losses in year 2021 but when he became UK tax resident in tax year 2022, he made capital gains in India. His position is summarized below:

Tax yearResident status in UKResident status in IndiaCapital Gain/Loss
2021Non-residentResidentLoss
2022ResidentNon-residentGain


From UK tax perspective, as Pavel made capital loss in India in 2021 when he was a non-resident in the UK, he cannot set them off against capital gains made in India in tax year 2022.

Note: Rules may differ for remittance basis users and temporary non-residents.

Bonus
Usually, capital gains can be transferred among spouses e.g. before disposing off an equity shares husband can transfer part of them to wife to take advantage of two capital annual allowances. Unfortunately, Capital losses cannot be transferred i.e. capital gains of one spouse cannot be offset against the capital losses of the other.

For further reading, visit our Worldwide Disclosure blog.