Highly paid expats working in the City of London were targeted by HM Revenue & Customs to raise an extra £117 million in tax.
A specialist team of tax inspectors set up to pore over the tax returns and financial papers of workers mainly from banks, hedge funds and private equity firms recovered the cash.
Personal Tax International handles the tax affairs of overseas workers in the UK.
Most are high-earners working for financial services firms in London.
If errors are found in their tax affairs, this can account for the repayment of significant amounts of tax and national insurance due to the worker’s high salaries.
Complicated inquiries
Often, the investigations hinge on the terms of complicated tax treaties between Britain and the worker’s home nation.
Tax expert Ray McCann, of lawyers Pinsent Mason, warns that the tax take from this group could be even higher next year due to tougher anti-avoidance measures announced by Chancellor George Osborne in the 2013 Autumn Statement.
In the statement, Osborne scrapped “artificial” dual contracts, a device some employers use to assign some of an employee’s income to a separate contract for overseas work. From April 2014, UK tax will be charged on a worker’s full employment income if comparable tax is not paid abroad on the overseas contract.
“Most expats are not deliberately trying to evade tax but simply make mistakes in their tax returns because they are unfamiliar with the rules in Britain,” said McCann.
Aggressive attitude
“The main factors involve tax residence and how to tax income from investments overseas. This is a complex tax topic and one where even many tax professionals can easily slip up.
“Often, rather than the employees making mistakes, their employers are in error. One that comes up again and again is expenses are not taxed because the employee is in Britain for a short time and then the contract is extended making tax due which is not collected.”
As HMRC focuses more on these highly paid workers, McCann suggests that foreign workers and their employers should regularly review tax residence status and how this affects remuneration packages.
“The downside of this action by HMRC is that London could become regarded as a place where the tax authorities take and aggressive and intrusive attitude towards foreign workers, which could discourage some of the best talent from coming here,” said McCann.
