UK business trip tax liability warning
Bermudians who travel to the UK for work have been warned their visits are most likely taxable — and British authorities are about to drastically increase penalties for those caught failing to report.
Even those on vacation who occasionally send work e-mails could be liable, according to Ed Hobern, a director at professional services firm KPMG in the UK.
KPMG gave a presentation to a group from the Association of Bermuda International Companies on UK tax changes that will take effect from October 1.
In an interview, Mr Hobern said that because Bermuda and the UK have not signed a double tax treaty for income tax purposes, islanders on working visits to the UK are likely to be subject to British income tax.
“The UK has a double tax treaty with most of the rest of the world, and people from countries with a treaty normally don’t have to do anything when they work in the UK,” Mr Hobern said.
“Countries without a treaty include Cayman and Brazil, but Bermuda is particularly hard hit, especially in the insurance sector with the strong connection with the London market.”
As Mr Hobern noted, the rules on UK working visits have long been in place. What is quite new is the HM Revenue and Customs’ enhanced capability to catch up with tax dodgers and in just over two months, increased penalties will kick in.
“The penalties now are about 20 or 30 per cent of the tax due,” Mr Hobern said. “The new rules are very severe and the penalties will go up to 250 per cent.
“In the past, it was very hard to police. But two or three years ago, the HMRC spent about £1.6 billion ($2.1 billion) on a new computer system, which pulls in all the records it can get its hands on, including immigration records.
“So it knows when you have got off the Bermuda-to-Gatwick flight and when you go through border control, and when you’re back at the airport. It also knows who has a bank account in Bermuda and so it is able to piece together information quite effectively.”
Armed with such data, the HMRC could reach out to an individual and ask what they were doing on a 15-day trip to the UK, for example.
While there is no definition of “work” in UK tax legislation, there is a distinction between “incidental” and “substantive” duties.
Incidental duties might include arranging meetings, attending training sessions and reading generic business e-mails. Such activities are not considered taxable, according to KPMG.
Substantial duties, which are taxable, would include sending instructions to colleagues, information analysis, preparatory work for meetings and meetings with clients.
Vacation e-mails could fall into that bracket, for example in the case of an employee going to the UK for Christmas and extending the stay by a week while being in contact with the office in contact.
Employers should tally the number of days their staff are working in the UK, Mr Hobern added, to ensure UK tax liabilities are recorded.
“You are taxed on your time working in the UK, so if an employee spends five days working in Britain and has a 220-day working year, then UK tax would be due on five 220ths of annual salary,” he added.
Employers should also be aware of whether they have a Paye presence in the UK, which can occur if a company has a branch or agency there. Paye is collected through payroll and includes income tax, as well as national insurance.
Mr Hobern added: “The HMRC’s target is not ordinary travellers, it’s very wealthy people in Bermuda who are hiding stuff offshore.” But many others could get caught up by the system, he added.
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