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SP1/09: Revised draft legislation and further consultation questions
Practical Law UK Legal Update 4-524-1078 (Approx. 5 pages)
SP1/09: Revised draft legislation and further consultation questions
by PLC Tax
| Published on 19 Feb 2013 • United Kingdom |
On 11 February 2013, the government published revised draft legislation to enact HMRC's Statement of Practice 01/09 (SP1/09), alongside further consultation questions.
Speedread
On 11 February 2013, the government published for consultation a revised version of the draft legislation intended to put HMRC's Statement of Practice 1/09 (SP 1/09) on a statutory footing. SP 1/09 allows employees taxed on the remittance basis and who carry out duties both in the UK and overseas under a single employment contract (international employees) to remit money to the UK from an overseas bank account under special mixed fund tax rules. Rather than having to apply the remittance basis mixed fund ordering rules on a transaction-by-transaction basis, the special rules permit international employees to calculate their UK tax liability by reference to the total amount transferred out of the account in the tax year.
The main changes to the previous version of the draft legislation are:
- The withdrawal of the proposal to permit the use of existing accounts.
- A further relaxation of the mistaken deposit rules.
- The promise of grandfathering provisions.
The closing date for comments is 25 February 2013.
Background
Statement of Practice 1/09 (SP 1/09) allows employees taxed on the remittance basis and who carry out duties both in the UK and overseas under a single employment contract (international employees) to remit money to the UK from an overseas bank account under simplified tax rules. Rather than having to apply the complex remittance basis mixed fund ordering rules on a transaction-by-transaction basis, the simplified rules permit international employees to calculate their UK tax liability by reference to the total amount transferred out of the account in the tax year. (For the remittance basis mixed fund ordering rules, see Practice note, Remittance basis: mixed funds ordering rules.)
The government published a consultation paper outlining its proposals for enacting SP 1/09 on 11 October 2012. For details of that consultation and additional background to SP 1/09, see Legal update, SP1/09: Consultation on legislation for internationally mobile employees' mixed fund concession.
Second consultation
On 11 February 2013, the government published a response document to the October 2012 consultation paper, which includes a revised version of the draft legislation to enact SP 1/09 and some further questions relating to the revised draft. The closing date for comments is 25 February 2013. The key changes are discussed below.
The Finance Bill 2013 will be published on 28 March 2013 and will contain any further changes arising out of this consultation. We are tracking this measure in Tax legislation tracker: employment: Enacting SP 1/09.
Qualifying accounts
The October 2012 consultation paper proposed an extension to the concessionary treatment under SP 1/09 to allow individuals to nominate an existing overseas account rather than having to set up a new one. However, nomination could not be backdated. (For further details, see Legal update, SP1/09: Consultation on legislation for internationally mobile employees' mixed fund concession: Existing accounts.) The government has dropped this proposal in light of opposition to the use of prospective nomination. Accordingly, under the revised draft legislation only new accounts can qualify for the special mixed fund rules, but these accounts can be nominated retrospectively. However, the government seeks evidence of circumstances where individuals would be significantly disadvantaged by not being able to use an existing account.
The government has also rejected calls to permit the use of multiple qualifying accounts for a single tax year but seeks evidence of why these might be needed. It notes that the draft legislation permits an individual to open a new account for each new tax year (and to de-nominate an existing account for each previous tax year) and seeks views on whether and, if so, why separate accounts are needed to be qualifying accounts for every year that they operate.
The draft legislation has been revised to set out the treatment of accounts opened or closed part-way through a tax year and to deal with the date for making nominations and de-nominations.
Mistaken additions
Under SP 1/09, the deposit of prohibited types of payments in qualifying accounts disqualifies the account from the special mixed fund rules. The October 2012 consultation paper proposed a relaxation so that the application of the special mixed fund rules would not be lost by the mistaken deposit of a prohibited sum provided the sum (and all subsequent prohibited sums) were transferred out of the account within 30 days of the day on which the individual became aware (or ought reasonably to have become aware) of the mistaken deposit. (For further details, see Legal update, SP1/09: Consultation on legislation for internationally mobile employees' mixed fund concession: Mistaken additions).
While rejecting calls to permit individuals to correct unlimited numbers of errors, the government has agreed to extend the relaxation to permit two tainting events in a 12-month period. The government has also revised and extended the list of sums in the draft legislation that are not prohibited sums.
Employment-related securities
The government has dropped its alternative proposal outlined in its October 2012 consultation paper that all deposits of employment-related security income would be treated as prohibited sums that would potentially disqualify an account.
Grandfathering
The government has acknowledged the complexity of the special mixed fund rules. While no changes have been made to the operation of the rules, the government has promised that its guidance will be as clear as possible and that it will permit employees using SP 1/09 on 5 April 2013 to continue to apply SP 1/09 rather than the new special mixed fund rules if they wish to do so.
Source
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