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Systems failings causing substantial tax liability for corporates over expat workers, says expert


Companies are facing substantial tax bills because the complicated tax affairs of high income foreign workers are not being properly accounted for by staff, an expert has said.

Tax expert Ray McCann of Pinsent Masons, the law firm behind Out-Law.com, said that most of the money HM Revenue & Customs (HMRC) recovers in tax yield following investigations into firms' expats arrangements end up being paid by businesses themselves.

This is because "HR and tax functions" within the firms often "fail to communicate" over the tax liabilities of expat workers, he said. Years later, when expats have moved on, firms often have to foot the bill for any unpaid tax the expats owe when tax investigators "come calling," the expert added.

"Some tax planning schemes that have been a popular way for banks and hedge funds to help their staff manage their tax bills are now very much under the Treasury’s microscope," McCann said. "Other schemes, such as employer-financed retirement benefit schemes, are also under review by HMRC."

"We would strongly advise expats being sold these schemes to seek professional help as HMRC will continue to mount a very aggressive challenge to these arrangements," he added.

McCann was commenting after Pinsent Masons announced that information it had obtained showed that HMRC has taken 23% more tax from investigations into high income foreign workers, such as investment bankers, over the last two years. HMRC's 'Expat' team received £117.2 million in extra tax yield in 2011/12 from its investigations as opposed to £94.9m in 2009/10, according to the data.

McCann said that expats often represent "low-hanging fruit" for HMRC because they often fall foul of the "traps" contained in the UK tax regime.

"The tax system here in the UK contains many traps for the unwary, so it can be particularly tough for expats to try and navigate and for those without a particularly sophisticated knowledge of the UK tax system there are plenty of potential pitfalls since UK rules can be quite different from those in other countries," the expert said. "There are extra tax headaches for expats living in the UK, compared to British citizens. They may have property or other investments in their native country, for example and many leave it too late before they seek professional advice and end up paying the price when HMRC catches up with them."

"Remittances – the movement of an individual’s funds from one country to another – are a particular problem for expats. How an expat uses foreign income or gains can result in a UK tax liability even where the funds do not actually come into the UK a point that many get wrong so ensuring full compliance can be tricky without the right kind of advice," McCann said.

HMRC's ability to derive extra tax income from expats' arrangements over the past two years is indicative of the resources the body has put into doing so and is particularly striking given the economic context in which the results have been obtained, added McCann.

"This rise in additional tax take is interesting given that City bonuses and the number of investment bankers have been slashed since the credit crunch," McCann said. "The Eurozone crises and the economic downturn have really depressed investment banking revenues, so HMRC has had to put in a lot of extra effort to increase its take from these investigations."

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