Pay concession
4 Aug 08
HMRC has clarified its position on the application of residence rules to employment-related securities earnings but says legislation is a possibility
HMRC has published a statement on Extra-Statutory Concession (ESC) A11 (Residence in the United Kingdom: year of commencement or cessation of residence).
This ESC is likely to be replaced by legislation at some point, partly because a review of extra-statutory concessions is in progress, but also because the Government said during Finance Bill debates it was willing to consider the possibility of a statutory residence test.
The split-year treatment applied by the concession to other, non-employment related securities (ERS) earnings means that, for example, an employee who comes to the UK for a secondment beginning on 1 June would be regarded as not UK-resident and therefore not taxable in the UK on his or her general earnings from the same employment for the period from 6 April to 31 May of that tax year.
HMRC says there is uncertainty over its views on its application to unapproved employee share benefits taxed under Part 7 ITEPA; it says its view has always been that the ESC does not apply to income falling within Part 7 in the year of arrival, but accepts this has not been made widely known.
For open years, and until a statutory basis is introduced, it will accept, broadly, that ESC A11 applies to such income both in the year of arrival and in the year of departure (except in the case of a charge on the acquisition of shares at undervalue under Chapter 3C in the year of departure).
For both years of arrival and years of departure, earlier years that are settled will not be reopened, whether ESC A11 has been applied to ERS gains or not. HMRC reserves the right to depart from this position in cases of avoidance.