Section 21: Payments on account
Summary
1.Section 21 ensures that certain payments are not treated as a taxable remittance to the UK under Chapter A1 of Part 14 of the Income Tax Act (ITA 2007). It prevents any repayment made in the circumstances described from being treated as a taxable remittance, provided a sum equal to the amount repaid is taken offshore by the 15 March following the end of the tax year in which that amount is repaid.
Details of the Section
2.Subsection (2) makes a consequential amendment to section 809K of ITA 2007.
3.Subsection (3) introduces new section 809UA of ITA 2007 which applies to certain individuals who are taxed on the remittance basis and who make payments on account under section 59A of the Taxes Management Act (TMA) 1970.
4.New subsection 809UA(1) sets out the qualifying conditions for new subsection 809UA(2). These are that payments on account are made in relation to a tax year using foreign income and gains in a year when an individual is not taxed on the remittance basis (‘year 1’) which follows a year in which they were liable to pay the annual remittance basis charge (‘year 2’).
5.New subsection 809UA(2) provides that the foreign income and gains are not treated as remitted to the UK, provided the individual takes offshore an amount equal to the relevant amount by 15 March of the tax year following tax year 2 or by a later date allowed by the Commissioners for HMRC following a claim made by a individual.
6.New subsection 809UA(5) defines the term ‘relevant amount’ for the purposes of new subsection 809UA(2) as the lower of the amount of foreign income and gains used to make payments on account and the annual remittance basis charge which the individual was liable to pay in tax year 1.
7.Subsection (4) makes consequential amendments to section 809Z9(11) ITA 2007.
8.Subsection (5) provides the commencement rule for the changes made by this section.
Background
9.Section 47 and Schedule 12 of Finance Act 2012 introduced a number of changes to the remittance basis of taxation provided by Chapter A1 of Part 14 of ITA 2007. These changes followed Government consultation in 2011.
10.In their formal response to that consultation in December 2011, the Government said further consideration would be given to a number of further issues with a view to possible legislation in Finance Act 2013. These included new rules for inadvertent remittances which can arise in certain circumstances which are set out in this section and changes to the rules on exempt property which are set out in Schedule 7.
11.The annual remittance basis charge is payable by long-term UK non-domiciled residents who elect to be taxed on the remittance basis. The annual charge is provided for by section 809H of ITA 2007and is either £30,000 or £50,000, depending whether the individual meets the 7-year residence test or the 12-year residence test (as set out in section 809C of ITA). Payments of the charge using foreign income and gains do not constitute a taxable remittance by virtue of section 809V ITA 2007, but that exemption does not extend to repayments of that charge by HMRC.
12.In cases where an individual is liable to pay the remittance basis charge in a previous tax year, any payments on account which are made in the following year will relate to that charge. Where an individual decides not to be taxed on the remittance basis in that later year, and so will not be liable to pay the annual charge, they may be due a repayment from HMRC. The application of section 809V(2) will mean that such repayments will constitute a taxable remittance.
