Blog

HMRC Worldwide Disclosure Facility – India

Step by Step Guide

Background

If you received a HMRC letter about your money or assets abroad and after having checked your tax affairs you find that you need to make a disclosure – you will  need to use this facility.

Step 1 – Where possible, contact HMRC. They may give you more information about the assets in question, which will help focus the review of tax affairs. However, there’s no guarantee they’ll share anything with you.

Step 2 – Send the certificate back to HMRC after ticking box 1.

Please note this is a important step because if the statement turns out to be false this could expose the tax payer to criminal investigation and prosecution.

Step 3 – Register for the Digital Disclosure Service (DDS).
Please note 90 day time period starts from the date you notify HMRC using DDS not from the date you sent the certificate back mentioned in Step 2.

Step 4 – We have now 90 days to:

  • Gather the information to fill in the disclosure
  • Calculate the final liabilities including tax, duty, interest and penalties on a year by year basis.
  • Fill in the disclosure, using the unique disclosure reference number (DRN) given on notification
  • Gather information on maximum value of overseas assets you have in the past 5 years

Complete and true – Disclosure should be complete and full co-operation needs to be given to HMRC

Number of years– Taxpayer will also need to self-assess their own behaviour, based on this assessment, tax payer will be presented with the number of years disclosure needs to be made.

12 yearsNon-deliberate (see below bonus point 2)
up to 20 Dishonest behaviour

This will also have an effect on the quantum of penalty to be charged.

See Example of Offshore Penalty Calculation

Tax Calculation – We need to be aware of the effect of Double Taxation Agreements for this DTAA Digest and HS 263 will come handy.

Step 5 – It’s a condition of using this facility that we make an offer for the full amount of taxes, duties, interest and penalties owed.

We must make full payment in accordance with the disclosure on the same date that the disclosure is submitted.

We will get an acknowledgement from HMRC within 15 days of them getting the completed disclosure. They will aim to tell us of the intended course of action within 90 days of the acknowledgement.

Bonus:

  1. Penalty calculation – India is not on the list thus falls in the residual category 2.
  2. Time period for offshore assessments was changed in 2019. This override RTC Regulations. Earliest year for if reasonable care taken is 2013/14. If behavior careless earliest year is 2011/12. These time periods will change on 6th April 2021.

Source:

HMRC Guidance

Further readings:

  1. Taxation of Interest Income from NRE / FCNR Deposits.
  2. Taxation of LIC Policy in UK.

Remittance out of India

There are two main types of accounts in India. NRE and NRO both are maintained in INR.

 NRENRO
PurposeFor sending monies to India from another countryFor funds generated in India like rental income
RepatriationFully repatriable i.e. all funds in this account can be sent out of India without any restrictions.Repatriation limit of USD one million per financial year.   Plus, paperwork needs to be completed before sending funds out of India.1
  • 1. Paperwork required:
    • Form A2  – Funds transfer form
    • Form 15CB – Chartered Accountant certificate
    • Form 15 CA – Self declaration

A useful blog I found on this subject.

August 2021

Recently a client wished to invest funds in the Indian stock market and he contacted his old bank where he had a dormant account, after lot of paperwork and telephone calls finally the bank was able to activated NRO accounts and client started sending funds to India in his NRO account.

We realised that this is not the optimum solution for the client as he is sending his overseas earnings to India and will face restrictions in the future if funds are sent via NRO account, see above for restrictions.

We have requested the banker to change the arrangement to NRE account, let see how things turn up.

Watch this space.

Overview of taxes in United Kingdom

Below is a very brief summary of taxes in the UK but gives an idea to a businessman who is planning to start a business.

Ongoing Taxes

NameDetailRate
Corporation taxTax on profit the company makesCurrent rate 19% going up to 25% from April 2023 for profits over £250k
Dividend taxTax on dividends received by individual shareholdersFirst £2k tax free then between 7.5% to 38.1%
Payroll (PAYE) tax    Taxes on becoming an employer 
Income taxEmployee paysFirst £12,570 is tax free then between 20% to 45%.
Employee national insuranceEmployee paysFirst £8,840 tax free then 12%
Employer national insuranceEmployer paysFirst 9,568 tax free then 13.8%.

Employment allowance £4k
Value added taxSales tax when turnover crosses £85,000Usually 20%
Business rates          Municipal taxUsually, half of rent


One off taxes

NameDetailRate
Capital Gains TaxTax on the profit when you sell something that is increased in value.First £12,300 tax free then 10% or 20% depending on your income. Tax on sale of residential property is higher.
Inheritance TaxTax on the estate of someone who died.40% over £325,000

Other matters

NameDetailRate
InsuranceMinimum legal requirementEmployer’s Liability Insurance.   Certificate needs to be kept for 40 years.
Minimum WageLegal minimum wageOver 23 years: £8.91 per hour. Lower for younger people

Matters specific to restaurant industry.  

NameDetailRate
Premises LicensePermit to sell alcoholNew license can be a long process. Transfer is usually free and annual fee less than £1k p.a.
Music LicensePermit to play background musicAnnual fee under £1k p.a.

Example:

Suppose you start a restaurant and after few years it starts making some profits, you will find that you have a new partner to share in your good fortune – Her Majesty’s Revenue and Customs (HMRC)

I have given below what an owner will make and what his new partner HMRC will capture.

Owner’s share:
Sales                                                   £2,000,000
Net Profits                                        £400,000             say 20%              
Corporation Tax                              £100,000             25% rate from April 2023
Distributable Profits                       £300,000
Personal/Dividend tax                   £100,000            
Net in hand                                      £200,000

I have taken net profits at 20% this is achievable in a well-run high end central London restaurant. This profit percentage is after paying payroll taxes, VAT and Business Rates.

HMRC’s share:
Business Rate                                   £100,000             Fixed not dependent on sales
VAT                                                     £400,000            
Payroll Taxes                                    £60,000              
Corporation Tax                              £100,000            
Personal/Dividend tax                   £100,000            
Total                                                   £760,000

Above figures have been estimated and rounded off to make them easier to understand but on the whole close to reality.

In case you decide sell or just drop dead, you will meet new characters from the `Book of the Taxes` called Capital Gains tax and Inheritance tax but don’t worry, not today.

Set up a business – GOV.UK (www.gov.uk)

Budgeting for the tax bill and Interest on early payment of tax

How to save for the tax bill ?


1.0 Budgeting

A usual question is how to budget for the tax bill at the end of the year.

HMRC has helpfully created a calculator (Link) which can estimate the amount of money an individual should save to pay their tax bill.

2.0 Saving mechanism

Now the question arises how to save this money.

2.1 Self-Assessment (Income tax) – No interest is paid for early payment. So in case an individual client wishes to save for their tax bill it is advisable to save in a bank where they can earn some interest before tax is due.

2.2 Corporation tax – Yes, interest is paid for early payment but the earliest date HMRC will pay interest from 6 months and 13 days after the start of your accounting period. So again it is advisable to save in a bank account. Though, in practice I have rarely seen Company director’s saving for tax. Businessmen usually have more projects than funds available!

Source:

For Corporation tax

Directors and PAYE


Satyajit Ray

1.0 Basics

• Directors are employees.

• Directors are not entitled to National living/minimum wage.

• Directors usually register for Self-assessment (SA). They will need to complete employment pages of the return.

• Two methods for computing National Insurance Contributions (NICs) for directors:

a) Cumulative ; or

b) Regular employee method

Please note both method give similar results at the end of the tax year.

1.1 Bonus facts

• Directors can register for `Annual Scheme` who are paid on an annual basis to avoid sending (Employee Payment Summary) EPSs every month.

Dividends can only be paid when there are sufficient profits made in the business this could be current year profits or brought forward reserves.

• NIC is not due on Dividends.

Record keeping: PAYE records needs to be kept for 3 years.

• Its advisable to keep records for 7 years.

2.0 Paying directors without running payroll

We can only put £120 (LEL : tax year 20-21) x 52 = £6,240 as director’s wages.

“as you do not need to register for PAYE if none of your employees are paid £120 or more a week”

See link below:
https://www.gov.uk/paye-for-employers

3.0 Optimum salary for directors
If the employer is eligible for Employment Allowance , which will happen in case there are two directors husband and wife or two friends both directors in the company. We should pay them a salary equal to the personal allowance.

In other cases uptill the NIC secondary threshold.

Maths on the above:

Suppose A earns a salary of £12,500 (tax year 20-21), he pays no tax but NIC @ 12 % above primary threshold (£9,500). Thus he pays 12% on £3,000 i.e. £360.

But as the company does not pay Employer NIC, company can save 19% on £3,000 i.e. £570 , difference £210 saved.

For two directors saving are £210 x 2 = £420 per annum.

4.0 Minimum Salary for State Pension
Any individual (including a director) earning between £120 (LEL) and £183 (PT) a week, is treated as having been paid the contributions to protect your National Insurance record.

  • Employee starts paying NIC on salaries over PT and
  • Employer starts paying NIC on salaries over ST

See link below:
https://www.gov.uk/national-insurance

5.0 Method of payment of directors salaries
Usually Director’s salary is credited in their account via a Journal entry. This is alright when Director Loan Account is in Credit. In case Director Loan Account is in debit i.e. monies have already been withdrawn, it would be necessary to actually pay the salary, which director could transfer back to the company.

6.0 Interest on directors loans
If a director has given loan to his company and charges interest on it, this interest income will be covered by Personal savings allowance.

7.0 Auto enrollment
As per Pension regulator “organisation with one or more directors who do not have contracts of employment is not an employer if it does not have any staff other than the director(s).

The company will have no automatic enrolment duties and does not need to complete a declaration of compliance. In this case they should let us know that they’re not an employer.”

See link below:
Pension Regulator website