Information issued recently by HMRC following a freedom of information request has revealed an interesting new angle on the disguised remuneration loan charge.
Most readers will be aware of the charge but, for those who may need a refresher: if a person (or a person connected to them) has a loan from a trust structure which is related in some way to his/her current or former employment, the amount of the loan outstanding on 5 April 2019 is deemed to be employment income subject to tax and National Insurance. Similar rules apply for loans to self-employed individuals.
The new information is a geographical breakdown of the addresses of people potentially subject to the loan charge who have been written to by HMRC. What interested me was that 1,720 of those addresses were outside the UK. Over 70 different countries appear, with Australia and New Zealand topping the list.
The individuals involved were almost certainly working in the UK when they received the loans. Some of them will have been UK citizens who have since emigrated, but I suspect that the majority will have been people born outside the UK who worked for a few years here before returning home.
So what we have here is a snapshot of the fluidity of the international labour market. I suspect that the numbers of non-UK individuals involved is understated because not everybody will have notified HMRC of their move abroad. This globalisation of the labour market (and it will surely increase whatever happens with Brexit) obviously presents major problems for tax authorities around the world.
If HMRC does not get the tax owed to it when somebody is in the UK, it becomes extremely difficult to recover it once somebody is out of the country. There are international agreements which do allow in very limited circumstances one country to enforce the tax debts of another country, but these are cumbersome and time consuming and where the amounts due are relatively low the cost of enforcement may be out of all proportion to the debt. There are a whole host of other technical issues, such as the basic definition of what is earnings and the date on which liabilities arise, which vary considerably from country to country and which can add further complications when trying to tax internationally mobile employees.
The aim of every tax jurisdiction is to get its hands on the money as soon as possible – ideally before it has reached an individual’s pockets. The PAYE system in this country achieves this pretty well in most cases but can struggle when people move in and out of jobs and especially if they don’t stay in the UK very long. The problems thrown up by the loan charge are just one symptom of an increasingly difficult issue.
No doubt some bureaucrats dream of a universal tax identification system which allocates a number to every individual in the world wherever they live, perhaps linked to a bank account to which the tax authorities could dip into whenever there was an unpaid tax bill. Fortunately, that could never happen…could it?