Taxation - HKPA
Taxation
Overview
How to pay your taxes
Generally, the UK tax year runs from 6 April to 5 April of the following year for individuals and the tax filing deadline is 31 October each year (paper form) and 31 January of the following year (online tax return). Before filing a tax return, you must know your personal tax status and Unique Taxpayer Reference (UTR).
Personal Tax Status
If you have lived in the UK for 183 days or more in a full tax year, you become a UK tax resident. You will need to file a tax return according to the UK Tax Regulations and pay tax accordingly. You will need to declare your income in the tax year, whether outside UK or not unless exempted. For those who just arrived in UK but have lived more than 183 days, you may consider applying for a 'split year treatment' in the first tax assessment to exclude income from being taxed outside UK prior to the entry.
Unique Taxpayer Reference (UTR)
For those who are classified as UK tax residents, you will have to apply for a Unique Taxpayer Reference (UTR) for self-assessment return. You can apply through the HM Revenue and Customs (HMRC) system. The application deadline is 5 October each year. Upon the completion of the application process, the HMRC will issue you a UTR for the use of the future personal tax returns.
Another important number would be the National Insurance (NI) number. Generally, all employees are required to provide the NI number to the employer, who will then withhold the income tax, employee’s national insurance, pensions and so on.
In summary, persons who are not employed but have other income, such as rental income, interest income and capital gain, must have a UTR before the deadline for future tax filing and a NI number. Employees who have other income are also required to apply for the UTR and NI number. If the employees has no other income, he or she only needs the NI number.
Overview
Arising basis vs
remittance basis
Once you become a tax resident in UK, you have to pay UK tax on all foreign income and gains for the tax year (for example, rental income arising in HK or capital gains from realization of stock in overseas market is subject to UK tax) in which they arise. It does not matter whether you bring those income or gains to UK or not.
If you have paid tax in HK or other overseas areas and these areas have double tax treaty signed with UK, certain double tax reliefs may be available to you to reduce your UK income tax liability
Remittance basis
If you are a tax resident in UK, but not domiciled in UK, you may consider to report your foreign income and gains under remittance basis to reduce your tax liability in UK. This means, you are liable to pay tax in UK for those income or gains you bought to UK in that tax year, i.e. if you did not bring any foreign income or gains to UK, then those foreign income or gains are not subject to UK tax.
However, there is complexity and costs in claiming remittance basis. Due care should be given and professional advice should be obtained.
To demonstrate you are not domiciled in UK, there are several tests to be passed:
Rules to Determine Domicile
- Domicile of Origin acquire from father
- Domicile of choice own intention
- Domicile of dependence acquire from legal guardian
- Deemed Domicile UK resident for at least 15 of the 20 years
For those who claim remittance basis, the tax residents shall give up some benefits or pay some costs:
- To give up personal allowance in the tax year
- To pay Remittance Basis Charge (RBC) - If you have been resident for 7 out of the previous 9 tax years: £30,000 RBC; - If you have been resident for 12 out of the previous 14 tax years: £60,000 RBC
- Remittance Basis Charge is payable on top of any UK tax. Therefore, unless you have a very high foreign income and gains, then remittance basis may not be a wise choice
If you are going to report UK tax on a remittance basis, please bear in mind that many cases also fall into category of remittance to UK (even though you did not bring money to UK):
- If you receive a service or good in UK and pay for that service or good using foreign income or gains (e.g. purchase of good online and make payment by HK credit cards)
- If you purchase an asset in UK by debt or loan made outside UK (e.g. buy a property in UK by borrowing money in HK or use foreign income or gains to pay off)
- If you give money to someone in HK and your relative or friend use that money to pay bills for you in UK
To report tax in UK on remittance basis, it is important to ensure there is a clear separation of funds to avoid ‘mixed fund’ accounts. All offshore bank and financial accounts with foreign income and gains should not be mixed up, i.e. any foreign bank and financial account should not contain more than one source of income and/or gains.
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