Enter Your E-mail

Recent discussions have suggested that there is some uncertainty over the current HMRC views on Extra Statutory Concession A11 (split year treatment) and its application to ITEPA 2003, Part 7.

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 announced during debates on the Finance Bill its willingness to consider the possibility of a statutory residence test.

However, to cover the period while the ESC remains in place, HMRC have published some new guidance, which is intended to give certainty during the period before a new legislative basis is introduced.

HMRC views on ESC A11 and its application to Part 7 ITEPA

The split year treatment applied by the concession to other (non-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.

There is some uncertainty over whether HMRC has historically regarded the concession as applying to Part 7. This issue has recently become more significant, since the remittance basis legislation introduced by FB 2008 has potentially widened the scope of the ESC.

Year of arrival

While the view of HMRC has always been that the ESC does not apply to income falling within Part 7 in the year of arrival, it appears that some employers, taxpayers and their advisers may not have been aware of this. So for open years, and until a statutory basis is introduced, HMRC will accept that ESC A11 applies to such income in the year of arrival. See, however, the comments on section 62 and Chapter 3C charges in the paragraph headed “Other Charges” below.

Earlier years which 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.

Year of departure

It has been set out in guidance that ESC A11 does not apply in the year of departure where a charge under chapter 3C applies. It may have been less clear that the ESC was not available where charges arise under other parts of the legislation Part 7.

Therefore, as for the year of arrival, for open years and until a statutory basis is introduced, HMRC will accept that ESC A11 applies in the year of departure except in the case of a charge under Chapter 3C in the year of departure where the position will continue to be that ESC A11 is not available.

Earlier years which 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.

Other charges

It should also be noted that, where a right to acquire securities has been obtained prior to 6 April 2008 in the non–resident part of the year of arrival in the UK and that right is not ‘money’s worth’ (i.e. not a legal option in the context of Abbot v Philbin) there will be a charge to tax when securities are acquired pursuant to that right. Both pre and post 2008 the charge to tax on acquisition will arise by virtue of section 62 ITEPA 2003. Alternatively, if the right does constitute money’s worth on grant, a charge to tax may arise under Chapter 3C Part 7 ITEPA 2003 to the extent that the original right is in respect of UK duties. See HMRC’s guidance in the Employment Related Securities Manual at ERSM70410.

Further guidance on all these issues will be published in the HMRC Employment Related Securities Manual as soon as possible.