INTM268040 - Non-residents trading in the UK: 'Machinery' provisions for assessment and collection via UK representatives: What assessments should be raised and how is that done?
As already explained above (INTM268030)) both the non-resident and their UK representative have a personal responsibility for the tax obligations and liabilities arising from the UK permanent establishment / branch or agency. Either party is able to discharge those obligations and liabilities. So we can assess either or both parties if necessary. Once one party has paid, the personal responsibility on the other party lapses for that self assessment period. Obviously in cases where self assessments are returned by or for a non-resident taxpayer and tax payments are made at the appropriate times no further action would be needed. This guidance concerns the practicalities of how to handle cases where obligations and liabilities are not met.
Because the UK representative is personally responsible for the non-resident’s tax obligations and liabilities, a unique tax reference should be allocated to the UK representative in that capacity. Where the UK representative is an agent (rather than a branch or fixed place of business permanent establishment) that unique tax reference should be a distinct and different reference to the one allocated to the agent for their own business. Non-resident companies intending to set up places of business in the UK are obliged to notify Companies House (see Self assessment at INTM261000). The consequential process in place automatically generates tax references and allocates them to the office responsible for the UK registered office address. Where that process has not happened, or for non-corporates, a taxpayer record with unique tax reference will need to be created on notification or discovery of liability.
The High Court held in the case of Tischler v Apthorpe [2TC89] that a non-resident could be assessed directly “wherever he could be reached” including the UK branch address. The decision in that case was that an assessment raised directly on the non-resident at the UK branch address was valid, even though there was also a UK representative who could have been assessed under the machinery provisions (for the TMA70 version see INTM268010). It is probably unusual for a non-resident to have both a physical UK branch and an appointed UK agent but the reasoning in that case supports the equal validity of assessments made on the non-resident either directly at their UK branch or at the overseas address. In that case, of course, the UK agent could not be responsible for the tax assessed as he had not been notified.
So, on a practical level, assessments should be addressed in the manner most suited to the facts of the case and with the object of informing the relevant persons of the liability and securing the necessary payment of tax. Depending upon how near to expiry the assessing time limits are this could include any but possibly all of the following:
Assessment for a branch or fixed place of business in the UK
Assessment for UK trade carried out through an agent
Partners and partnerships
Recovery action
Assessment for a branch or fixed place of business in the UK
- Assess in the name of the non-resident individual or company at the UK business address.
- Send a copy also, for information, to the non-resident’s address abroad if known.
- Assess any person who clearly has the capacity of ‘UK representative’ e.g. the manager of the UK operations, as ‘Mr X as UK representative of XYZ’.
Assessment for UK trade carried out through an agent
- Assess in the form ‘Mr X as agent for XYZ’ sent to the agent’s address.
- Send a copy of the assessment on the agent, for information, to the non-resident at their address abroad if known.
- Assess the non-resident individual or company at their address abroad if known.
Partners and partnerships
Where the UK representative is a UK partnership, the partnership itself is the UK representative. In such circumstances the partners in the UK partnership will be jointly liable for the tax payable by the non-resident. It follows that any assessment that is required should be made on the partnership as agent for the non-resident. Where a non-resident is a partner in a partnership which trades in the UK directly, typically through a UK branch or fixed place of business, the form of assessment depends on whether there is a partner resident in the UK. If there is a UK resident partner the assessment should be made on the partnership as a whole but the UK resident partner will be jointly liable for the tax payable by the entire partnership. Where there is no UK resident partner then assessments on the branch profits of the non-resident partners should be made on the UK branch of the partnership.
Recovery action
Where the trading activities in the UK have ceased, the UK permanent establishment / branch or agency retains the obligations and liabilities as the UK representative even after the cessation. This provision is at ITA07/S835E Rule1 and ITTOIA05/Sch6 Para 3 (old FA95/S126 (3)) for income tax and at CTA10/S969(3) Rule 3 (old FA03/S150(2)(c)) for corporation tax. So assessments can still be raised on the UK representative subject to the usual assessing time limits. Where however the trading was conducted through a branch or fixed place of business and that presence has discontinued there may be difficulties identifying any person as the UK representative or any assets within the UK upon which recovery may rely. It is therefore recommended that assessments for such UK branches are raised and tax brought into charge at as early a stage as possible.
Additionally, by EU Directive member states of the European Union are able to seek the assistance of another member state in the recovery of direct and indirect taxes (see the guidance at DMBM560010).