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Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Accessing the remittance basis: Remittance Basis Charge - Nomination of foreign income and gains: Claim to reduce Payments on Account (PoA)

The payment on account (PoA) position in relation to the remittance basis charge will be affected by any claims to reduce payments on account.

Where the RBC is paid in the previous year on nominated income, the amount feeds through to the individual’s payments on account (PoA) for the next year, unless the individual makes a claim to reduce their PoAs on the grounds that their income tax liability for that year will be less than the sum of the two PoAs.

For example this could be because they will not claim the remittance basis for the following year. If they subsequently do claim the remittance basis and pay the remittance basis charge in the following year and the income tax due for that year exceeds the sum of the PoAs made we will charge interest on the reduction in the PoA.

This is shown in the example below:

Stage 1

The return shows liability to income tax, which includes the RBC, partly or fully paid in respect of nominated income. The payments on account due on 31 January and 31 July are half of the relevant amount of income tax (TMA70/s59A).

For example, Marie-Clare’s 2008-09 income tax liability is £55,000, of which £25,000 related to tax on UK source income, and the remainder is the £30,000 RBC (all in respect of nominated foreign income). Nothing is taxed at source. Her payments on account for 2009-10, payable on 31 January 2010 and 31 July 2010 will each be £27,500.

Stage 2

If the individual does not intend to use the remittance basis for the following year, and so they will not be subject to the remittance basis charge, they can claim to reduce the PoAs.

In the Marie-Clare example, if she does not think she will claim the remittance basis and so will not need to pay the remittance basis charge for 2009-10 she could reduce her payments on account for 2009-10 to £12,500 each, that is 50% of her 2008-09 income tax liability of £25,000 (if the remittance basis charge is excluded). She will of course still have to consider her other income sources and overall expected income tax liability for the year in making this decision.

Stage 3

If the individual subsequently decides to claim the remittance basis and to pay the £30,000 remittance basis charge and a claim to reduce payments on account has been made which resulted in insufficient PoAs being made, then interest will be charged from the due date for the payments on account until a claim to increase payments on account is made or payment is made for the year is paid to stop interest accruing (TMA70/s86).

In the Marie-Clare example, she has claimed to reduce her payments on account to omit the remittance basis charge, so she only makes payments on account of £25,000 (two lots of £12,500). When she files her 2009-10 self-assessment return her UK income has remained, as expected, at £25,000. However she now decides to claim the remittance basis and so she has to pay the remittance basis charge. As she has erroneously claimed to reduce her payments on account in the year, she will be charged interest on the payments that she should have made, that is, on £15,000 from 31 January 2010 and £15,000 from 31 July 2010 until the date these amounts are paid.

Refer to Self-Assessment Manual - Legal Framework SALF303 for further information on claims to reduce payments on account.

Example 1

  • Eva claimed the remittance basis and paid the remittance basis charge in 2008-09, and her income tax liability produces two payments on account for 2009-10 of £120,000 each.
  • Eva has decided that she will not be claiming the remittance basis in 2009-10 so will not pay the remittance basis charge. Eva makes a claim to reduce the amount due on account of her tax liability to £200,000 due to a drop in income and because she will not pay the remittance basis charge in 2009-10.
  • When Eva files her 2009-10 return in September 2010 it shows that the tax due on income is £200,000, but these are provisional figures as Eva is awaiting some details from her foreign bankers in relation to some foreign transactions.
  • The two £100,000 payments on account appear ‘correct’ at this stage.
  • In November 2010 Eva receives the information from her foreign bankers and decides to amend her return and to claim the remittance basis. She nominates some foreign income and has to pay the remittance basis charge of £30,000, all constituting income tax, bringing her total liability to £230,000.
  • Eva will be charged interest on the £30,000 reduction in her payments on account on the grounds that Eva should not have reduced them.

Example 2

  • Vali had no foreign income or gains arising in 2008-09, so he did not claim the remittance basis and so he did not need to pay a remittance basis charge in 2008-09.
  • Vali’s income tax liability for 2008-09 produces two payments on account of £200,000 for 2009-10. No claim is made to reduce the payments on accounts.
  • When Vali begins to prepare his 2009-10 return he has a liability of £420,000 income tax on UK sources, so his £400,000 payments on account were correct, based on Vali’s previous year’s income tax liability.
  • Vali has foreign income arising in 2009-10 and he decides to claim the remittance basis in his 2009-10 return. As a long-term but non-domiciled resident Vali has to pay the remittance basis charge of £30,000 bringing his total liability to £450,000. Interest will not be charged on the additional £50,000 tax due, as long as this is paid by the proper due date.