Self Assessment for non-residents: UK representatives of non-residents chargeable under Case I and II Schedule D
The rules for taxing the UK liabilities of non-residents on their UK representatives are contained in FA1995 for income tax and in FA2003 for corporation tax. These rules define clearly:
- who is liable to UK tax
- who is responsible for complying with the tax obligations
- the nature and extent of those obligations.
The obligations of UK representatives for non-resident individuals are broadly equivalent with those for non-resident companies.
The UK representative rules apply to all non-residents
The rules define the obligations and liabilities of the UK representatives of non-residents. Prior to FA2003 the FA1995 rules applied to both non-resident individuals and companies, whether the UK tax liability is to income tax, corporation tax, or capital gains tax. FA95/S126 ceased to apply to non-resident companies liable to corporation tax for accounting periods beginning on or after 1 January 2003. From then the broadly equivalent rules at FA2003/S150 have applied for corporation tax purposes.
Definition of UK representative
FA95/S126 (2) and (8) & FA2003/S150(2)
Under the rules the ‘UK representative’ of a non-resident is defined as:
- For income tax - the UK branch or agency through which the non-resident carries on any trade, profession or vocation.
- For corporation tax - the permanent establishment through which a non-resident company carries on a UK trade.
It follows that if the non-resident does not carry out their activities in the UK through a branch or agency / ‘permanent establishment’ there is no ‘UK representative’ for tax purposes. Instead the non-resident is responsible for complying with any UK tax obligations.
‘Permanent establishment’ is an internationally understood term and can arise either because the non-resident carries out activities from a fixed place of business in the UK, or because the non-resident has an agent in the UK who conducts his business for him. Branch or agency has the statutory definition at FA95/S126(8) of ‘Any factorship, agency, receivership, branch or management’ but it is interpreted on broadly equal lines to ‘permanent establishment’. The reason for the relevance of the two terms is that the legislation applicable to companies only has been modernised to include the internationally understood term of ‘permanent establishment’, whilst the income tax legislative charging provisions, which apply to all persons (including companies) still use the term branch or agency.
Where a branch or agency / permanent establishment is a UK representative it is responsible for complying with the tax obligations arising from its activities. That is:
- the profits of the trade, profession or vocation of the non-resident carried on through the branch or agency / permanent establishment
- income from property or rights which are used by, or held by or for it
- capital gains chargeable on non-residents under TCGA92/S10.
General rule for the obligations and liabilities of UK representatives
FA95/Sch23/paras 1-3 & FA2003/S150(3)-(4)
The general rule is that UK representatives are jointly responsible with the non-resident for all the tax obligations and liabilities in relation to the trade, profession or vocation carried on through the branch or agency / permanent establishment.
This joint responsibility extends to all matters relating to the assessment of tax and to the collection and recovery of tax. For example, it extends to all the mechanisms of self assessment, including notification of chargeability, the obligation to make a tax return and self assessment, liability to make interim and final payments of tax, and liability to surcharges, interest and penalties in connection with those obligations and liabilities.
Either party is able to discharge the obligations and liabilities arising, but equally any acts or omissions of the non-resident are treated as acts or omissions of the UK representative (but see also the first two paragraphs under Offences below in relation to tax offences).
Where the trigger for an obligation or liability is the receipt of formal notification, then the obligation or liability only falls on the UK representative once they have received the relevant notification (or a copy).
Obligations and liabilities are limited where the UK representative is independent of the non-resident
FA95/Sch23/paras 4 and 7 & FA2003/S148(3) and S150(5)
Where the UK representative is an independent agent of the non-resident acting in the ordinary course of business, its obligations to provide information are limited to ones within its competence to act for the non-resident.
‘Independent agent’ is defined at FA95/Sch23/para 7. The definition is based on that used in the OECD Model Tax Convention and UK double taxation agreements. Broadly, to be an ‘independent agent’, the agent must be both legally and economically independent of the non-resident. As an independent agent is not within the definition of permanent establishment for corporation tax purposes such an agent could not become the UK representative of a non-resident company.
The rules recognise that, where the UK representative is an independent agent, the agent may not be able to provide complete information about the affairs of the non-resident. The agent is therefore required to provide any information requested, for example a return, to the best of its knowledge and belief after taking all reasonable steps to obtain the information. The non-resident remains responsible for completing or correcting the information where necessary.
However, the non-resident can correct any error or omission made by the UK representative provided the non-resident did not know about it or participate in it.
FA95/Sch23/para 5 & FA2003/S150(6)
The criminal and civil liabilities of a UK representative in respect of the non- resident’s tax affairs are limited in certain circumstances.
UK representatives cannot be guilty of a criminal offence under these rules as a result of something done by the non-resident unless:
- they committed the offence
- consented to its commission, or
- connived in its commission.
The same applies for the non-resident in relation to the acts of the UK representative.
UK representatives who are independent agents are not liable to civil penalties and surcharges unless:
- they committed an act or omission or consented to, or connived in, its commission, or
- they will be able to recover the penalty out of monies of the non-resident.
UK representatives retain any obligations and liabilities for the period of agency after the period has ended
FA95/S126 (3) & FA2003/S150(2)(c)
The obligations and liabilities of a UK representative for a period during which it was the branch or agency / permanent establishment continue if the branch or agency / permanent establishment ends.
UK representative is treated as a separate person
FA95/S126 (4) & FA2003/S150(2)
The UK representative and the non-resident are treated as separate persons. This allows, for example, service of notices and collection to take place at the branch or agency / permanent establishment.
A partnership can be the UK representative of a non-resident
FA95/S126 (5) & FA2003/S150
A partner in a partnership can be the UK representative of a non-resident. This will occur, for example, where a non-resident trades in the UK though the agency of a UK partnership (of which he or she is not a member). In such circumstances, the partners in the UK partnership will be jointly liable, as UK representative, for the tax payable by the non-resident.
Partnership, which includes non-resident partners, trading in the UK through a branch or agency / permanent establishment: the branch or agency / permanent establishment is treated as the UK representative of non-resident partners
FA95/S126 (6) & FA2003/S150(2)
Where a business that is carried on by a partnership that includes non-resident partners is carried on in the UK through a branch or agency / permanent establishment, the branch or agency / permanent establishment is treated as the UK representative of each non-resident partner.
Partnership trading in the UK which includes resident and non-resident members is treated as UK representative of non-resident partners
Where a business is carried on in the UK by a partnership which includes both resident and non-resident partners, the partnership is treated as the UK representative of each non-resident partner. The partners are thus jointly liable for the tax payable by the non-resident partners on their shares of the partnership profit.