Ask the Expert

Zdravka Zlateva, Senior Tax Advisor at taxback.com, Nick Petrov, Galya Bosolova, and Mila Slaneva, UK Tax Filing Team at taxback.com, answer your questions.

Q: I’m moving to New Zealand in a few weeks for about 6 months, maybe a year and will be renting my house out while I’m away. A friend suggested joining the Non-Resident Landlords' (NRL) scheme. Could you tell me what is it, whether it is worth it and what the tax benefits are? Lee, London

The NRL scheme is targeted at UK property landlords whose normal place of abode is outside the UK. Based on your circumstances, it is borderline whether you will be classed as having a usual place of abode outside the UK. HMRC’s guidance states:

“Individuals are not regarded as having a usual place of abode outside the UK if they are living outside the UK only temporarily (say, for six months or less)”

If you think it more probable than not that you will stay longer than 6 months, it may be worthwhile signing up to the NRL scheme.

Where a NRL lets UK property, the default position is that the tenant/letting agent must deduct tax at the basic rate from the rental payments and pay this tax over to HMRC. Signing up to the NRL scheme allows these rents to be paid gross.

Although the rents may be paid gross however, this does NOT mean that they are exempt from UK tax. One of the criteria for getting approval under the NRL scheme is that you confirm you will file a UK tax return annually and pay any UK tax due (if applicable – many NRLs are actually due refunds). The main benefit of the NRL scheme is therefore not a tax benefit but a cash flow one.

One other point to note: as you will be out of the UK for such a short period it is unlikely that you will break UK residence. As such, you will probably need to declare your worldwide income on your Tax Returns and claim a credit for any foreign (non UK) tax paid.

Q: What is a P45/P60/CIS voucher? Mark, London

In the UK you can work as a PAYE employee and/or be self-employed. If you are an employee, your employer should give you documents which show your earnings and any tax deducted from your wages.

Form P45 is issued when you have finished employment during the tax year. It is usually issued after the leaving date. A P45 has four parts - Part 1, Part 1A, Part 2 and Part 3. Your employer sends Part 1 to HMRC and gives you the other three. When you start a new job, or claim Jobseeker's Allowance, you give Part 2 and Part 3 to your new employer or to the Job centre. You keep the remaining one, Part 1A, for your own records.

Form P60 is issued by your employer at the end of each tax year for your own record.

Both documents show:

• your tax code and PAYE (Pay As You Earn) reference number
• your National Insurance number
• your earnings in the tax year
• how much Income Tax and National Insurance contributions were deducted from your earnings

Your employer should automatically issue you with a P45 when your employment ends and you should be issued a P60 after the end of the tax year, which is on April 5^th.

If you are self-employed and your main activities are construction work, you should register with the HMRC’s Construction Industry Scheme (CIS). Under CIS, there are two ways in which you, as a subcontractor, can be paid; gross or under deduction.

Every contractor should provide you with CIS voucher that shows:

• the name of the contractor, his address, tax reference number
• the payment period
• your UTR and verification number if you are registered under CIS
• gross payment
• if CIS deduction for tax due is made
• Any other deduction as agreed with the contractor.

Q: My friend told me that when I leave the UK I may still be UK resident. How do I make sure I am treated as non UK resident after I leave? John, Edinburgh

Residence is a very tricky area as there is currently no statutory interpretation of residence. As a result it is necessary to rely on Case Law. The most recent case covering residence was HMRC v Gaines Cooper which confirmed that residence is not just a matter of how many days one spends in the UK; it also takes into account factors like family ties, whether you maintain a property in the UK or business interests in the UK etc.

In order to be certain that you break UK residence, a “clean” break with the UK is recommended. What exactly a “clean” break entails is specific to each taxpayer’s circumstances however.

Do note however that from 6 April 2012, a statutory test for residence will be introduced which will make the whole area of residence clearer. It will still be possible to remain UK resident when you leave but it will be much clearer whether this is the case.

Q: Do I have to tell HM Revenue & Customs (HMRC) when I leave the UK? Scott, London

It is recommended that when you leave the UK you complete form P85. This will advise HMRC that you have left the UK and also it allows them to calculate any refund you may be due. Of course this does not help you claim tax deductible expenses against your employment income but the taxback.com service encompasses all these different elements for a very affordable fee.

Q: What is the R105 form and how could it potentially benefit me? Jon, London

Form R105 is an application for non-ordinarily resident taxpayers to receive interest without having UK tax taken off. Building societies, banks and other deposit takers in the United Kingdom (UK) deduct tax at the basic rate from interest paid or credited to your account. But if you’re not ordinarily resident then the Form R105 allows them to pay the interest gross. Not all building societies, banks and deposit-takers offer this facility however.

These questions were answered by Zdravka Zlateva, Senior Tax Advisor at taxback.com, Nick Petrov, Galya Bosolova, and Mila Slaneva, UK Tax Filing Team at taxback.com. Contact details: Freephone 0808 2381 611, email uk@taxback.com, or visit www.taxback.com/anzoutlook