HMRC’s tax take from investigating high paid foreign workers in the city increases to £117 million

15 Oct 2012 | 09:57 am | 2 min. read

The increased tax taken by HMRC, the UK tax authority, from investigations into high income foreign workers, such as investment bankers, has leapt 23% over the last two years, according to data obtained by Pinsent Masons, the international law firm.

The latest data shows that HMRC received £117.2 million in additional yield from its ‘Expat’ team’s compliance work in 2011-2012, up from £94.9 million in 2009 – 2010.

In 2010 – 2011, HMRC recouped in £110.8 million in additional tax revenue from its Expat team.

Pinsent Masons' Director Ray McCann says: "HMRC is really cracking down on highly paid expats, most of whom are working in investment banks and hedge funds. Foreign expats have always been a high yielding target for HMRC, and with the organisation trying to boost its revenue it’s not surprising that they’re targeting low-hanging fruit.”

“This rise in additional tax take is also interesting given that City bonuses and the number of investment bankers have been slashed since the credit crunch. The Eurozone crises and the economic downturn have really depressed investment banking revenues, so HMRC has had to put in a lot of extra effort to increase its take from these investigations.”

“The tax system here in the UK contains many traps for the unwary, so it can be particularly tough for expats to try and navigate and for those without a particularly sophisticated knowledge of UK tax system there are plenty of potential pitfalls since UK rules can be quite different from those in other countries.”

Pinsent Masons explains that HMRC often finds that basic tax rules are often overlooked by expats, whose tax affairs can be intrinsically more complicated than those of a UK citizen.

Adds Ray McCann: “There are extra tax headaches for expats living in the UK, compared to British citizens. They may have property or other investments in their native country, for example and many leave it too late before they seek professional advice and end up paying the price when HMRC catches up with them.”

“Remittances – the movement of an individual’s funds from one country to another – are a particular problem for expats. How an expat uses foreign income or gains can result in a UK tax liability even where the funds do not actually come into the UK a point that many get wrong so ensuring full compliance can be tricky without the right kind of advice.”

Pinsent Masons adds that the City is receiving much closer attention from HMRC, meaning expats in the financial services sector are even more likely to come under investigation for underpaid taxes.

Ray McCann says: “Some tax planning schemes that have been a popular way for banks and hedge funds to help their staff manage their tax bills are now very much under the Treasury’s microscope. Other schemes, such as employer-financed retirement benefit schemes, are also under review by HMRC. We would strongly advise expats being sold these schemes to seek professional help as HMRC will continue to mount a very aggressive challenge to these arrangements.”

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