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UK TAX
Weekly News 30th Sep
Scrapping of ‘non-dom’ UK tax status to be reconsidered
The Labour government is said to be reconsidering tightening UK tax rules for wealthy foreigners residing in the country, specifically by gradually abolishing the non-domiciled tax scheme, due to concerns that the funds raised for the NHS and other public services would be lower than expected.
The non-domiciled tax status applies mainly to individuals living in the UK but whose long-term domicile is abroad. It refers to a person’s tax status, independent of nationality, citizenship, or residency, although these factors can influence it.
Under this status, individuals can opt for the Remittance Basis of taxation, meaning they only pay tax on foreign income and capital gains brought into the UK, while income and gains generated overseas but not brought into the UK are tax-exempt. For wealthy individuals, this offers a significant and entirely legal opportunity to save if they set their domicile in a low-tax country.
In March 2024, then-Chancellor of the Exchequer Jeremy Hunt announced the gradual abolition of the non-domiciled tax system—from April 2025, those who move to the UK will not have to pay tax on their overseas income for the first four years. After this period, if they continue living in the UK, they will pay the same taxes as everyone else. After being elected, the Labour government announced further steps—abolishing the 50% discount on foreign income brought into the UK for non-domiciled residents in the first year under the new rules. At the same time, foreign assets held in trusts will be subject to UK inheritance tax.
The Treasury has stated that reports of changes to the government’s plans are merely ‘speculation’.
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Foreign worker visa rules to be tightened
Last week, Keir Starmer, in his first speech as Prime Minister at the Labour Party conference, said that ‘change has begun’ and introduced several upcoming measures.
He announced plans to further cut immigration and reduce the UK’s reliance on foreign workers. According to a new immigration plan, companies that violate work visa rules will be banned from hiring overseas employees.
Reportedly, the new measures will ensure that the Home Office’s visa policies align with skills and market demand. The Migration Advisory Committee (MAC) will focus on sectors experiencing a surge in overseas recruitment due to shifts in the labour market and will provide annual assessments to ministers. Data show that companies in sectors such as healthcare, IT, and hospitality have increasingly relied on foreign labour in recent years.
Meanwhile, the number of local UK applicants has started to decline, with a corresponding increase in visa applications from overseas workers with similar skills. Simultaneously, the MAC has been asked to review the impact of foreign work visas on the UK labour market. This includes prohibiting work visa holders from applying for spousal visas and raising the salary threshold required for such applications.
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11 arrested as HMRC raids companies suspected of UK tax evasion
Officers from HM Revenue and Customs (HMRC) recently raided several companies suspected of UK tax evasion. Search warrants were executed at companies including Green Jellyfish and Kirby and Haslam in Norwich, and 11 people were arrested.
HMRC said the raid was part of a coordinated effort to crack down on the suspected abuse of the Research and Development (R&D) tax relief scheme. R&D tax relief is designed to encourage companies to undertake science and technology innovation projects. If a project meets the tax definition of R&D, companies can apply for corresponding corporate tax relief to help reduce R&D costs. The project could involve developing a new product or service or improving an existing one.
Even if the project is unsuccessful, it may still qualify for relief. According to the government’s website, there are two different types of R&D tax relief, depending on the company’s size and whether the project has received subsidies or a combination of both.
An HMRC spokesperson said they would not confirm or publicly disclose the names of the raided companies. They also stated that HMRC will continue to support genuine businesses in obtaining the tax relief they deserve.
HMRC to launch consultation on e-invoicing
Last week, Chancellor Rachel Reeves outlined a package of reforms aimed at improving the UK’s tax system and helping to strengthen the UK’s economic foundation.
As part of this plan, HM Revenue and Customs (HMRC) will soon launch a consultation on the widespread use of e-invoicing by UK businesses and government departments. The introduction of e-invoicing can reduce administrative tasks, improve cash flow, enhance productivity, introduce automation, and reduce errors in tax returns, helping to narrow the tax gap.
European countries such as Italy, Spain, France, the Netherlands, Germany, Finland, Sweden, and Belgium have already introduced e-invoicing as a standard practice for businesses and government agencies. The Treasury’s consultation will gather business feedback on how HMRC can support investment and encourage the use of e-invoicing.
It is reported that James Murray, the minister responsible for the UK tax system, has been appointed as Chair of the HMRC Board, overseeing the implementation of three strategic priorities: reducing the tax gap, modernisation and reform, and improving customer service. A new digital transformation roadmap will be published in the spring of 2025.
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Highest retail sales recorded since May
According to the latest data from the Confederation of British Industry (CBI), UK retailers reported the fastest sales growth this month since May, with expectations of further modest growth in October, boosting confidence after a period of weak consumer sentiment.
Monthly retail sales rose from -27 in August to +4 in September, and expectations for the following month rose from -17 to +5, the highest level since April 2023. However, retailers believe sales are still below normal levels for this time of year. The report indicates that consumer spending habits are still affected by price increases over the past few years, according to CBI’s Chief Economist, Martin Sartorius.
Earlier this week, the Bank of England’s Monetary Policy Committee analysed that consumer spending might rebound more strongly than the Bank expected, despite many households’ incomes recently rising.
However, consumer spending remains below pre-pandemic levels, and the yet-to-be-released autumn budget is causing many households to remain cautious.
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