Totally unrelated to the flipping IRS - now the HMRC!

Ok. So, HMRC is still saying my vacation pay that I received after becoming a tax resident is taxable in the UK because I was a tax resident when I received it and am not going with the remittance basis. They say I should ask them for a tax credit on it because the tax was "rightly" taxed by the USA as USA source employment income. (Whatever. I can do that and the IRS and CAFTB taxes wipe out the HMRC tax on that particular income, with some left over.)

So, remittance. That would mean that I would lose my 11,500 pound excluded income amount, and then anything that I spent here in the UK on an American credit card, or that I had transferred over here bank-to-bank  in the 2017/18 tax year would be "income" and taxable.  Not much incentive to do remittance, there! I'm better off doing arising and arsing around trying to get the tax credit.

But before I brave going online to see how the Self-Assessment System works, I thought I'd check - am I understanding "remittance basis" for income correctly? That is, if I choose remittance basis, not only my vacation pay, but any other money I bring to the UK is taxed from pound one. (ew.)

So, remittance. That would mean that I would lose my 11,500 pound excluded income amount, and then anything that I spent here in the UK on an American credit card, or that I had transferred over here bank-to-bank  in the 2017/18 tax year would be "income" and taxable.  Not much incentive to do remittance, there! I'm better off doing arising and arsing around trying to get the tax credit.

But before I brave going online to see how the Self-Assessment System works, I thought I'd check - am I understanding "remittance basis" for income correctly? That is, if I choose remittance basis, not only my vacation pay, but any other money I bring to the UK is taxed from pound one. (ew.)

That's my understanding, you would have no personal allowance and it's not right for most people.

I do self assessment in the UK but I still use the paper forms. I do have an online account with HMRC and one year I thought I'd try it online but I didn't get past the first page. I find the paper forms much easier and each one comes with it's own, relatively easy to understand, notes (instructions)!

The deadline for paper is 31st October 2018 though so if that doesn't work with your timetable, you're going to need to do it online.

The advice given by HMRC on the vacation pay is incorrect.

You are likely to have claimed the split year basis, with a non UK part (before you started in the UK) and  UK part (after you started work in the UK). Unless you had UK employment duties during the non-resident period, your earnings for the non-UK part are not within the scope of the charging sections of ITEPA 2003. Accordingly no UK income tax liability arises on the UK non-UK earnings in the part year of residence, regardless of the tax period in which they are received or whether they are remitted to the UK.

You have not indicated where matters lie with HMRC in a formal sense. If an assessment has been issued, then you should appeal against it, and ask for a review. It will then be sent to someone more senior who should actually know the tax rules.

Hi. No assessment is made yet. I've had advice both ways - yes it is, no it's not, taxable. From the HMRC!  I'm going to go ahead and report it on the form,  in the white space, and claim it as exempt from taxation as it was "for" the 2016/17 HMRC tax year when I was not resident, and, thus, is not taxable.  (Their advice position: that it is leave pay and that I was resident when I received it, and so it's taxable. And: no, it's not taxable.)

I had no duties while in the UK. I was on paid vacation for a month, and the vacation began before I moved over. I know part of this particular sum is from an excellence reward for performance in the prior year, and that part for sure is not taxable (it is for 2016/17 UK tax year).  If the rest turns out to be non-taxable, that takes care of my other issue, the $500 that the IRS has grabbed on my 403b income (that I'd rather went to HMRC than pay twice), because my UK income would be below the personal exemption limit of 11500 and so no taxes would be due this year (17/18) to HMRC.

As far as the split-year treatment, I haven't gotten that far. I was going to download the paper forms today and hit them, as the Daughter is away for the next two days and I'll have no interruptions.  I assume I can elect split year by checking a box on the form? (I believe I was told it would be applied automatically and to not even report anything from before we became tax residents.)

I do not want to choose remittance, as I spent quite a bit of savings setting up over here, and moving US savings to UK savings (to hedge against the exchange rate going up) and would be worse off if I used remittance. So it's good to get that confirmed - I'm reading the manuals and translating correctly.

(I get a little twitchy about UK government manuals, because when I applied for a government job the wording in their paperwork was that they didn't "usually" hire people who hadn't been here 3 years, and when they offered and then rescinded the offer they wrote and said they had an iron-clad policy that they did not hire anyone under any circumstances who had not been here 3 years. I am a very literal person, so interpretations of regs that are not literal confuse the hell out of me.)

AHAH! Pay dirt. Now I have the precise regulation to quote when I report the income. I wish I had known about this website early on, I could have ferreted through it. It's really a goldmine of info!  The references to policy come from https://www.legislation.gov.uk/ukpga/2003/1/section/403 (and from a tax advice website).

Did entitlement to the amounts arise (on cessation of the US employment) in a year of non-UK residence, with the actual payment subsequently being made in a year of UK residence? ITEPA 2003, s 17(3) will attribute the amounts as being earnings of the tax year in which the employment ceased, when the client was not UK resident, such that they are not taxable in the UK.    Depends on what is meant by "cessation of employment". Technically I was still "employed" but not working in any capacity (on terminal leave), so, arguably not. 

Did both the entitlement and the payment occur in a year of UK residence to which split-year treatment applies?   The holiday pay will be excluded general earnings by virtue of ITEPA 2003, s 15(1A), as being attributable to the overseas part of the split year, not relating to duties performed in the UK, and not taxable in the UK.  Yes, this is the case.

Did both the entitlement and the payment occur in a year of UK residence, which was not a split year?  The provisions of the treaty should operate so that the payments are only taxable in the US but, because the US and UK tax years are not aligned, it is possible that the payments could be taxable in both countries.  Eeehhhh? I am assuming entitlement occurred when I racked the vacation hours up in my vacation bank at payroll (that is, 2014, 2015, 2016, and the first three months of 2017. So.... it was a split year anyway. Banked and started to use before split, paid after split.

Takes care of the 403b problem then, too. The 403b is taxable, but small enough that it's covered by the personal income exclusion for last tax year. Sorry the money isn't going to HMRC instead of IRS, but at least it's not going to go to both places!

Oh, and the sun just came out, too!