Fairness in taxation. Legality in taxation. Often contractors, they don’t co-exist

In the week that the wife of the UK chancellor of the exchequer seemed to be exposed by the mainstream press as a tax ducker (at least as far as HM Treasury’s coffers are concerned), the very least that took place was still some very bad optics for an already struggling Rishi Sunak, writes former Revenue inspector Carolyn Walsh.

Non-dom in a nutshell

Very simply for contractors in a rush, this is how some of the background mechanics work.

In the situation that the chancellor’s wife Akshata Murty finds herself in, it’s the case that if you were born in a country that your father considers to be his home country, you are treated as domiciled in that country for tax purposes, even when you reside in the UK all year.

This means you pay tax on your global income in that country, and you only pay tax on the amount you transfer to the UK to cover your living expenses. This is called the ‘remittance basis.’ My old employer, the UK tax authority, talks about the basis more here if you’d like to get involved with the technical detail.

Fair? Well, it is legal

But generally speaking, individuals will choose to be domiciled abroad if their country of birth has a preferential tax system. Assuming that someone takes advantage of this route and acts honestly with regards to their tax affairs in their country of domicile, is that fair? 

Well, it’s legal, and the country of domicile will readily accept the tax revenue and hopefully put it to good use.

But then, as many were asking last week in light of the status of the chancellor’s wife, what about the loss to the UK Treasury?

Just because you can...

You may say the ‘Mrs Sunak’ (Ms Murty) probably doesn’t use the resources provided by the UK to any great extent. But her husband is the chancellor, meaning he sits at the head of the Treasury,  and he’s responsible for making the rest of us pay taxes at an ever increasing proportion of our income, to contribute to providing those resources, which many contractors don’t use to any great extent either.

So Mr and Mrs Sunak remember, just because you can, doesn’t mean that you should!

Finally, and interestingly, just before Friday when she said she’d no longer be a non-dom, the tax status and arrangements of the chancellor’s wife were put to the business secretary.

Utterly in order

Sounding a bit ruffled in an interview with Kay Burley, Kwasi Kwarteng said the public could reach their “own conclusions” about her non-dom status. Given she hours later got rid of that status, it seems Ms Murty could see those conclusions coming in thick and fast, and was none too reassured.

So it seems the Sunaks know that appearances matter (bear in mind, only last month at Spring Statement he tried to show he understood the cost of living crisis). And perhaps understandably also what matters is paying money to HMRC on your overseas earnings if you live in this country. In his interview, Mr Kwarteng said Mr Sunak and his wife’s arrangements were “utterly in order.” At least now thanks to her change of heart on Friday, there’s actually a chance of that statement being true.