Where interest is paid to a party to proceedings in respect of money held in court, it should be paid to the client gross, even if he or she is non-resident. The client will normally be assessable under Case III, but the solicitor will not, unless exceptionally he or she is assessable as the client’s agent.
Solicitors as agents
Where a solicitor acts for tax purposes as agent for a non-resident client, the solicitor will remain liable to be assessed on behalf of the client in relation to interest earned in a separate designated client account, where Method A is used, unless he or she is an agent without management or control of the interest, in which case, under Extra Statutory Concession B13, no assessment will be made on him or her. Where the solicitor is assessable, the charge may, if appropriate, be to higher rate tax, so the solicitor will need to retain tax at the client’s marginal rate of income tax from interest received gross from a bank or building society before remitting it to the client. This is the case even though the account would not be subject to deduction of tax at source since the client would have completed a declaration of non-liability due to his or her non-residence. No question of the solicitor being taxed as an agent will arise where the interest in question has been earned in a general client account, or on stake money, but it could very exceptionally do so in relation to money held in court.
Determination of whether a solicitor has management or control for the purposes of the extra statutory concession will depend on the nature of the solicitor’s relationship with the client. Under the Finance Act 1995, a person not resident in the U.K. is assessable and chargeable to income tax in the name of an agent if the agent has management or control of the interest. Acting as a solicitor in giving advice or in conducting a transaction on the client’s instructions will not of itself give management or control nor usually would the holding of a power of attorney on behalf of the client for a specific purpose, e.g. concluding a specified purchase or sale. If a client had no fixed place of business in the U.K., and his or her solicitor had, and habitually exercised, an authority to conclude contracts on behalf of the client, this would give rise to the client having a permanent establishment in the U.K., and accordingly the client would be taxable. In essence, the solicitor would be deemed to have management and control if he or she were effectively carrying on the client’s business in the U.K., rather than merely acting as a solicitor, even regularly. Therefore, in order for the agency principle to apply, the solicitor/client relationship would normally have to go beyond a solicitor’s usual representative capacity. It should be noted that where interest arises in connection with the receipt of rents on behalf of the non-resident, the solicitor would be chargeable as agent in relation to the rent.
For a more detailed analysis of when solicitors can be taxed as agents, see [1991] Gazette, 1 May, 15 (article by John Avery Jones).
If a solicitor is assessable on behalf of the client, he or she has a general right to
reimbursement, out of the client’s money coming into his or her hands, for any tax for which the client is liable and in respect of which the solicitor has been charged. For the exercise of this right see the Finance Act 1995.
Legal
Disclaimer
For Contact Information click on the logo's at the top of the screen.
[ Home | Bookkeeping | Legal Recruitment | Consultancy | Site Map ]
Help