How to Stay Safe from HMRC
7 October 13 | By: Jas Jhooty
Finance Act 2013 introduced a new Statutory Residence Test to determine whether or not individuals are UK resident for tax purposes. The rules are extremely complex and HMRC have recently published brand new guidance notes in their Booklet RDR3
The fact that HMRC’s guidance booklet runs to 106 pages in length gives some indication as to how complicated this new legislation is.
The basic rules are:
Automatic Overseas Tests
If the employee has met any one of these three tests they are deemed to be not resident
First Test – Resident in UK for at least one of the previous 3 tax years & spend fewer than 16 days in UK
Second Test – Not resident in UK for any of the previous three tax years & will spend less than 46 days in UK in this tax year
Third Test – Works full time overseas without any significant breaks &
NB The third test does not apply if employee has a relevant job on board a travelling vehicle (i.e. ship or aircraft) and the employee makes at least 6 trips in the Tax year that are cross border to rule out common travelling professions e.g. airline pilots & ship stewards etc.
If the automatic overseas tests are not met then you have to consider if the employee will meet any of the automatic UK tests.
Automatic UK Tests
If the employee meets any of the following tests they will automatically be UK resident:
First Test – Does the employee spend 183 days or more in the UK
Second Test – Only applies if the employee has a home in the UK during all or part of the tax year. The employee will meet this test if there is at least one period of 91 consecutive days, at least 30 of which fall in the tax year, when they have a home in the UK in which they spend a sufficient amount of time and if the employee has an overseas home, they will have spent less than 30 days there in a tax year.
If the employee has more than one UK home this test must be applied to each home separately
Third Test – The employee works full-time in the UK for a period of 365 days with no significant breaks from UK work &:-
The second and third tests are subject to very complicated calculations and it is highly recommended that professional guidance be sought.
So if an employee has not met any of the automatic overseas tests nor any of the automatic UK tests then you will have to consider whether they have sufficient ties to the UK to be considered to be Resident.
Sufficient Ties Test
The five ties that need to be considered are: -
The number of UK ties necessary to arrive at a conclusion is dependent on the number of days spent in the UK by the individual: -
UK Arrivers -The arriver is someone who has been not resident in the UK in the previous three tax years.
UK Leavers -The leaver is someone who has been resident in the UK in at least one of the three previous three tax years.
How emTax can help
As you can see this is an extremely complicated area of new tax legislation. HMRC have attempted to assist individuals in determining their residency status for tax purposes by launching a web based service that can be found here and then clicking the link to the Tax Residence Indicator.
However this is still a pilot service and getting into a position where you can confidently answer the required questions to arrive at a binding decision is a task in itself.
Why not let our consultants do the hard work for you. We are experts in all areas of employment tax legislation and pride ourselves in providing a value for money service that offers the same quality of service as the “Big 4” accountancy firms but at a fraction of their prices.
If you are interested in this or any other employment tax service, please do not hesitate to contact us.