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What are the new Statutory Residence Test rules

7 October 13 | By: Jas Jhooty

Introduction

passport

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:

  1. You are non-UK resident for a tax year if you meet any of the automatic overseas tests
  2. You are UK resident for a tax year if:
    a. You do not meet any of the automatic overseas tests; and
    b. You meet:
    i. one of the automatic UK tests; or
    ii. the sufficient ties test

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 &

  • They spend fewer than 91 days in UK in the tax year &
  • The no of days in which employee works more than 3 hours in the UK is less than 31.

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 &:-

  • All or part of the 365 day period falls within the tax year
  • More than 75% of the total no of days in the 365 day period when the employee does more than three hours of work are days when the employee does more than three hours of work in the UK.
  • At least one day which is both in the 365 day period and in the tax year is a day on which the employee does more than three hours of work in the UK.

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: -

  1. Family – spouse, civil and common law partner, or minor children in the UK
  2. Accommodation – having accommodation in the UK which is available for a continuous period of at least 91 days (ignoring breaks of less than 61 days) and you spend at least one night there
  3. Substantive work in the UK – 40 working days or more (a working day is defined as more than 3 hours of work)
  4. UK presence in the previous two tax years – more than 90 days in either of the previous two tax years
  5. More days spent in the UK in a tax year than in any other single country. This applies to leavers only and is designed to catch leavers who do not take up residence in any other country following a period of UK residence

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.

  • Less than 16 days in the UK – Always non-resident
  • 16-45 days in the UK – Always non-resident
  • 46-90 days in the UK – Resident only if 4 ties apply
  • 91-120 days in the UK – Resident only if 3 ties apply
  • 121-182 days in the UK – Resident only if 2 ties apply
  • over 183 days in the UK – Always resident

UK Leavers -The leaver is someone who has been resident in the UK in at least one of the three previous three tax years.

  • Less than 16 days in the UK – Always non-resident
  • 16-45 days in the UK – Resident only if 4 ties apply
  • 46-90 days in the UK – Resident only if 3 ties apply
  • 91-120 days in the UK – Resident only if 2 ties apply
  • 121-182 days in the UK – Resident only if 1 tie applies
  • over 183 days in the UK – Always resident

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.

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