Monday, November 19, 2012

The new Statutory Residency Test (SRT)

Currently it can be very difficult to know for sure if one is UK resident or not. The uncertainty has been the reason there has been so many tax cases on that subject, often with a surprising outcome. We have heard about the new Statutory Residency Test (SRT) for a few years now and it looks like it's going to happen next year at last. As a reminder, here is a summary of the current situation today:

If you are not UK resident, you will become UK resident if either applies:
  • You are physically present for 183 days or more in a tax year
  • You have visited the UK for an average of 91 days per annum over 4 consecutive tax years (youwill then be regarded as resident from the beginning of the 5th year)
If you are already UK resident, becoming non resident requires the following:
  • You leave the UK to take a full-time employment for more than a UK tax year
  • You do not return to the UK for more than 183 days in any tax tax
  • Visits to the UK average less than 91 days per annum over assignment period (up to 4 years)
  • Any duties performed in the UK are incidental (less than 10 days/year usually ok)
But unless you have a full-time job abroad, breaking residency is hard and requires a lot more than just counting the days (as tax cases such as Grace v HMRC, Ogden v HMRC or yet again Kimber v HMRC attest). This is why the new Statutory Residence Test (SRT) due to be introduced in April 2013 has been proposed. Here is how this new test will work:

The new rules are based on a combination of day counting just like before but also “other factors”. Those other factors, that HMRC calls ties, are as the following:
  • Family tie: your family (spouse/partner OR minor children) are UK resident
  • Work tie: you have substantive (40 days or more) employment or self employment in the UK
  • Accommodation tie: you have accessible accommodation in the UK
  • 90-day tie: you have spent 90 days or more in the UK in either of the previous two tax years
  • Country tie: you spend more days in the UK in the tax year than in any other single country
For“arrivers” (persons who have not been UK resident in any of the last 3 tax years) the rules are:
  • Less than 45 days: always non-resident
  • 46 to 90 days: resident if individual has 4 ties
  • 91 to 120 days: resident if individual has 3 ties or more
  • 121 to 182 days: resident if individual has 2 ties or more
  • 183 days or more: always UK resident
For “leavers” (persons who have been UK resident for at least one tax year), there is an additional tie that will apply which is whether the individual has spent more days in the UK in the tax year than any other single country and the rules are:
  • Less than 9 days: always non-resident
  • 10 to 45 days: resident if individual has 4 ties
  • 46 to 90 days: resident if individual has 3 ties or more
  • 91 to 120 days: resident if individual has 2 ties or more
  • 121-182 days: resident if individual has 1 tie or more
  • 183 days or more: always UK resident
Probably not as simple as some would have liked but definitely some progress compared to the existing rules. Fore more details you should refer to the guidance from the HMRC on their web site.

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