The UK rules for determining whether or not an individual is tax resident in the UK or not are notoriously complex and unclear. HM Revenue & Customs has argued that its own IR20 and HMRC6 boo
The UK rules for determining whether or not an individual is tax resident in the UK or not are notoriously complex and unclear. HM Revenue & Customs has argued that its own IR20 and HMRC6 booklets (HMRC6 replaced IR20 in 2010) only provide guidance and are not binding ? though this is now subject to a judicial review in the Supreme Court.
The announcement that the government is consulting on the introduction of a statutory definition of residence, to be implemented from April 2012, has therefore been welcomed. Whether it will actually provide a black and white definition however remains to be seen.
There has been a good example recently over how confusing the UK?s residency rules can be and how HMRC?s attempts to clarify matters do not necessarily make the situation more certain.
Where you leave the UK to work full time abroad, it is generally accepted by HMRC that this constitutes a clear break with the UK, and you will generally be regarded as non-UK resident from the day you leave the UK (or from the date your overseas work starts, if later), provided your overseas employment spans a complete UK tax year, and provided your visits back to the UK do not exceed 183 days in any one UK tax year or 91 days averaged over a maximum period of four UK tax years.
Up until now, there was no limit to the number of days you could come back to the UK to work. Provided you kept within the 183 and the 91 day limits, you would still be regarded as non-UK resident for the duration of your employment overseas.
It was recently reported in the UK national press that HMRC had put a 10-day limit on the number of days an expatriate could spend working in the UK before the authorities could challenge their non-residency position. The figure was described by some commentators as being ?ludicrously low?.
Following the reports HMRC said that the commentary was inaccurate and issued a statement seeking to clarify its rules. It said that the 10 day limit was given as a de minimis level and intended as guidance for those working abroad who spend time working in the UK. International Adviser published part of the HMRC statement which said:
?[The clarification] does not mark any change in practice, but merely clarifies existing longstanding practice. It clarifies that some days can be worked in the UK while still working full time abroad. For the first time, it sets a number of days work in the UK below which HMRC is unlikely to challenge residence on the grounds that the individual?s work abroad is not full time.?
HMRC is working on revising HMRC 6 and following the recent press discussions it gave the Institute of Chartered Accountants in England and Wales (ICAEW) permission to reproduce the draft guidance on ?non-residence and full time work abroad? in order to allay concerns.
The draft guidance acknowledges that where you work full time abroad you may sometimes have to return to the UK to carry out some work, in which case you will be expected to show that the amount and nature of the work does not prevent the overseas work from satisfying the full time criteria.
With regards to how much work can be carried out in the UK, this ?depends on facts and circumstances relevant to each individual?. If you spend less than 10 days a year working in the UK HMRC will ?generally accept? that you have made a break from the UK by working full time abroad. If more days are worked, ?whether an individual is working full time abroad will depend on their circumstances?.
Whether or not HMRC has ?clarified? the situation is debatable. While the situation is clearer for those who restrict working days to less than 10, anyone breaching the limit is none the wiser as HMRC could question whether they are working full time overseas. This will depend on the circumstances of their employment and this in turn could have an impact on their residence status.
When British nationals retire overseas, in order to avoid HMRC challenging their non-UK residency status they should leave the UK for a clear and settled purpose and make a distinct break from the UK. We recommend that, amongst other steps, your spouse and any dependant children move abroad with you and you do not keep any available accommodation for your use in the UK.
There are however different guidelines for those who have left the UK to work full time abroad.
In this case you must have arranged a job before you leave and it must be genuine, full time (normally a minimum of 35 hours a week) foreign employment which extends for at least one complete UK tax year. You will be regarded as non-resident from the day the employment starts. So, for example, if you depart the UK on 1st April 2011 but you do not start work until the 10th April 2011, you must remain employed overseas until at least 6th April 2013 to be regarded as non-UK resident throughout. This is because your first complete tax year of non residence started on 6th April 2012.
You should be able to provide evidence such as employment contracts; how you found the job; work permits etc. It is possible to be self employed but you must be careful and again it must be full time work. You should not undertake any real work in the UK, except perhaps some minor incidental duties carried out over less than 10 days.
Under this category of ?full time work abroad?, you can keep your UK available accommodation and your spouse and children can continue to live in the UK. However you still need to restrict your visits back to the UK to less than 183 days in any one tax year and less than 91 days on average over four years.
To be on the safe side you should keep a careful diary for all your trips to the UK, showing exactly why you were there and what activities as opposed to working (eg seeing family) you were undertaking.
There are many different factors which apply to determine whether or not you are a UK tax resident: it is not simply a matter of day counting. It can be harder than expected for someone leaving the UK to shrug off their UK tax residence. For peace of mind you could discuss your situation with an international tax and wealth management advisory firm such as Blevins Franks.
By Bill Blevins, Managing Director, Blevins Franks
18th April 2011