UK Statutory Residence Test - overview for contractors

Contractors partial to working overseas should be aware that from April 6th 2013 a new Statutory Residence Test was introduced governing the factors to be taken into account in determining if a person is a UK-resident for tax purposes, writes John Hill, founder of employment tax practice John Hill & Associates. This Test replaces the mainly case law-based approach of previous years.

An individual will now be automatically resident or automatically non-resident if certain criteria are met, or will otherwise be subject to supplementary tests based on the number of connections with the UK.

This article summarises the main features of the new Test but only constitutes generic guidance and individual professional advice should always be sought. Although the new rules offer more clarity than before, they are still open to a degree of interpretation.

Automatically Non-Resident

An individual will now be automatically non-resident in the UK if any one of the following three tests is met:

  • Resident in the UK in one or more of the three preceding tax years and spends fewer than 16 days in the UK in the tax year
  • Not resident in the UK in any of the previous three years and spends fewer than 46 days in the UK in the tax year
  • Works full time overseas without any significant breaks from the overseas position and:

- spends fewer than 91 days in the UK during the tax year, and

- the number of days spent working in the UK for more than three hours is fewer than 31.

Automatically Resident

An individual will now be automatically resident in the UK if any one of the following three tests is met:

  • Spends 183 days or more in the UK in the tax year (previously known as the 183-day rule)
  • Has a home in the UK for a period of more than 90 days and:

- is present in that UK home on at least 30 separate days (individual or consecutive days) during the tax year, and

- whilst that home is available, there is a period of 91 consecutive days (of which one or more fall into the tax year in question) when either

- there is no overseas home or there are one or more homes overseas during which the individual is not present for more than 30 days during the tax year.

  • Works full-time in the UK for 365 days or more with no significant break from UK work and:

- all or part of that work period falls within the tax year, and

- more than 75% of the total number of days in the tax year when working more than three hours work are days spent working in the UK.

Supplementary Tests

If neither automatic test is met, it is necessary to consider the number of ties the individual has with the UK. These supplementary tests examine the number of connections to the UK based upon:

  • Family

Broadly, an individual will have a family tie where they have a partner (husband, wife, or civil partner) and/or children under 18 resident in the UK.

  • Accommodation

An individual will have an accommodation tie where they have a place to live in the UK (Including a holiday home) and it is available for a continuous period of 91 days or more in the tax year, and they spend at least one night there (or 16 nights if the home belongs to a close relative). Gaps of 15 days or fewer will count towards the continuous period of availability.

  • Work

An individual will have a work tie if they work more than three hours a week in the UK for an aggregate of 40 days or more in the tax year.

  • 90-day tie

An individual will have a 90 day tie if they spend more than 90 days in the UK in either or both of the previous two tax years.

  • Country tie

An individual will have a country tie if they spend more midnights in the UK than any other country during the tax year.

Impact of ties on number of days visiting the UK

The number of UK ties determines how many days an individual can spend in the UK without being treated as resident depending on whether Table A or Table B  applies.

Table A

UK ties needed if the individual was resident for one or more of the three tax years preceding the tax year in question:

Days spent in the UK in tax year

UK ties needed to be resident

16 - 45

At least 4

46 – 90

At least 3

91 – 120

At least 2

More than 120

At least 1

 

Table B

UK ties needed if the individual was not UK resident in any of the three tax years preceding the tax year in question:

Days spent in the UK in the tax year

UK ties needed

46 – 90

At least 4

91 – 120

At least 3

More than 120

At least 2

 

Split-Year Concession and Overseas Workday Relief

In addition to the new Statutory Residence Test, HM Revenue & Customs announced that the existing rules regarding concessionary split-year residence will continue but that a change would be made to the Overseas Workday Relief rules relating to an individual who:

  • Is not domiciled in the UK
  • Claims the remittance basis of taxation
  • Works both in the UK and overseas, and
  • Was non-resident in the UK for the three consecutive years prior to becoming UK resident.

For those individuals, tax relief will apply to the proportion of earnings relating to non-UK duties provided that the earnings are not remitted to the UK but claims will only be permitted for a maximum period of the year of arrival and the two consecutive years.

For further information, or to obtain a professional residence opinion, please contact me or a member of our team.

Thursday 25th April 2013