Statutory Residence Test: Implications for employers Wednesday 8 May 2013
Agenda Introductions Background Why is residence important for employers? Statutory Residence Test Practical implications for employers Questions
Introductions
Introductions Lee Hamilton Director of International Mobility Services David Conway Expatriate Tax Manager
Introductions Our International Mobility service provides comprehensive advice and support for employers and employees on all the key issues associated with employees working outside of their home country We support diverse organisations from large multi-national corporations and international charities through to small ownermanaged businesses As a key member of the Crowe Horwath International network, we can deliver a coordinated global service. Crowe Horwath International is ranked among the top 10 global accounting networks with offices in over 100 countries
Background
Background Prior to 6 April 2013, an individual s residence status was determined by reference to: - Case law - HMRC Guidance - Minimal legislation (not comprehensive) Uncertainty created in many cases, highlighted by high profile tax cases Government wanted a test that is transparent, objective and simple to use so that it would provide certainty to individuals
Background Consultation document published in June 2011 Draft legislation and invitation for comments in June 2012 Revised legislation issued in December 2012 Legislation effective from 6 April 2013 Royal Assent expected by July 2013 Note: Until Royal Assent is received, the legislation may still change
Why is residence important for employers?
Why is residence important for employers? Tax compliance and payroll UK residence status UK income tax liability on employment income PAYE UK duties
Why is residence important for employers? Some exceptions : Short-term business visitors may, in theory, still be subject to PAYE in the UK, even where they are exempt from UK tax under a double tax treaty In certain circumstances, tax may not be due in respect of duties performed outside the UK by non-domiciled individuals, even where they remain resident in the UK Not necessarily only residence status in current tax year that is important (e.g. when looking at share incentive arrangements, or some bonus arrangements)
Why is residence important for employers? Assignee management Most employers want to be clear with employees on how they will be taxed when they are sent on assignment The impact of residence on the net salary of the assignee Potential personal tax implications for the assignee (i.e. not only tax on employment income)
Statutory Residence Test
Statutory Residence Test Automatic Overseas Tests Automatic UK Tests Sufficient Ties Tests
Conclusive Non-Residence Automatic overseas tests Not UK resident for 3 previous tax years (2 if die in year) & UK presence for less than 46 days in current tax year UK resident for 1+ of 3 previous tax years & UK presence for less than 16 days in current tax year Works sufficient hours overseas in current tax year, no significant breaks from overseas work and spends less than permitted limit of time working or physically present in the UK
Additional comments Sufficient hours determined by following steps in the legislation 35 hours or more per week on average No significant break = 31 days or more Present in UK for less than 91 days in current tax year No more than 30 UK workdays in current tax year Workday counted as three hours work irrespective of nature, including work-related training & travel, & work undertaken commuting Employment or self-employment
Conclusive Residence Automatic UK Tests UK presence for more than 182 days in current tax year Home in UK for more than 90 consecutive days (30+ within current tax year); present there for 30 days; whilst have that home, have no overseas home for 91+ days or have overseas home by present in any one overseas home for less than 30 days in current tax year Works sufficient hours in UK in current tax year, no significant breaks from UK work and more than 75% of total number of days in 365 day period when individual works more than three hours are days worked in the UK
Additional comments Sufficient hours determined by following steps in the legislation 35 hours or more per week on average No significant break = 31 days or more (assessed over 365 day period all or part falling within current tax year) Employment or self-employment
Connection factors Sufficient Ties Test Family Tie Accommodation Tie Work Tie 90 day Tie Country Tie (leavers only)
Family Tie Spouse, civil partner, common-law partner, minor children resident in the UK Children in education in UK not included provided spend fewer than 21 days in UK outside term-time Minor children resident in UK not included if individual spends fewer than 61 days in UK during tax year
Accommodation Tie UK accommodation available to the individual for a continuous period of at least 91 days Used for one or more nights If home of close relative (other than spouse/partner/minor children) need to use for 16 or more nights to count Individual need not own or hold interest in property
Work Tie Works in employment or self-employment in the UK At least 40 days or more in the tax year At least 3 hours of work a day constitutes a working day
90 Day Tie Individual spends more than 90 days in the UK in either of the two previous tax years
Country Tie Individual spends more days in the UK than any other country in the tax year Applies to leavers only
Connection factors Number of ties and days in the UK combine as follows: Days in UK Arrivers Leavers Fewer than 16 days Always non-resident Always non-resident 16-45 days Always non-resident Resident if 4+ factors 46-90 days Resident if 4+ factors Resident if 3+ factors 91-120 days Resident if 3+ factors Resident if 2+ factors 121-182 days Resident if 2+ factors Resident if 1+ factor 183 days or more Always resident Always resident
What is a Day in the UK? Presence in the UK at midnight Individual in transit through UK and does not engage in work or social activity in UK is excluded Exceptional circumstances excluded subject to 60 day maximum Deeming rule applies to leavers with at least three ties to UK If present for more than 30 days without being present at midnight, count those days in excess of 30
Statutory Residence Test Automatic Overseas Tests Automatic UK Tests Sufficient Ties Tests
Split Year Becomes UK resident by working sufficient hours in UK Loses UK residence by working sufficient hours overseas Resumes UK residence having ceased working sufficient hours overseas Gives up UK home, had his only home outside UK and establishes a sufficient link overseas Becomes UK resident by having only home in UK Accompanying spouse/civil partner qualifies
Overseas Workday Relief Available for non-uk domiciled individuals; not resident in UK for any of the three tax years prior to arrival in UK Relief available for duties of employment carried out overseas Only for year of arrival and subsequent two tax years
Temporary Non-Residence Similar to capital gains anti-avoidance legislation Affects individuals resident in UK for four of the seven years prior to departure and resume residence within five full tax years Will be taxable on: Dividends from close companies deriving from profits arising prior to departure Lump sum benefits from employer financed retirement benefit schemes (EFRBS) Chargeable event gains on life assurance contracts
Practical implications for employers
Practical implications for employers Inbound expatriates What is the residence status of my employee? Overseas workdays relief and Section 690 Directions Record keeping Split year is it available?
Practical implications for employers Outbound expatriates Does my employee break residence? No tax ( NT ) codes Net of foreign tax credit relief Record keeping
Practical implications for employers Short-term business visitors Does the STBV establish residence in the UK? Does my STBV have any connecting factors to the UK? Is the number of days that can be spent in the UK by the employee before establishing residence reduced? Record keeping
Practical implications for employers Additional considerations Update existing documents which refer to residence (e.g. employee briefings) Communication with relevant employees Staff training on new rules and obligations
Practical implications for employers Due out soon HMRC Statutory Residence Indicator tool Updated HMRC guidance
Questions
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