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Firms face stricter rules on ex-pat employees

Firms face stricter rules on ex-pat employees

A new statutory test to determine whether individuals are resident in the UK for tax purposes comes into effect this week (6 April 2013), and has significant implications for employers with employees who are globally mobile.

Any expats who divide their time between the UK and abroad or who travel frequently for business will need to be especially prudent.

The new statutory residence test (SRT) aims to remove any grey areas when determining an individual’s residence status for UK tax purposes. Previously, tax residency was largely decided by case law and there was no legally binding set of rules, which meant the guidance was open to interpretation and legal challenge.

Davyd Fisher, a specialist in expatriate tax at Grant Thornton UK LLP in Manchester said: “For employees working full time abroad, there’s now a defined amount of time people can spend working in the UK before they become resident for tax purposes – with the threshold set at 30 work days. Previously, depending on the type of work undertaken, it was theoretically possible for people to work 50, 60 or 70 days here and still be considered non-resident." 

The new test adopts a mixture of objective tests (day-counting) and more subjective rules looking at a sliding scale of how closely a taxpayer is linked to the UK. A working & lsquo;day’ is now defined as anything over three hours. & lsquo;Incidental’ work days – for training or activities subordinate to an employees’ main role – will be included within the 30 day limit. Previously, there was no limit to the number of incidental days someone from outside the UK could spend here.

Davyd Fisher continued: “Employers need to track any globally mobile staff, making sure they understand how much time people are spending in each country.

“If the member of staff goes over a certain threshold, that individual’s ties to the UK will come into question and criteria such as whether the individual has an accessible home in the UK or whether they have a UK resident family will need to be considered, which currently the employer is unlikely to know.

“The new rules have been introduced to provide clarity but there are some areas that still require further explanation – particularly in terms of what constitutes a & lsquo;home’.

“Tax residency is a complex area, and the individual being non-resident does not mean that the employer will have no obligations, so people should take professional advice or risk an unexpected bill from HM Revenue & Customs.” 

The SRT will apply to individuals for income tax, capital gains tax and inheritance tax but not for national insurance and non-tax purposes. The rules supersede all existing residence legislation, case law and guidance and impact the UK tax planning of every British expatriate anywhere in the world to a greater or lesser degree.


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