Many individuals with international lifestyles have become accustomed to ‘counting days’, to make sure they do not spend too much time in the UK and so become UK resident. Acquiring UK residence would expose them to UK taxation, or to additional UK taxation. Likewise, well advised individuals leaving the UK are aware that they must not return to the UK too frequently if they are to shed the UK tax resident status that they had until their departure.
Some individuals come close to the limit on the number of days however, and so knowing whether part of a day spent in the UK counts or not can become very important and – if counted incorrectly – very expensive. From April 2008 the rules have changed, and closer attention to detail, and even better recordkeeping, will be necessary for many individuals, as Helen Ratcliffe and Sophie St John explain.
Residence in the UK is not based on a single statutory test but on a mixture of statute, intention and ‘day counting’. Following the collision of views between HMRC and the taxpayer in the Gaines-Cooper case, the Finance Act 2008 has made some changes to ‘day counting’ for the purpose of our residence rules. A person is UK resident if they spend 183 days or more in the UK in one tax year. They are also generally regarded as resident if they spend, on average, 91 days or more in the UK (taken over a period of 4 tax years).
Residence in the UK is not a simple numbers game, however, and the wider facts of the particular case also need to be considered, because although it is vital to stay within the day limit, it is not necessarily enough. For example, someone who leaves the UK intending to cease to be UK resident needs to make sufficient breaks in their links with the UK, as well as getting the day count right.
Prior to 6 April 2008, for the purposes of both the 183 day and 91 day rules, the days of arrival and departure were not normally counted as days spent in the UK.
From 6 April 2008, presence in the UK at midnight counts as one day of residence, so arrival and departure within one 24 hour period that does not include midnight will not count as a day of residence.
Transit exemption: there is an exemption for passengers who are in transit through the UK between two places outside the UK, and this allows for a change of airport and between modes of transport (e.g. flying into the UK but leaving by train). Days spent in transit which involve being in the UK at midnight will not be counted as days of presence in the UK for the purpose of the residence test provided that, during transit, the individual does not engage in activities that are ‘to a substantial extent’ unrelated to their passage through the UK. For example, if an individual attended a business meeting (even at the airport) then the transit exemption will not apply. Or, for the non-business individual in transit, arranging in advance to meet family members for dinner while waiting to board a connecting flight the next day will cause the exemption to be withheld. HMRC have said they will apply the test strictly, so caution is needed in interpreting what is ‘substantially unrelated’ to passing through the UK.
Electronic communication is, of course, vital to modern business, but it can be used to produce an immediate evidential snapshot of a person’s use of time. Despite its importance, the HMRC guidance so far published does not refer to this and we are making representations to the Government on this. Until there is greater clarity, it is safest to work on the basis that the overnight transit exemption will not be available if an individual works remotely, takes a pre-arranged conference call, or makes work-related telephone calls during transit through the UK.
Record-keeping has always been important for individuals using ‘day counting’ and will be even more so following the changes.
The change to the day counting rules is likely to have two immediate effects. First, those individuals who were staying the right side of the 91 day rule before by careful day counting will need to reconsider their number of overnight stops in the UK. Secondly, individuals who transit through the UK should, when making their travel arrangements, check carefully the arrival and departure times of their visits to the UK.
This article can only give a brief flavour of the new rules. The penalty for getting it wrong could be severe – the cost being UK tax on (possibly) worldwide income and gains. Anyone who feels that they may be anywhere near the limit needs detailed advice tailored to their particular personal circumstances