The hotly anticipated Statutory Residence Test (SRT) was published last week, taking up a hearty 64 pages of the 615 page Finance Bill 2013 (not a good holiday read, let us say).  The new rules will apply from 5 April 2013.

The new test will be very important to employers of mobile employees since the extent of liability to UK tax hinges almost entirely on a person’s residence status.

In a very small nutshell to befit this blog, the new test has 3 limbs:

1. You will be conclusively NON RESIDENT in a tax year if:

  1. you were not resident in the previous 3 years and you spend fewer than 45 days in the tax year in the UK; or
  2. you were resident in any of the last 3 years but this year you spend fewer than 15 days in the UK; or
  3. you leave the UK to carry out “full time” work abroad and then spend less than 90 days in the tax year in the UK and no more than 30 actually working here.

Full time work means 35 hours/week, subject to some very complex provisions as to what a “week” is and with respect to business travel days.

2. You will be conclusively RESIDENT if:

  1. you spend at least 183 days in the UK in the tax year; or
  2. you have only one home which is in the UK or, if you do have a home elsewhere, you spend only a specified limited amount of time there; or
  3. you carry out “full time” work in the UK.

If you do not fall into 1 or 2 above then please go to 3 and look at your day count and your UK ties.  The number of those ties dictates how many days you can be in the UK before you prejudice your non-resident status.

3. UK ties include:

  1. spouse or minor children being resident in the UK;
  2. the existence and use of accessible accommodation in the UK;
  3. substantive work done in the UK (“substantive work” means at least 40 days in the tax year spent actually working here);
  4. more than 90 days in the UK in either of the previous two tax years;
  5. spending more time in the UK than any other single country (applicable to    “leavers” only)

The importance of these factors depends upon whether you are an “arriver” (someone who was not resident for any of the last three years) or a “leaver” (someone who was resident in UK for any of the last three years). 

If you are an arriver you may spend the following number of days in the UK before you become UK resident:

 

Number of UK ties                  Days in the UK                                    Status

                                                     0 – 44                                            Non-resident

4                                                  45 – 89                                           Resident

3                                                  90 – 119                                         Resident

2                                                 120 – 182                                        Resident

                                                     Over 182                                       Resident

So if you have 3 UK ties, for example, you will not be resident if you spend less than 90 days in the country.

If you are a leaver you may spend the following number of days in the UK before you become UK resident again:

 

Number of UK ties                  Days in the UK                                 Status

                                                         0 – 14                                      Always non resident

4                                                     15 – 44                                      Resident

3                                                     45 – 89                                      Resident

2                                                     90 – 119                                    Resident

1                                                    120 – 182                                   Resident

                                                      over 182                                    Always resident

It will be apparent from the length of this piece relative to the unedited 64 pages in the Bill that there is more to the SRT in detail than is set out above.  However, my initial view is that while it goes some way to address commentators’ early concerns about the risk of ambiguity it may not go quite far enough.  There remain potential pitfalls over what constitutes a “home” and what constitutes “work”- if I pick up a few emails at Heathrow on the way through, for example, am I compromising my residency position? Provision has been made for some exceptional days in the UK, for example for medical treatment, but the protection this affords may not be as generous as the previous HMRC practice.  

The moral of the story? The new SRT reinforces the need for mobile individuals to keep a complete and accurate record of their movements and their work activities.