We now have the revised draft legislation and revised guidance notes regarding the statutory residence test which is due to come into force on 6 April 2013. The general framework remains the same:
- An automatic non resident test if you satisfy some conditions (unlikely);
- An automatic residence test if you satisfy come conditions (also unlikely);
- A connecting factors test where the number of days you are allowed in the UK depends upon the number of your connecting factors.
The idea of this statutory residence test was to provide a welcome degree of certainty to taxpayers wanting to know whether they are resident in the UK or not - so that they can properly comply with their tax obligations.
The guidance note says that "the Government does not believe the test is complicated" and "taxpayers will be able to determine their residence status with clarity". Whoever it is in the Government who has this belief should be found because he is obviously not taking his medication.
One of the central conditions for the determination of UK residence is whether the taxpayer has a home here. It is therefore rather important that we know what this means. The Government said that they could not provide a definition in the legislation about what is meant by a home. OK - but one would expect something helpful in the guidance notes. But that is apparently not possible either. All they do is to say: "We give some general examples of what a home may or may not be". The examples are not very helpful. How a citizen is supposed to understand his obligations faced with this degree of clarity is beyond me.
Another important issue is whether the taxpayer is working in the UK. Again this is central to the determination of their tax position. A day of work exists if you work more than 3 hours in the UK. OK - but what constitutes work? Being on your Blackberry while on the train - or being on the phone? Who knows. Does work start when you arrive at the office or the client's premises and what about when you are having lunch, or when you are having dinner? All these uncertainties have been pointed out, and studiously ignored by the legislation or the guidance notes. The only safe conclusion can be that any time at all spent in the UK with any work connection at all is likely to be a working day. You can see how easy it is to fall down a big hole here.
There is a new definition of full time working abroad which includes a new condition that there must be no significant breaks from the overseas work. A significant break occurs if the taxpayer does not do more than 3 hours work overseas for 31 consecutive days (or would have done but for being sick or on holiday). So it is rather important that if you lose your job, you must get another one within 30 days or you will be in serious trouble.
We all know about the day count rule and that a day in the UK is one where you are here at midnight. This certainly provided us all with some welcome clarity. Not any more. There is a new provision. If you have 3 connecting factors and were resident in the UK in any one of the last 3 years then if you are present at any time in the UK for more than 30 days, every day of presence over 30 will count towards the total. So if somebody thinks that because they have three connecting factors with the UK and will therefore not be resident in the UK unless they spend more than 89 nights in the UK, they could be in for a shock. They could quite easily be resident here even though they spent no nights here at all during the year. It is good to be clear.
There are some special rules if you die during the tax year (when else are you supposed to die) but they are really too complicated to get into here. Do they really think that people go round dying in order to get some advantage over HMRC.
This statutory residence test was welcomed because although it is a bit complicated, it was thought to be reasonably certain so that everybody would know where they stood. Whether people like the rules does not really matter; what is important is that the rules are clear so that people can abide by them. Unfortunately these new rules are now shrouded in such uncertainty that we are going to need years of litigation before any reasonable degree of clarity arises. They have just exchanged one lot of uncertainties for another.