Residency lies at the the heart of any tax debate and the difference between being resident or non-resident in the UK can often result in an individual paying tax or not. In recent weeks we have been receiving a growing number of enquiries from yacht crews who have had concerns over their residency.
The need to determine an individual’s residence status by reference to case law and guidance ended on 6th April 2013 when the new Statutory Residence Test (SRT). This new piece of legislation removed the element of conjecture and subjectivity that had previously blighted the old system and enabled individuals to conclusively determine residency.
An individual may be regarded as resident for part of a tax year but the split-year rules are complex. Anyone leaving or coming to the UK partway through a tax year should carefully consider whether they will qualify for split-year treatment or if they will be regarded as a UK resident for the whole tax year.
An individual’s residence status under the SRT, includes the following tests:
- The Automatic Overseas Test
- The Automatic Residence Test
- The Sufficient Ties Test
Each test is considered in order so, for example, if an individual meets one of the automatic overseas tests, he is not a UK resident for the year and there is no reason to consider the next two tests.
The Automatic Overseas Test
If any of the following apply, an individual is deemed as non-resident for the given tax year:
- They were resident in the UK for one or more of the three previous tax years and spend less than 16 days in the current tax year in the UK,OR
- They were resident in the UK for none of the three previous tax years and spend less than 46 days in the current tax year in the UK, OR
- Meet the requirements for working overseas for the given tax year (those working full-time overseas at least 37 hours a week on average should qualify but all employees working at least 35 hours a week on average are advised to review whether this test is met in accordance with steps provided in legislation).
- Spend 30 days or less working in the UK (working day is defined as working for more than 3 hours) and
- Spend less than 91 days in the UK in the tax year.
The Automatic Residence Test
Anyone who meets any of the automatic residence tests will be a UK resident for the year as long as they didn’t meet any of the ‘automatic residence tests’. The automatic residence tests are as follows:
- They spend at least 183 days in the UK in the given tax year, OR
- They have a home in the UK for at least 91 days , all or part of which fall within the given tax year, and they’re present in that home for at least 30 separate days in the tax year and while they have that home there is no home overseas or if there is, they aren’t present in them for more than 30 days in a tax year, OR
- They work sufficient hours in the UK for a period of 365 days, part or all of which falls within the given tax year and in that time they don’t take breaks from work of 31 days or more, and more than 75% of the total number of workdays in that 365 day period apply to days on which three hours of work or more are performed in the UK. Again, usually someone working in the UK for at least 37 hours a week on average will meet this test but all employees working at least 35 hours a week should check whether this test is met in accordance with the Steps provided in legislation.
The Sufficient Ties Test
If one’s residence isn’t satisfied by either of the automatic tests, then they need to consider the Sufficient Ties Test. This looks at four or five applicable UK ties as well as days spent in the UK in a tax year and compares them. The ties are the following:
- Family tie- their spouse, civil partner or common law partner (as long as they’re not separated from them) or minor children are resident in the UK in the given tax year.
- Accommodation tie- they have an available place to live for a 91 day period or more during a tax year (not counting gaps that occur in this period for 16 days or less) and spend at least one night a year in that place.
- Work tie- they work for at least 40 days in a tax year in the UK, and work more than three hours per day.
- 90 day tie- they spent more than 90 days in the UK in either or both of the previous two tax years.
- Country tie- (only applies to those who were resident in the UK for one or more of the preceding three tax years)- they spend more days in the UK than in any other country.
The number of days one spends in the UK per tax year plays an important role in each of the three tests. A day is counted when someone is present in the UK at midnight, subject to the deeming rule (below). For example, it’s possible for someone to spend the day in the UK (arriving in the morning and leaving in the evening) without that day being counted for the purpose of the SRT.
Transit days aren’t counted as days spent in the UK.
The deeming rule
The deeming rule applies where an individual has:
- At least three UK ties for the tax year, and
- Been present in the UK on more than 30 days without being present at the end of that day (called ‘qualifying days’), and
- Been UK resident in one or more of the preceding three tax years.
If the deeming rule applies, days of departure in excess of 30 are counted as days spent in the UK. The deeming rule doesn’t apply for the third automatic overseas test.
If one’s presence in the UK is due to exceptional circumstances, these days will not be counted. No more than 60 days will be allowed for this exception. These circumstances will only apply when one is in the UK due to situations beyond their control which were not expected and they had no option but to stay in the UK.
The purpose of this article is to try and debunk the many myths that are abounding the yachting forums at present. However residency can still be very complicated in spite of HMRC’s many efforts to reduce the level of subjectivity that previously abounded residency before the introduction of the SRT. As an accountancy company we would still advise that you speak with us if you have any concerns regarding your residency status.