Your residency has a big impact on your UK tax position. Generally residents are taxable on worldwide income and non-residents only on UK income sources. One of the most common situations we come across are people working abroad - perhaps for a secondment, perhaps for many years - who retain a home or family in the UK but are non-resident for tax purposes. This usually means their overseas employment is not subject to UK tax but instead subject to local taxes where they carry out their work.
If HMRC decide to challenge a claim to being non-resident, then the burden of proof initially lies with the tax payer. Keeping good records is therefore very important – and even more so since the introduction of the Statutory Residency Test (SRT) in April 2013.
Prior to the SRT, the rules were much more straightforward – as long as you were employed overseas for more than a full tax year, worked ‘full time’ and didn’t come back to the UK for more than 91 days in the tax year, overseas employment income was not generally subject to UK tax.
The SRT is a much more mechanistic approach. For people working abroad the key test for automatic non-residence requires them to show they have worked ‘sufficient’ hours overseas.
Unlike the previous, rather vague, requirement for ‘full time’ working, a non-resident now needs to keep very detailed records of hours worked. So if you are working overseas and claiming non-residency make sure you keep hold of the following:
Contracts of employment: The basis of any agreement with your employer, make sure you keep all contracts and any later amendments. HMRC also recommend you retain supporting documentation and correspondence relating to the contract
Hours worked: The new test requires that ‘sufficient hours’ - an average of 35 hours a week - are spent working overseas. Don’t just assume you will hit this, even if your contracted working hours exceed 35 hours a week. There is a special five step method of calculating this figure and the results can often be unexpected. If the average doesn’t work out per HMRC’s strict method you could be considered UK resident.
However, firstly you need your total hours worked. This will include recording the hours worked each day and also any time travelling where you were working. HMRC recommend noting what sort of work you were doing as well. Also note down any training time your employer pays for.
It may be that some of this is recorded on a timesheet for your employer – but will you still have access to that a few years down the line when HMRC come and check the claim? Do you record all your hours of work on a timesheet or are hours often omitted? For this test all hours worked apply - not just the ones that hit the timesheet. We would recommend noting the hours actually worked, what you were doing and where in your own personal diary each day so you can retain access to this information.
What you are doing when not working: Under the new test, having got your hours worked for the year, you have to calculate the number of weeks over which to average them. So keep records of holidays, sick leave and parental leave and where you had this leave
Where you are working: To qualify for non-residency under this test you can’t work more than 3 hours in the UK on more than 31 days in a given tax year. Keep records of work done while back in the UK and also a note of any work done while travelling in and out of the country
Time in and out the country: As well as the sufficient hours test, you still need to know your days in and out the UK and keep under the ‘old’ 91 day limit. Keep records of dates and times of travel and also your travel tickets.
So basically I’m keeping a timesheet for the Government’ sighed one of our non-resident clients last month. Having just explained the above, there was little to do but agree!
