Well, much has been written over the last year or so as to the effects of the Statutory Residence Test (SRT) on the UK tax position of Brits working and/or living abroad and we now hope to help you understand the situation.
Up to 5/4/13 UK tax residence was not defined by legislation, but instead hinged upon the interpretations of various legal cases which occurred 10, 20 and sometimes more years ago. Added to this, claimants had to rely upon the interpretation of individual tax offices that had little or no experience in handling or considering claims to Non Resident Status.
We applaud the Government and HMRC in endeavouring to standardise matters, but even now it is still possible to blur the lines between those living abroad and those working abroad who still live in the UK. HMRC has created a tool to “assist individuals” to decide their own position. However, having been involved in “road testing it” with Brits Abroad, it, like so many of HMRC’s tools, doesn’t quite do what it says on the tin.
Every Brit Abroad who intends to visit the UK from 6/4/13 should assess, or better still, have their positions reviewed using the SRT, as every Brit Abroad is directly affected by it.
ABOLITION OF 4 YEAR AVERAGING
It is true to say that most Brits working abroad who have done so for sufficiently lengthy claim periods, adhering to the criteria in place up to 5/4/13, may still qualify for Non Resident/Tax Free Status from 6/4/13, but important changes under the SRT mean that their ongoing claims should now be reviewed, as these could make or break any ongoing claims.
The major change from 6/4/13 being that whilst Brits working abroad are still allowed to spend a maximum of 90 days annually in the UK (some of them actually performing UK duties under their foreign contracts), the rolling 4 year average days rule has now been abolished meaning that claimants can no longer utilise any previous so called “unused days” in the 2013/14 or later tax years. Each tax year is now reviewed in isolation.
SICK LEAVE/COMPASSIONATE LEAVE ETC
HMRC will now very rarely disregard excess days spent in UK for “reasons beyond your control”. Sick leave/compassionate leave will usually be disregarded only where the individual is in the UK and thus delayed in departure from the UK. It is however unsafe to assume that HMRC will disallow any such days as they will have to be convinced that your case is “exceptional”. Should HMRC grant you exceptional circumstances and agree to disregard any such days spent in the UK this could have a detrimental effect on the average hours worked overseas and possibly on the 31 days significant break.
What are exceptional circumstances? ( The following paragraphs and examples have been extracted from Annex B of the RDR3 – HMRC’s guidance notes to the SRT)
Days spent in the UK may be ignored if the individual’s presence in the UK is due to exceptional circumstances beyond their control. This will usually only apply to events that occur while an individual is in the UK and which prevent them from leaving the UK.
Exceptional circumstances will normally apply where an individual has no choice concerning the time they spend in the UK or in coming back to the UK. The situation must be beyond the individual’s control.
Anna is returning to her home in Denmark having spent her seven week summer holiday working in the UK. This was her first visit to the UK.
On her boat journey home there is an explosion in the engine room. Emergency rescue services attend the vessel and Anna is found unconscious and badly burned. The emergency services make the decision to airlift Anna to a specialist burns unit in the UK where she remains for five months. Anna returns to Denmark as soon as she is discharged from hospital.
Anna has been in the UK for 202 days.
This disaster would be considered to be an exceptional circumstance beyond Anna’s control. However, the maximum number of days that can be ignored towards days spent in the UK is 60. So Anna has 142 days which count as days spent in the in the UK.
The type of events which may give rise to exceptional circumstances will be, by their nature, out of the ordinary and it is difficult to be prescriptive about what characteristics such an event would exhibit. However local or national emergencies, such as civil unrest, natural disasters, the outbreak of war or a sudden serious or life threatening illness or injury to an individual are examples of circumstances that are likely to be exceptional.
There may also be limited situations where an individual who needs to stay in the UK to deal with a sudden life threatening illness or injury to a spouse, person with whom they are living as husband and wife, civil partner or dependent child can have those days spent in the UK ignored under the SRT subject to the 60-day limit.
There may also be limited situations where an individual who comes back to the UK to deal with a sudden life threatening illness or injury to a partner or dependent child can have those days spent in the UK ignored under the SRT subject to the 60-day limit.
Henrik is working in the construction industry and lives in Germany. He has business interests in the UK and has spent 68 days working here in the current tax year. He is a lone parent and his children usually live in the family home in Germany with him.
Henrik sends Victoria, his 13 year old daughter, for a two week holiday, at a summer holiday camp, in the UK. Unfortunately, whilst undertaking one of the activities she has an accident and is taken to hospital, unconscious and with a suspected major neck injury. Henrik immediately travels across to the UK, to be with his daughter and arrange for her to be moved back to Germany. This happens three days after the incident. His daughter remains in the hospital in Germany for a further four weeks, and has to wear a neck brace for an extended period of time.
The three days Henrik spends in the UK with his daughter arranging her transfer, after this potentially life threatening accident, would be considered as exceptional circumstances.
A similar judgement would be applied had Henrik and his daughter been in the UK when the accident had occurred. If Henrik stays with his daughter beyond their planned return date, until she can be transferred back to Germany, the additional days where his is present at midnight would count as exceptional circumstances.
Had he chosen not to arrange for his daughter to be transferred to a German hospital, and elected to stay in the UK until she was released from hospital here, the additional time would not be considered as exceptional circumstances.
In order to be ignored as days spent in the UK, there must be exceptional circumstances beyond the control of the individual. In other words, the event or situation in question must be one over which the individual has no control or influence and which cannot reasonably have been foreseen.
For example, if an individual is a passenger on a commercial aircraft that is forced to make an emergency landing in the UK and there is no available onward flight to their original destination for two days afterwards, the two days that would otherwise count as spent in the UK would be ignored due to exceptional circumstances.
Claude is retired and came to the UK for the first time on 1 June for a five month extended travelling holiday, intending to leave on 31 October.
On 29 September while travelling to Scotland he is involved in a car crash suffering multiple injuries. He is in hospital for a total of 14 weeks and arranges to travel back to his home in France on the day he is discharged.
Claude has been in the UK for 220 days
The time Claude spent in hospital is an exceptional circumstance. The maximum number of days in the tax year that can be ignored is 60. Claude has 160 days counted as spent in the UK.
For days spent in the UK due to exceptional circumstances to be ignored, an individual must intend to leave the UK as soon as those circumstances permit. If an individual does leave the UK once the exceptional circumstances have ended HMRC will usually accept this as evidence of such an intention.
The circumstances are as in Example 3.
However, Claude’s nephew who lives in Wales writes to him in hospital and suggests Claude should visit him when he leaves hospital. Claude writes back on 1 December agreeing.
From 1 December it is no longer Claude’s intention to leave the UK as soon as the exceptional circumstance has come to an end and so only the period 29 September to 30 November can be discounted as exceptional circumstances for SRT day counting purposes.
Exceptional circumstances and Foreign and Commonwealth Office (FCO) advice
Exceptional circumstances will generally not apply in respect of events that bring you back to the UK. However, there may be circumstances such as civil unrest or natural disaster where associated
FCO advice is to avoid all travel to the region.
Individuals who return to and stay in the UK while FCO advice remains at this warning level would normally have days spent in the UK ignored under the SRT, subject to the 60-day limit.
Philip is a structural engineer and has worked full-time abroad for many years. He is currently working on a project in Africa. His wife and children live in the UK.
In May the Government of the country in which he is working is overthrown in a military coup. This initially gave rise to peaceful protests but soon developed into increasing levels of civil unrest.
In early July the Foreign and Commonwealth Office (FCO) issued advice against all but essential travel to the country. Philip continued to work there.
By mid-October the country was on the verge of civil war and the FCO upgraded their advice, advising against all travel to the country. Philip returned to the UK on 21 October.
Due to international intervention, by the end of January the following year political stability had returned to the country. On 29 January the FCO downgraded their advice to avoid all but essential travel to the country. Philip took the first available flight back and resumed work on 31 January.
The days Philip spent in the UK were due to an exceptional circumstance beyond his control and can be ignored for the purpose of the day counting tests of the SRT. However, the maximum period that can be ignored due to exceptional circumstances is 60 days. Philip was in the UK for 103 days during this period which means Philip must count 43 days as days spent in the UK for the purposes of the SRT day counting tests.
Examples of circumstances not normally considered to be exceptional circumstances.
Days spent in the UK will not be considered exceptional where the circumstances are not beyond the individual’s control, or where they could reasonably have been foreseen or predicted.
Life events such as birth, marriage, divorce and death are not routinely regarded as exceptional circumstances. Choosing to come to the UK for medical treatment or to receive elective medical services such as dentistry, cosmetic surgery or therapies will not be regarded as exceptional circumstances.
Travel problems, for example a delayed or missed flight due to traffic disruption, train delays or cancellations, or a car breakdown, will not be considered as exceptional circumstances.
SPLIT YEAR CLAIMS
Non Resident Status depends on the length of a qualifying claim period. However, in the departing and returning years, split year claims can be made. The number of days allowed in the UK where split years are involved is pro-rated, so it is imperative that these are accurately calculated as if a claim should fail tax liabilities will arise.
HOURS WORKED/SUBSTANTIAL BREAKS
In addition to the number of days spent in the UK there are the two main pitfalls to consider when determining UK Non Residence (NR) status under the 3 rd Automatic Overseas test, as outlined on our NR page:
- The hours worked in a claim period:- Should your hours worked overseas not be sufficient, (minimum average of 35 hours pw) HMRC will not accept that you are in full time foreign employment so your claim for Non Residence will fail.
- Significant break from overseas work:- You will have a significant break from overseas work if at least 31 consecutive days go by and not one of those days I a day on which you:-
- Work for more than 3 hours overseas or
- Would have worked for more than 3 hours overseas but you do not do so because you are on annual leave*, sick leave or parenting leave.
Should you have a significant break from overseas employment, you will not meet the 3rd Automatic Overseas Test of the SRT and so your UK NR claim is likely to fail.
*Rotational leave is not regarded as annual lave by HMRC. Claimants on rotational assignments should carefully avoid any likely periods of 31 consecutive away from work and ensure that they work sufficient days overseas to ensure their Non Residence claim is not endangered.