The Government has announced that it will consult on the introduction of a statutory definition of residence to provide greater certainty for taxpayers.
This statutory definition of residence is theoretically good news for expats as we will now discuss – however, let’s not get too excited just yet, because we have yet to see how the definition will actually be defined! Also, what impact might it subsequently have? Everyone is hoping that a clarification of the rules will be a good thing – but what if the rules change for the worse?
As most British expats are aware, when you leave the UK for good you should advise HMRC that you’re no longer resident so that they can assess you for taxation purposes accordingly. You can fill in form P85 if it’s relevant to your situation – and in theory, as long as you meet the following HMRC defined guidelines, you should achieve non-residency status, and therefore theoretically not be liable for UK taxation on your income: (note, plenty of exceptions to this exist, so do not ever assume you’re not liable for UK tax – speak to an accountant!!): -
“Normally if you leave the UK to work abroad full-time, you will become not resident and not ordinarily resident in the UK if:
- your absence and employment from the UK covers a complete tax year (that is 6 April to 5 April)
- you spend less than 183 days in the UK during the tax year
- your visits to the UK do not average 91 days or more a tax year over a maximum of four years
From 6 April 2008, days when you are in the UK at the end of the day, that is midnight, are normally counted as days spent in the UK.”
However, as mentioned, there are exceptions to these guidelines – and they are guidelines only, not constitutional and legally enforceable rules – and therein lies the current problem for all British citizens!
There is no legally defined set of rules that have been tried and tested and proven in a court of law to say what constitutes residency in the UK. All we have are documents such as IR20 – which was replaced by HMRC6 – and the results of a few fairly high profile court cases where IR20 and HMRC6 have been called into question.
Theoretically, if you fulfil the above detailed criteria you are unlikely to be investigated for non-payment of British taxation as you are indeed non-resident. However, if HMRC decides it would actually like to investigate you and claim tax off you, it currently can. Google the case of Robert Gaines-Cooper if you want to read more about this.
So, in the budget last week it was announced that the government is finally going to consult on introducing a statutory definition of residence that will remove all confusion, and ensure that it is very easy to see whether you’re resident or non-resident – and therefore liable or not liable for taxation in the UK, (that is putting it quite simply, because there are times when even a non-resident is liable for taxation – such as on gains made on a UK asset if it is sold within a certain amount of time after you have become non-resident for example!).
The idea put forward is that the statutory definition of residence will be consulted on over the next year, and if an agreement can be reached, it will be implemented in April 2012.
On paper this is great news for British expats everywhere as they should then very easily be able to meet the residency/non-residency rules and simplify their position for tax purposes accordingly. At Shelter Offshore we very much welcome any simplification when it comes to taxation for expats! It’s been too wishy washy and confusing for too long.
However, before anyone gets too excited, the rules that could potentially be defined may be strict, harsh, difficult and overwhelmingly negative for expats. We have already seen that this government will do anything to claw cash back from every member of society, and so surely, if it can include more people within its tax net it will do so. Therefore we think expats should be wary of what may come next.
Of course, we hope that the government will simplify everything and ‘just’ make the current HMRC guidelines law…but we’re not going to hold our breath. Watch this space for updates on this story as they become available…and please remember, you really should seek the support of a qualified international taxation expert or accountant if you have complex financial/taxation affairs and you’re not sure about residency rules and how and where you may be liable for taxation. Never assume you’re not liable, because when it comes to tax, ignorance of your position is not an excuse if you fail to make payment.