This is significantly less than the 90 days a year most experts have, until now, regarded as the maximum permissible number, and is seen as yet another sign of HMRC’s increased determination to crack down on tax avoidance.
Another major change, to the tax treatment of expat pensions, may also hit expats, experts said.
The guidance, reprinted in full below, was issued in response to requests for more transparency on the matter. This lack of transparency has been cited by some as contributing to drawn-out cases such as that of Robert Gaines-Cooper, a Seychelles-based British multi-millionaire, that have hinged on the Revenue’s interpretation of the individual’s legal residency.
Experts said the 10-day rule could cause businesses to arrange to do business elsewhere, out of concern for their staff.
"Ten days is an extremely low figure and will severely restrict multinational corporations in conducting trade, “ said Sean Drury, international mobility partner at PwC.
“Particular concerns would be raised where expats are working in jurisdictions with low or no tax such as the emerging and growth economies of the Middle East and South East Asia."
Elsewhere at PwC, Ben Wilkins, an international mobility adviser, noted that the change in the tax treatment of expat pensions was also attracting attention of tax experts, following HMRC’s release of its latest guidance.
"Although little known outside of the tax profession, Extra Statutory Concession A10 (ESC A10) has been a bedrock concession for pensions for years and allows relief for individuals who have worked the majority of their life overseas,” Wilkins said.
“The proposed changes to this concession will bring into the scope of tax pensions accruing from 6 April 2011. These may not have previously been taxed in the UK. We will be closely following the detail over the forthcoming weeks."
Drury added: “There has been more change to the fundamental principles of domicile and residency in the last four years, especially in HMRC interpretation, than in the previous 40."
Drury added that he "seriously question[ed]" whether all the changes had improved the position of the United Kingdom "from either a revenue or economic perspective".
"We welcome the possibility of a statutory residency test to the extent it is clear, equitable and enhances rather than hinders expatriation and the flow of trade."
HMRC’s guidance
on non-residence and–full time work abroad
You can become non-UK resident if you make a break with the UK through working full time abroad.
‘Full time work abroad’ means a genuine, full time, foreign employment. This could be either a contract with a foreign employer or a formal secondment to a non-UK position by a UK employer.
If you claim that you have left the UK to work full time abroad we will expect you to be able to demonstrate that you are working equivalent hours to full time foreign employees, at the same level in the same line of business, in the country concerned. It is expected that this will normally be a minimum of 35 hours a week.
If you are working abroad you may still have to physically return to the UK sometimes to do some work here. You will be expected to show that the amount and nature of any work carried out in the UK do not prevent the overseas work from satisfying the criteria required for it to be considered to be full time.
The evidence required to demonstrate that you are in full time work abroad may include the following:
• A description of the nature of your work and responsibilities
• The results of your work
• Timetables of activities, including time spent and nature of work done in the UK
• Reports that you made to your employer on your performance
• A record of the annual leave you took
Duties in the UK
HMRC accept that it has a practice whereby non residence can be demonstrated by working abroad full time even though some of the duties carried on in the UK are substantive. Although this is not in accordance with the definition of full time work at section 830 Income Tax Act 2007, HMRC’s guidance on ceasing to be UK resident covers a wider range of issues than that section.
How much work can be carried on in the UK depends upon the facts and circumstances relevant to each individual. However HMRC will generally accept that working in the UK for fewer than 10 days in a year will not by itself prevent an individual claiming they have made a break with the UK because they are working full time abroad. If more days than this are worked in the UK, whether an individual is working full time abroad will depend upon their particular circumstances.
Given that
a. Residence is a long term issue affecting the entirety of a tax year and individuals and companies will have planned actions on the basis of HMRC guidance, and
b. The government has announced that it will consult on a statutory residence test to codify the rules on residence
HMRC can confirm that for 2011/12 this practice will continue. It will however, be reviewed for future years having regard to the outcome of the consultation on a statutory residence test.
