How will spending time abroad affect my tax and my business?

By Daniel Hunter

If you spend a lot of time working abroad — it could affect your tax status. So it’s important to understand whether you are UK Resident or Non Resident.

Determining your status could cut your tax bill but, according to Carol Cheesman of Cheesmans Accountants, it’s often not as straightforward as it may seem.

For example, the amount of UK income tax and Capital Gains Tax (CGT) you pay depends on whether you are resident and/or ordinarily resident or non-resident in the UK.

If, however, you are UK resident but not domiciled in the UK or not ordinarily resident in the UK, then you only pay tax on the income you bring into the UK. This is called the “Remittance Basis”.

“Ordinary residence” means that your residence in the UK is typical — it’s where you normally live. If you have always lived in the UK then you are both resident and ordinarily resident.

Alternatively, you might have come to the UK from abroad to work on a project and in doing so you set up a life for yourself and residence in the UK is not casual for you. Living in the UK becomes typical for the time being. This makes you ordinarily resident.

Individuals needing to know if they are UK resident for tax purposes, perhaps because they have income from abroad or spend a lot of time working away from the UK or live abroad but have UK income, can now take a Statutory Residence Test that was introduced on 6 April 2013.

Finding out your residency status will ensure you do not pay more tax than you need to.

The Statutory Residence Test is divided into three categories:

Part one is used to determine if you are resident anywhere outside of the UK (Automatic Overseas Test). If this cannot be proved, then part two is used to determine if you are resident in the UK (Automatic UK Test). If neither category proves residency, then individuals are tested in part three, which determines an individual’s residency by connecting factors to the UK.

A positive outcome of the introduction of this test is that it provides certainty as to an individual’s tax status therefore assisting business planning. Furthermore it has a positive impact on lifestyle and social ties because if you plan to leave the UK you will not have to close UK bank accounts or withdraw from UK-based clubs and societies and equally, those coming to the UK will be able to join social clubs and such without being deemed resident on these social ties alone.

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