UK Statutory Residence Test

The impact for employers

There have been a number changes to UK tax legislation since 6 April 2013 that have increased the challenge facing the global mobility function - being UK tax compliant as an employer of a globally mobile workforce has never been harder.

Our short video highlights some of the main challenges that you might be facing and looks at how we’re seeing companies respond to the changes.

Transcript

Hello and welcome to this International Assignment Services webcast. I am Ben Wilkins, I am joined today by my colleagues Iain McCluskey and Martin Muhleder.

We are going to talk today about the impact of the Statutory Residence Test. The test was introduced in April 2013 and, in conjunction with a couple of other changes, has really changed the dynamic for employers of internationally mobile employees.

We had the Statutory Residence Test introduced from April 2013, we’ve had some key changes in relation to Pay As You Earn with the Real Time Information regime being introduced, and perhaps a little bit more recently we’ve had the Revenue change their expectations in relation to the reporting of short term business visitors to the UK and effectively making what was optional in the past effectively mandatory for most employers.

So, in the context of those three key changes, Iain what types of employees are you seeing as being impacted by that in relation to your clients?

Iain

So I think three particular groups impacted by the introduction of the Statutory Residence Test. The first one being people who are on assignment in non-treaty partner countries – Dubai is a good example – who are spending a significant amounts of time working back in the UK. Before April 2013 those people were possibly non-resident. Many of them are going to become resident from 2013/14 onwards and of course a lot of those countries have low or no tax rates so there is a potential big incremental cost and big employment tax issues associated with that. The second population are those people who are working usually relatively close to the UK but have a family back in the UK and so spending a significant amount of time here and still retain a home here. Again those people may have been non-resident before April 2013 but increasing number of those people are becoming resident after April 2013 under the Statutory Residence Test.

And, finally, those people who have an unusual working pattern and who are working outside the UK. So in particular people who are working part time and people who are, who’ve got unusual shift patterns – on and off rotas – they may not qualify as working full time abroad under the Statutory Residence Test and so for them also there is a risk they will be still resident in the UK.

OK, so that’s the impact from an employee perspective, from an employer perspective what changes are you seeing your clients take to address the risks that you mentioned?

So, different clients are in different places in terms of their approach to this. Certainly most clients have now deployed more sophisticated travel tracking mechanisms using things like GPS apps on Smart phones – because it’s really important to know how many days your employees are spending in the UK and indeed elsewhere in the world to manage tax risk and tax compliance. So, definitely more sophisticated travel data is one of them.

The second one is better assignee data so the Statutory Residence Test has a number of tests around home and family and things, so clients are now really getting a handle on that data because it’s really important to have that data to determine residency positions.

Payroll – a process – again the clients who are relatively far on in dealing with the Statutory Residence Test have tested their payroll process to make sure that they can get the data and subject relevant compensation to RTI where there is a Statutory Residence Test residence issue.

Thanks Iain. Martin what are you seeing your clients do – what are employers doing as a result of these changes?

Martin

Well I think I would agree with Iain, it’s the real focus on getting a short term business visitor compliance right. Now, the rules have been around for a number of years, but we’ve never really seen that many clients really take a handle on this and do something about it, so that’s been a real big change for me.

What’s been a real catalyst driving that change Martin?

Well I think there’s a number of factors coming into this, I think one of the historic factors is that a lot of clients in the last five or 10 years have outsourced their payroll function. Now if you go back five years, 10 years when this trend started taking place, what was really happening was that payroll was quite a simple function. With your expats you paid some tax during the year, you filed a tax return at the end of the year and you cleared it all up at that point and that was all good. What we’ve seen over the last few years is the Revenue really becoming quite aggressive in this area and making sure employers get this stuff right.

So we’ve seen a number of compliance failings leading to large penalties for employers. And that has then really made them focus, especially with the introduction of these new rules in April, on actually we do need to …. this is no longer a nice to do – this is something we have to get right and especially when you think about things like senior accounting officer it’s something that companies have to get right now.

Absolutely, and I think we’ve also seen the Revenue’s approach changing from an audit perspective so, not only are they testing the outputs from payroll – they are testing the inputs. So they’ve issued to a number of companies a systems and process review questionnaire to test the way in which the client actually operates and collects data and how that data is then processed and then ultimately to test what comes out of payroll. So, they are testing from both ends of the spectrum, so I think there has been a change there.

Yeah, absolutely.

So stepping back from all of this we’ve had a number changes, lots of different employee populations affected. The number of different actions required from the employer, quite different environment to where we were a year ago – what’s the role of the global mobility function in this Martin?

Well, I feel quite sorry for the global mobility function, because they are kind of caught between a number of different areas here. So you’ve suddenly got a whole bunch of new regulations and rules which a lot of companies are going to look at and are going to say this is to be dealt with by the mobility function. You know, this is people moving round so we want the mobility function to deal with this but there is whole swathes of populations that will never had heard of that they’ve suddenly now got to find a way to deal with, so from their perspective I think it’s a big change for them and something that they are going to have to really think about how they manage themselves through that process.

Absolutely. So I think really in summary what I’m hearing is there are a number of things that clients and employers of internationally mobile people really need to do. This is about collecting data – collecting the right data – and it’s a broader set of data than you would have collected and needed in the past. You then use that data to make an assessment under the new rules of whether someone is resident or not and what the tax consequences are. And then making sure that you then take action to ensure those tax liabilities are met and that that action is correct and it flows all the way from the mobility function to payroll, that the employees engage and know what the impact for them is going to be, from a policy perspective we have made the right decisions, so there really are a key two or three things that clients really should be doing in relation to this.

And I think there are a number of tools out there that can help clients do the risk assessment that they need to do and take the right actions to remain compliant in what really is a more complicated environment out there now for employers of Expats.

So, on that note, Martin, Iain thank you very much for your time today and thank you all for joining us and goodbye.

Increased challenges for the global mobility function

You may have been impacted by some of the challenges below. If you’d like to talk through how we can help you, please get in touch.

  • The statutory test for tax residence in the UK came into effect from 6 April 2013. Many organisations are finding that some groups of employees working outside the UK are triggering tax residence in the UK where previously they wouldn’t have.
  • Combined with Real Time Information reporting, which also came into effect from 6 April 2013, you will also have to deal with the payroll issues triggered when an overseas employee triggers tax residence. So there’ll be more work needed to achieve compliance and you may need to carry out a detailed analysis of your payroll data, tax positions and assignment policy.
  • On top of this, there is also an updated regime in the UK for short-term business visitors. This effectively makes the use of a short-term business visitor agreement, and compliance with that agreement, mandatory. So global mobility teams are facing a deluge of change to adapt to and comply with.