Residence tests – do them backwards!

It has been three years since HMRC introduced statutory residence tests and there is still some confusion over the best way to help clients through them. John Barnett of Burges Salmon had some useful advice for delegates at the recent STEP Annual Tax Conference – do them backwards.

Official HMRC forms suggest asking if an individual is automatically resident first, then if they are automatically non-resident. Then it proceeds to ask further questions that establish whether someone is one of these options. This can be confusing; according to Barnett as clients will only find out if they are automatically resident or non-resident by answering questions at the end of the form.

The solution is simple. Barnett recommends starting with ‘are you in the UK for more than 183 midnights?’ This establishes whether an individual is resident or non-resident and forms the starting point for further questions on UK ties and the exact number of nights that can also inform the status.

Doing things this way round makes the tests much more straightforward, however giving clients advice on the number of days they can spend in the UK again requires reversing official HMRC guidance. HRMC gives the day count framed as qualifying as a resident – ie, you must spend 183 days in the UK to qualify as a resident (if you have zero UK ties). This is not a question many clients will ask – they will ask ‘how many days can I spend in the UK before I am classed as a resident?’ Barnett notes that this distinction helps clients keep things clear in their minds.

He also noted that in the vast majority of cases, the right answer to this question is 90 days…