The new statutory residence rules provide employees assigned to the UK with increased certainty as to their exposure to UK tax on relocation. Coupled with the reduction in the top tax rate for income to 45%, the consensus is that this is good news for UK business as it will improve employee mobility and the ability for UK businesses to attract overseas talent. The improvements relate to the opportunity to claim relief from UK tax for workdays spent outside the UK - overseas workdays relief "OWR". OWR was previously available to those who were not ordinarily resident in the UK - a term that has ceased to exist in the new world of statutory residence.
For a non-UK domiciled individual relocating to the UK on a temporary basis, a valid claim for OWR will be now available and retained for three years, irrespective of their changing intentions over the course of their stay. In particular, assignees are now able to purchase UK property for the duration of their stay in the UK and still retain the relief - something that was not always possible previously. Conditions remain for the claim. The individual must be non-UK domiciled and non-UK resident for the three years prior to the year of arrival on the assignment. Those returning to the UK on a second assignment may well be denied the relief. In addition it is only possible for a claim to be made if the employee is paid outside the UK and the funds relating to overseas days are retained overseas. For those who need to remit funds regularly to the UK, the relief remains difficult to obtain or maximise.
In addition, HMRC have announced that there will be a relaxation of the remittance rules for individuals relocating to the UK for employment purposes and claiming OWR. Employers should ensure that employees manage their overseas bank accounts in accordance with the guidance, to ensure that the relaxed rules apply. Thus it will be possible to nominate an account holding mixed employment income for use as a mixed fund under the "simplified mixed fund" rules. Simplified is perhaps not the most appropriate description!
Employers should ensure that employees keep adequate records for the number of workdays both in the UK and overseas, a note of travel between work locations and evidence of presence in the UK. Tracking remittances to the UK remains key.
It is anticipated that the certainty regarding a claim over the three year period will reduce the number of situations in which HMRC have cause to question the filing position taken and therefore result in a reduced number of enquiries. The increase in certainty should result in a decrease in the costs incurred for employers running global mobility programmes. This is even more crucial if the employer has agreed to bear the UK taxes due under some form of tax equalisation.
Article posted by James Cowper LLP