The Statutory Residence Test (SRT) is split into three areas. These are:
- The Automatic Overseas Tests whereupon an individual will be automatically non-UK resident if they meet the criteria of any of the three tests
- The Automatic UK Tests under which an individual will be automatically UK resident if the criteria for any of the tests is met
- The Sufficient Ties Test. If tax residence has not been established through either of the automatic overseas or UK tests, an individual must look to how may ‘ties’ they have to the UK in conjunction with the number of days they were in the UK at midnight
The concept of work is central to each of the three types of residence tests. For tax purposes, an individual will be automatically non-UK resident if they work full-time overseas, they will be automatically UK resident if they work full-time in the UK and they will have a tie to the UK for the purpose of the Sufficient Ties Test if they work for more than 3 hours a day in the UK on at least 40 days in the tax year. But what constitutes work?
An individual is considered to be working when they are doing anything in the performance of the duties of employment or in the course of a trade and as such this includes anything where the profits are considered to be ‘earned income’ which are subject to income tax.
The condition of income having to be earned means that activities which generate investment income, e.g. stock market investors, are not counted for this purposes and neither are activities which are not subject to income tax, such as gambling.
This may all sound very straightforward, but we are talking tax and so inevitably there are grey areas to contend with and these are noted below.
Travelling time will be counted as working if, broadly, either the cost of the journey incurred by an individual would be a tax-deductible expense or if the individual does something during the journey which counts as work.
Training Time will be counted as work if the training is paid for by the employer and is undertaken to help the employee in the performance of their duties. Similarly, a tradesperson would be considered to be working if the cost of the training was deductible against income tax.
Voluntary Posts are not considered working provided there is no contract of service.
Garden Leave is considered to be working by HMRC where an employer instructs an individual to serve a period of absence whilst still on the payroll. Whether it can be argued that garden leave is in the performance of an employee’s duties is debatable but nevertheless, this is the default position HMRC will take.
Time on Call is perhaps the greyest of the grey areas as HMRC’s position is that the conclusion will depend on the conditions of an individual’s employment and nature of their duties or trade.
As is evident, the concept of work can extend beyond its ordinary everyday meaning and whether an activity counts as work for the SRT is often dependent on other areas of statute. With that in mind, if you are currently or potentially affected by the matters discussed in this article, please get in touch and we will be happy to assist.
