Statutory Residence rule is much needed, says CIOT

The Chartered Institute of Taxation (CIOT) has welcomed the Chancellor’s announcement that a Statutory Residence Test (SRT) will be introduced from 2012.

The CIOT has long highlighted the problems that arise in practice from the uncertain position that individuals and businesses face over the lack of a definitive test for tax residence in the UK.

John Whiting, CIOT Tax Policy Director said:

“The rules on tax residence are jumbled and uncertain and are far from what we need for a modern tax system. Moving to a statutory test will give businesses and individuals certainty in what is an increasingly mobile world.

“There are many challenges to the design of a practical statutory test – but they are challenges that need to be met to make sure we have a tax system fit for the 21^st century. We cannot have rules dating from the age of sail and Morse code governing what happens in the electronic era.

“A statutory test needs to balance bringing into the net people who are here for much of the year with excluding those who are genuinely spending most of their time abroad. It needs to make sure there is proper recognition of those who go abroad to work, who need to be outside the UK net and also clear rules that tell those who come to the UK when they will be in the UK tax net.”

Notes for editors

1. Although the UK income tax rules revolve round residence, ordinary residence and domicile, there are no definitions of the terms. Instead, the system is governed by a mix of case law dating from the 19th century and HMRC practice.

2. The ‘Calman’ proposals, now in the Scotland Bill 2011, to introduce a Scottish rate of income tax, make a statutory residence rule even more important. That is because the definition of a Scottish taxpayer starts from a person being a UK resident taxpayer – so a firm foundation for the Scottish system argues for a UK statutory rule.