Statutory test of tax residence will not be introduced until April 2013 says Government

It had been expected that draft legislation on statutory test of tax residence would be published today as part of the draft Finance Bill 2012. However, in a written ministerial statement David Gauke the Exchequer Secretary to the Treasury announced that the introduction of the new test would be postponed.

"The consultation on tax residence raised a number of detailed issues which will require careful consideration to ensure the legislation achieves its important aim of providing certainty for individuals and businesses," said Gauke. "This will give time to consult thoroughly on the detail of these changes well in advance of implementation."

“It is welcome news that the Government is to take into account the issues raised during the consultation process on the proposed statutory non-residence test," said Janet Hoskin, a tax expert at Pinsent Masons, the law firm behind Out-Law.com. "While a statutory test is welcome and long overdue it is preferable for the Government to get the drafting right before this is introduced.”

Gauke confirmed in the statement that "the Government is committed to the form of the statutory residence test outlined in consultation".

However, the Government is going ahead from April 2012 with some reforms to the rules for the taxation of non-domiciled individuals. The reforms comprise the introduction of a higher £50,000 annual charge, a new relief to encourage business investment and technical simplifications to some aspects of the existing rules.

Gauke confirmed that following these changes and the introduction of the statutory residence test "the Government remains committed to making no further substantive changes to these rules for the remainder of this Parliament".

Until now the UK's law on tax residence has depended on past court rulings and guidance from Her Majesty's Revenue and Customs (HMRC). The Government is intending to introduce a new statutory test to determine an employee's residence status.

The new test largely revolves around two elements: the amount of time spent in the UK and the connections the individual has within the UK.

The Government will make a further announcement around the time of the 2012 budget when it will publish its response to the recent consultation together with a further consultation on policy detail and draft legislation.