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Paul Daniel and not working full-time abroad: ‘don’t underestimate how thorough the court will be’

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Shaking off UK tax residence by taking up full-time work abroad has never been as easy as taxpayers would prefer. This is illustrated by the decision in Paul Daniel v HMRC [2014] UKFTT 173 TC.

The detailed conditions required to achieve non-residence through overseas work are now set out in the statutory residence test, but greater certainty over the conditions will not necessarily make it easier to achieve non-residence. Taxpayers typically fail to work enough hours abroad over enough of the tax year to meet the description ‘full-time’ or, if they do, they often fail to keep enough records to prove this. The basic lessons from Paul Daniel and similar cases could be summarised as follows:

  • Don’t underestimate how thorough and detailed the court will be in its review of the taxpayer’s working and personal life. This goes well beyond looking at the terms of a foreign employment contract.
  • Remember that the burden of proof may effectively rest on the taxpayer (provided that HMRC can establish that an assessment based on residence is valid).
  • Don’t forget that documentary evidence is golden. Oral testimony will be relevant, but cases are typically heard many years after the relevant events when memories may not be as fresh. Therefore:
    • keep boarding passes, employment contracts, work diaries and email records (get these from employers, if necessary);
    • keep records of your personal and social commitments (to avoid the conclusion that these did not leave enough time for ‘full-time’ work); and
    • keep records of working and personal engagements both overseas and in the UK; and
  • Be realistic about how much work is actually done abroad. A pattern of full-time work needs to be established and maintained throughout the relevant tax year. The work done must relate to the real commercial needs of the relevant employer, i.e. the offshore role needs to be real, not made up, and should ideally relate to an overseas business, not a UK business. A taxpayer is likely to be negligent and may face penalties if he files a tax return on the basis that he has been non-resident by reason of working full-time abroad without reviewing carefully, after the tax year, the hours actually worked abroad.