Bye-Bye NOR... Hello OWR!
People who have come to the UK to work and who travel a lot have known about the concept of Non-Ordinary Residence (NOR) as it has allowed them to benefit from significant tax savings. Under that status, one would only pay income tax on income related to UK work if foreign income was kept overseas.
The concept of ordinary residence is no more however. It was withdrawn in the last budget with effect from tax year 2013-2014. That's the bad news. The good news however is that it was replaced by the concept of Overseas Workday Relief (OWR). This is one is statutory. The main difference between the 2 is that one cannot benefit from OWR if domiciled (which was not the case with NOR).
Broadly, the new statutory OWR will be available if:
- the individual is non-domiciled in the relevant tax year;
- the remittance basis of taxation applies in the relevant tax year;
- duties of employment are carried out by the individual partly in the UK and partly overseas in the relevant tax year; and
- the relevant tax year either immediately follows 3 consecutive tax years in which the individual was not UK resident or is one of the subsequent 2 tax years after such a year.
As with the NOR status, it important to have one's salary paid offshore and to ensure that the portion related to offshore work is not remitted into the UK. Moreover, the counting of days is based on working days not presence days (different from the residence test). Where one spends weekends has therefore no impact (unless one works during those weekends).
It should be noted also that when travelling, it can be difficult to assess where duties have been performed. In these specific circumstances, HMRC is prepared to accept that the following treatment provides a reasonable basis for determining the status of such a day:
International flight or journey lasting no more than seven hours:
Morning arrival – UK workday
Morning departure – overseas workday
Afternoon arrival – overseas workday
Afternoon departure – UK workday
International flight or journey lasting more than seven hours:
Morning arrival – half UK workday and half overseas workday
Morning departure – overseas workday
Afternoon arrival – overseas workday
Afternoon departure – half UK workday and half overseas workday
Lastly, HMRC suggests that a qualified account be used. This account should contain less than £10 immediately before the "qualifying date" which is the first date on which salary is paid into the account in a given tax year. That can be achieved by either sweeping the qualifying account at the beginning of each tax year where you claim the OWR into an account that you will not remit into the UK or, alternatively, by creating a new qualifying account altogether every year. Failure to do that would prevent the use of the special mixed fund rules available for taxpayers using the OWR and that allow the grouping of all remittances of the tax year into one single remittance done at the end of the year (a lot simpler to manage and potentially more tax efficient).
Do not hesitate to contact us if you have any questions.
