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Gardening leave

Brightonian
Posts: 65
Joined: Wed Aug 06, 2008 3:31 pm

Gardening leave

Postby Brightonian » Mon Jul 17, 2017 10:28 am

My client has worked abroad for a number of years in the Middle East. He has now been made redundant. He came back to the UK at the end of March and is now on gardening leave until the end of September. He was in the UK from 31 March until 5 July but has now moved to Kazakhstan where he and his wife have a home. He is unlikely to work again in this tax year. I am confused as to whether he will be non-resident for the year or not. He wants to reclaim the tax suffered on his salary this year. I have read that gardening leave will be treated as a normal day of work and his physical location will determine whether it is a UK workday or an overseas workday. He was in the UK for 90 days in this tax year and had accommodation available to him. But he will spend the rest of the year in a home in Kazakhstan. Will it come down to UK ties to decide his residence status or is this maybe a split year? I'd be grateful for a steer int he right direction.

maths
Posts: 6734
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gardening leave

Postby maths » Mon Jul 17, 2017 3:52 pm

Prima facie the client does not appear to satisfy either any of the automatic overseas or automatic UK tests.

Under the STT he would need 3 ties if he spent more than 90 days but not more than 120 days in the UK; or 2 ties if more than 120 days.

The 90 day tie does not apply to tax year 17/18 as he didn't spend more than 90 days in the UK in tax year 16/17 and/or 15/16.

In which case he may be treated as non-resident for 17/18.

If, however, he satisfies the STT for 17/18 (ie is resident) split year treatment will apply if one of Cases 4 to 8 applies. Prima facie none of these Cases appears to apply.

Assuming UK residence for 17/18 client may also be resident in Kazakhstan and DTA offer him protection form UK tax charge on salary.

Brightonian
Posts: 65
Joined: Wed Aug 06, 2008 3:31 pm

Re: Gardening leave

Postby Brightonian » Mon Jul 17, 2017 4:23 pm

Thank you, Maths. So, if he is not resident in UK for 17/18, which I think likely, the gardening leave for the 90 days he spent in UK will not be taxed in UK at all?
I did look at the DTA with Kazakhstan and it seemed that employment income could be taxed in UK if the employer is resident here - which they are. I'm not terribly good at interpreting DTAs however.

maths
Posts: 6734
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gardening leave

Postby maths » Mon Jul 17, 2017 4:36 pm

Thank you, Maths. So, if he is not resident in UK for 17/18, which I think likely, the gardening leave for the 90 days he spent in UK will not be taxed in UK at all?


Not quite. Non-residents are subject to UK income tax on salary attributable to UK duties [I'm assuming here that although no actual duties are performed during the gardening leave period, for the period spent in the UK this will give rise to an income tax charge; haven't had time to look at the legislation].

However, if he is resident in Kazakhstan for the period spent in the UK then the DTA would potentially offer him protection from a UK tax charge which would require the employer to be non-UK resident. I note you state employer is in fact UK resident.

Bottom line, UK income tax applies.

Brightonian
Posts: 65
Joined: Wed Aug 06, 2008 3:31 pm

Re: Gardening leave

Postby Brightonian » Mon Jul 17, 2017 5:15 pm

Thank you, again, Maths. For the 90 days he was physically present in UK, I feel that is UK duties, although no work was done. From the date he left until the end of gardening leave, he shouldn't be taxed in UK, I don't believe. I must say I find the new simplified rules hard to get my head around! Many thanks.

maths
Posts: 6734
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gardening leave

Postby maths » Mon Jul 17, 2017 5:39 pm

From the date he left until the end of gardening leave, he shouldn't be taxed in UK, I don't believe.


If his contract of employment is with a UK company then even though he was, say, non-UK resident for 17/18 he will be exposed to UK income tax through to the end of his gardening leave unless the salary for the period from date of leaving the UK is attributable to non-UK duties (which may well be the case).

Brightonian
Posts: 65
Joined: Wed Aug 06, 2008 3:31 pm

Re: Gardening leave

Postby Brightonian » Mon Jul 17, 2017 8:58 pm

Thank you.


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