The lack of reliable travel logs seem to have been the deciding factor in several recent court cases involving British expats and millions of pounds of unpaid tax.
Expat tax revolves around tax residence – which determines in which country tax is paid.
Under British tax rules, an expat who has failed to completely sever personal and financial ties with the UK is regarded as tax resident, and as a result, must pay tax on their income and chargeable gains in the UK.
This rule does not consider the amount of time spent overseas but the relationship between the taxpayer and the UK.
In recent cases before the court, one couple had little or no travel information despite claiming to have lived overseas for more than a decade.
Evidence of links with home
This oversight cost them £600,000 in tax demanded by HMRC.
However, in another case, HMRC lost a £5.5 million capital gains tax claim because the taxpayer had detailed travel records exactly recording the date and times he spent in the UK and other countries.
As a result, tax advisers are urging expats to maintain a travel log to track their non-residence and visits to the UK.
Besides logging the details of trips, it’s also a good idea to keep corroborating evidence like passports stamps when passing through customs, travel tickets and the dates and time of arrivals and departures in and out of the UK.
Also note the reason for any visit and specifically, the place stayed – HMRC will be looking to prove that expats have a residence in the UK where they regularly stay, which is hard to prove if the taxpayer stays at hotels.
Millions at stake
Having a home to visit in the UK is indicates that ties with home are still in place.
While the new statutory residence test introduced in April 2013 may do away with a lot of doubt over tax residence, HMRC is still looking at cases from at least 2003 onwards, so many cases are still in the pipeline to go before the courts.
Richard Mannion of legal firm Smith & Williamson explained how important these logs are – especially as capital gains tax rules are changing for non-residents from April 2014.
“Two cases show that the payment of millions of pounds of tax sometimes rests almost on the spin of a coin because the taxpayer failed to keep the right records,” said Mannion.
“The rules may have changed with the statutory test, but it’s still important to keep the records.”
