Beneath the Surface – A Blog by Paul Aplin OBE

Daysium’s Senior Advisor, Paul Aplin OBE, has written a follow-up to his post on today’s data-rich world. Today’s post, “Beneath the Surface,” offers a deep dive into the complexities of tax information exchange. As governments worldwide enhance their data collection and analysis capabilities through agreements like Automatic Exchange of Information Agreements (AEOIs), understanding these changes is crucial, especially for globally mobile HNWIs. Keep reading for Paul’s insights. 

Beneath the Surface

In my last blog for Daysium I looked at the data-wake most of us leave behind in this data-rich world we inhabit and at how we can intentionally or unintentionally reveal things of great interest to tax authorities.

Sometimes, for example if you need to prove where you were, what you did or perhaps even why, that data trail can be invaluable. At other times it can provide tax authorities with evidence of undisclosed tax liabilities.

In addition to the data that we make publicly available through social media and the data we record consciously, tax authorities have progressively gained access to vast quantities of data through Automatic Exchange of Information Agreements (AEOIs). They have also become extremely adept at using data analytics techniques and Artificial Intelligence (AI) to match data with the information that individual taxpayers have declared and to spot omissions and suspicious patterns.

The OECD Common Reporting Standard (CRS) has been implemented by over 100 tax authorities around the world and many have been exchanging information under it for 6 or 7 years now. The CRS requires participating tax authorities to gather information from financial institutions in their jurisdiction about non-resident account holders and to share that information with the jurisdiction where the account holder is resident. The required information is extensive, including sufficient details to reliably identify the taxpayer (name, address, date and place of birth, tax identification number) as well as the balance at 31 December of the relevant year together with the amount of any interest, dividends, distributions and gross proceeds from the sale or redemption of any financial assets.

The scope of the CRS has been extended to include Specified Electronic Money Products (for example, prepaid online accounts or physical cards that can be used to store money to pay for goods and services) and Central Bank Digital Currencies. In addition to this a new Crypto Asset Reporting Framework (CARF) is being added, recognising the fact that cryptoassets can be transferred and held without interacting with traditional financial institutions – and of course that this represents a significant risk of non-compliance. CARF will take effect in 2026 for HMRC.

Online platforms (for sales of goods, services and for property rental) are also now subject to cross-border reporting requirements. While HMRC already had the power to obtain information from UK based platforms, many overseas platforms will also have to provide details of transactions from 1 January 2024 (with HMRC expected to receive that information in early 2025).

Since 2016, HMRC has secured over £586 million of additional taxes through AEOI agreements.

A few years ago, exchanges of information internationally were specific to particular taxpayers and subject to a great deal of process; The CRS and FATCA (the US Foreign Account Tax Compliance Act) have changed things fundamentally; CARF will take that a stage further. Add in the processing power of modern computers, a deep knowledge of data analytics and AI and you have a radically different picture.

What was once occasional is now routine and what once took years can now be achieved in minutes.

It’s a very different world.

Today’s comprehensive tax information exchange between tax authorities requires robust record-keeping from individuals and businesses alike. If you’re looking to streamline and secure your tax residency data, consider Daysium. Our platform ensures accurate day counting and robust corroborate records, which are essential for maintaining compliance in today’s tax environment. Join the Daysium waitlist now to gain access to our innovative compliance tool.

Split Year Treatment and Tax Compliance: Best Practices

Navigating tax compliance can be particularly challenging for high net worth individuals (HNWIs) who are often globally mobile, spending considerable time in different countries for work or leisure. If you’re considering a move to or from the UK, it’s important to understand the UK split year treatment, which could significantly impact your tax obligations.

This guide explores the complexities of split year treatment and highlights the importance of precise day counting. Leveraging advanced automated tools can greatly enhance compliance, optimise your tax strategy, and reduce the risk of costly errors.

Understanding UK Split Year Treatment

Split year treatment is a UK tax system determining your tax obligations if you arrive or leave the UK during a tax year. You can only apply split year treatment if you’re considered to be a UK tax resident during the year of relocation.

If split year treatment is available, then you would be:

• Taxed as a UK tax non-resident for the overseas part of the year (generally only subject to tax on UK sources of income) and,
• As a UK tax resident for the UK part of the year (generally subject to tax on your worldwide income, subject to certain reliefs).

This regime is complex but critical for strategic tax planning. It’s essential to note that the date on which you split the year is determined by law and your specific circumstances, not by personal choice.

UK Statutory Residence Test (SRT)

The UK’s Statutory Residence Test (SRT) is fundamental to split year treatment. Established on 6 April 2013, the SRT helps determine your residence status for a given tax year.

The SRT considers the time spent and, in some cases, work conducted in the UK, along with your connections to the UK.

The test is divided into five parts:

• Automatic Overseas Tests
• Automatic UK Tests
• Sufficient Ties Test
• Application of the SRT to Deceased Persons
• Split Years

There are eight ‘Cases’ under which you may qualify for split year treatment, three involving leaving the UK and five involving entering the UK.

If you meet more than one case, a priority system will determine which applies and the effective date of the split year. The split year may not necessarily begin on your actual date of arrival or departure.

Eligibility

You can only use split year treatment if you are a UK resident under the SRT for that year. Non-residents for a specific year cannot use split year treatment and are only subject to UK tax on UK-sourced income.

There is no application process for split year treatment, so consider your circumstances before filing your taxes. Keep in mind that you often need to consider your circumstances for the following tax year.

Example of Split Year Treatment on Arrival

If you arrive in the UK on 1 July 2024 and qualify for split year treatment from that date, you will be taxed as a non-resident from 6 April 2024 to 30 June 2024, and as a UK resident from 1 July 2024 to 5 April 2025. As a non-resident, you’re not liable for tax on foreign income and gains received before 1 July 2024, except as specified by anti-avoidance rules.

If You’re Not Eligible for Split Year Treatment

If you are a tax resident but ineligible for split year treatment on arrival or departure, you may use double taxation agreements to your advantage. The UK has agreements with various countries that typically limit or exclude the UK’s ability to tax pre-arrival or post-departure income.

Split Year Treatment Around the World

Split year treatment is unique to the UK, but other countries have similar frameworks for partial year residency. For example, the US has rules for part-year residence if you move to or from the country, Canada recognises part-year residency, and France applies part-year residency rules.

Double taxation agreements also influence taxation, so always consult with an advisor for compliance and strategic planning.

Common Pitfalls

The complexity of split year treatment requires careful attention to avoid common pitfalls:

• Timing: The date you arrive or leave the UK may not be the split year treatment date. The date is determined by law, sometimes differing from arrival or departure date.
• Residency Rules and Eligibility: The rules involve many layers of conditions for both the year of relocation and following tax years. The SRT includes various tests to determine residency status, and the split year treatment only applies if you’re a resident in the UK for that particular year.
• Record-Keeping and Compliance: Thorough records are crucial for compliance. Understand what constitutes a UK workday and the implications for day counting and tax residency.

The best way to avoid these pitfalls is by planning your residency carefully and seeking professional advice to navigate these complexities.

Laura Sant, Founder of LSR Partners and one of Daysium’s Founding Partners, agrees. As a result of the way that split year treatment works, you need to follow a prescriptive set of rules to obtain this treatment for each Case, and, as with the rest of the SRT, once you have broken the rules – for example, you’ve spent a day too many in the UK pre- or post-split – you cannot undo this,” she told Daysium.

She went on to highlight two examples showing the complexities of split year treatment. In the first example, Laura explains that if you moved into the UK in temporary accommodation and it took too long for you to find a home, you may end up spending too much time in the UK pre-split year treatment, leading to it being unavailable. 

“Alternatively, if you intend to break UK tax residency by means of full time work overseas and your new job doesn’t work out, you might end up needing to pay UK tax on the full amount of your overseas employment income”, Laura explains.

Laura believes that “planning can play an important part in ensuring that you know what is needed to achieve split year treatment and also to have an understanding of your options in case the worst were to happen.”

The Importance of Accurate Day Counting for Split Year Treatment

Accurate day counting is essential for determining eligibility and compliance with split year treatment rules.

Day counting is necessary to:

• Determine eligibility: The SRT relies heavily on day counting.
• Establish the split date: Precise day counts determine the split date.
• Calculate working days: Required for full-time work overseas cases.
• Avoid unexpected residency triggers: The SRT considers day counts over multiple years.

Different cases have varying day count thresholds. Accurate day counts help you and your advisory team understand applicable rules for strategic planning and compliance.

Day Counting Tools: Manual vs. Automated

Optimising day counting and record-keeping is crucial for compliance with split year treatment rules and strategic planning. Choosing the right tools facilitates your compliance journey.

Automated day counting tools offer significant advantages over manual methods. These tools save time, enhance efficiency, and reduce the risk of errors by automatically logging days. They ensure a precise day count, supporting better compliance and strategic planning. Real-time updates allow for timely decision-making and improved planning.

With an automated day counting software, you can streamline the process, ensure minimal friction and maximum security. In contrast, manual day counting tools like spreadsheets are time-consuming and prone to errors, increasing the risk of non-compliance.

Using Daysium for Accurate Day Counting for Split Year Purposes

Daysium simplifies day counting, a crucial element in managing UK split year tax rules. The platform automates the recording of days spent in and out of the UK, integrating tailored tax rulesets directly into its system. This assists you in complying with complex tax requirements.

When you use Daysium, the system automatically logs your location data and updates your day count based on the specific rules that apply to your situation, thus eliminating the need for manual tracking. This automated process ensures that your day counting is precise and aligned with your individual requirements.

For example, if you depart from the UK on 1 July at 11:20, Daysium records your departure time and location, and logs your arrival at your destination. Such detailed and timely records can prove invaluable, especially if your tax situation is reviewed or investigated.

As the scrutiny from HMRC intensifies, particularly for HNWIs, the risk of prolonged investigations grows. Efficient and accurate record-keeping, as facilitated by Daysium, can help mitigate these risks by providing reliable and timely data.

Laura Sant, a specialist in UK tax residency, emphasises the practical benefits of using Daysium for those managing split year treatment scenarios. She notes, “Once you set up your tax residency details in Daysium, the system actively monitors your UK day count, alerting you as you approach the limit.”

She further explains how the companion app aids in effortless evidence gathering: “Daysium automatically records your physical presence, removing the need to manually create travel logs. For example, it allows you to easily record evidence on a real time basis, such as a photo of you at the Eiffel Tower when your phone says you are there.”

Daysium also addresses specific situational needs: “If, for instance, your UK residence must remain unoccupied during the overseas part of your tax year to meet tax residency criteria, Daysium can help document that you haven’t visited your home during that period, using geolocation data.”

How to Strengthen Your Tax Compliance

Three key steps are vital for strengthening your tax compliance when dealing with the UK’s split year treatment:

• Seek professional advice: Tax advisors specialising in UK tax law, such as Daysium Founding Partners, can help you navigate the complex rules.
• Plan proactively: Consider split year treatment in your planning, whether moving to or from the UK.
• Create contemporaneous records: Use technology for accurate day counts and supporting evidence.

By following these strategies, you can maintain compliance and strategically plan your tax affairs.

Conclusion

Ensuring compliance with UK split year treatment rules requires meticulous planning and precise record-keeping. Using automated day counting tools like Daysium can greatly enhance accuracy and efficiency in your tax strategy. By seeking professional advice and planning proactively, you can effectively navigate the complexities of tax residency and protect your financial interests.

Join the Daysium waitlist today to be among the first to onboard. 

Revolutionising Record-Keeping: How Technology is Transforming Tax Compliance for Individuals

Picture the scene: your tax advisor calls and informs you of a coming tax inquiry. You’re required to gather your records – flight itinerary, hotel receipts, photos. Documents showing your residency days at a given jurisdiction.

The scenario is not uncommon. An HMRC spokesperson said their investigative team secured £4bn from the wealthy, an increase of 60% from the previous year. You’ll need accurate records to prepare yourself for the investigation.

The good news is that technology is revolutionising record-keeping. Let’s take a look at how by discussing the following topics:

Three Reasons for Accurate Record-Keeping for Tax Purposes

Let’s start by considering why you should have record-keeping on your radar for tax compliance purposes. 

Accurate record-keeping is more than about saving time. It can be vital for financial planning and keeping the taxman happy.

A pristine set of records will help you with:

1. Compliance with Tax Laws

The dynamic nature of global residency calls for discerning your movements across jurisdictions. Consider the complexities: the definition of tax residency varies from country to country. For example, counting residency days in Ireland differs from that in the UK. Knowing one jurisdiction inside out can lead to misinterpretation in another.

For example, the UK and Ireland count a residency day slightly differently. In Ireland, you are considered ‘present’ if you’re in the county at any time during the day. However, in the UK, you’re considered ‘present’ if you were in the UK at midnight at the end of the day.

Depending on what jurisdictions matter to you, the intricacies of understanding the rules are vital for compliance.

Documenting your days in different jurisdictions is one thing. But as local governments are increasingly interested in the tax affairs of the wealthy, you often need to go further. Tax compliance requires documenting your travel itineraries, including precise arrival and departure times. The proof can safeguard you against inadvertent errors that could lead to legal complications.

2. Tax Inquiry Preparedness 

The scrutiny and regulatory oversight are increasingly focused on high net worth individuals ( HNWIs). The UK even has a Wealthy Team examining the country’s wealthiest taxpayers. In 2022, they opened 25 criminal investigations.

Meticulous records prepare you for an inquiry that could happen. Suppose you have corroborating evidence to show things like your location data. In that case, you have irrefutable proof of adhering to tax laws. Access to the information can give you peace of mind before and during an inquiry, moving things along swiftly.

3. Freedom to Choose

Accurate data enhances your freedom, whether you travel to another business meeting or spend time with family abroad.

Imagine a scenario where you receive an invitation to an exciting new business opportunity. But you’ve already spent time in the UK and you’re worried you might overstay. If you’re guessing your current day count, you may end up with one of two bad scenarios. You might travel to the meeting, overstay and pay more tax. Alternatively, you don’t risk it; stay home and miss out on the opportunity.

Meticulous records give you more freedom to make informed decisions and spend time how you want.

The Problem with Traditional Record-Keeping

Record-keeping makes sense, but not all methods are the same. We’re talking about traditional record-keeping – your Excel spreadsheets and cabinet full of binders, if you will. 

The core problems for traditional, manual methods are:

• Human error – To err is to be human, but unfortunately, sometimes these errors cost. The risks increase the more delegation record-keeping involves. When you have tax advisors dealing with PAs, communication errors could occur.
• Access – Manual folders don’t travel with you, no matter how well you organise them. You also need to consider who can have access to these files. Physical access has many hurdles to overcome. The cost of keeping your files safe is often at the top.
• Data loss – Physical copies can and will get lost. This could be due to accidents or even nefarious acts. The fact you can’t immediately have all records centralised is a risk.
• Compliance risks – Tax laws and regulations change constantly. Monitoring compliance becomes difficult when records are manually kept. 

Your reliance on traditional record-keeping doesn’t cut it for one more reason: the authorities aren’t relying on it. Jurisdictions worldwide are using digital tools to combat things like tax evasion. Different agencies are communicating with each other, making it vital to have good evidence on your part.

For example, the tax authority might look into your residency records. They’ll communicate with other local authorities and notice there’s a parking ticket to a vehicle registered to your name on a day you weren’t supposed to be in the country. You need to prove you weren’t there; for this, you require solid evidence.

The good news is that technology can help you with the conundrum.

Three Technologies to Improve Record-Keeping for Tax Compliance

1. Mobile Apps 

A wealth of mobile apps is on the market to help gather and log data. In general, many platforms can connect different accounts under one central view. These traditional finance apps can make monitoring your accounts easier. Tax jurisdictions, like HMRC, also have apps to let you study your tax data.

The market also has a few record-keeping apps for counting your days in different tax jurisdictions. While these can help you get an overview of days spent abroad, they don’t go far enough. Our app facilitates logging your residency days, creating a trail of records to help in the case of an audit.

You can log in any data that you find valuable to show and prove your location. You’ll not only get a record of your days in a specific country and jurisdiction, but also evidence to support the claim.

2. Cloud-Based Platforms

Cloud solutions are another big technology revolutionising tax compliance and record-keeping. The cloud enables you to:

• Centralise your tax data.
• Access your records no matter your location.
• Collaborate faster with your tax advisor.
• Choose who can access the data and what data they can see.
• Improve data security, with information stored in secure servers.

Take our Daysium app as an example. The app travels with you wherever you go. You can also share reports with your accountant, whether in the same country or not. But these reports are never automated. We believe you should be in charge of what and when you share.

3. Automated Record-Keeping

When your tax advisor asks for specific records, knowing where to start can seem daunting. Finding corroborating evidence after an event took place months ago is time away from family or work.

Combining the cloud with artificial intelligence and machine learning transforms the process. You can automate many record-keeping processes for tax purposes. When you add AI to the mix, you can also process vast amounts of data, receiving in-depth analysis of what’s happening.

We have our AI assistant, Daysi, who we describe as an extension of your tax advisor. The always-present assistant you can turn to if your tax advisor isn’t available. Daysi can answer your questions and help give you an idea how to solve a problem – and tell you to reach out for your advisor when needed. You’ll get extra support to navigate your record-keeping issues.

The Benefits of Using Technology for Tax Compliance

All of the above three technological solutions come with benefits. Adopting them to your tax record-keeping can help you:

• Save time – AI can help automate many processes you previously had to do manually. You don’t have to browse through filing cabinets to find a slip; you can simply search your digital records in minutes. 
• Reduce errors – Humans make mistakes. While you could write down the wrong date from your booking reference, an app would scan it accurately. 
• Improve access – The increased access to the cloud means you can take care of tax matters anywhere in the world. Your tax advisors can also access your information without compromising the security of the files. 

The above technologies and their benefits ultimately lead to cost savings. You empower yourself to make the most of your tax code and leave room for other things in life – business or family. 

Best Practices to Overcome the Risks of Digitalising Your Record-Keeping

In a UK Government survey, 45% of UK adults disagreed with the statement that they feel safe and secure online. Cyber-attacks and scams are still a big issue when using technology and digital platforms.

Dread of digital safety isn’t unreasonable. AON’s survey from 2023 shows one in five businesses in Ireland experienced a cyber attack in 2022.

However, awareness of the possible risks shouldn’t be a reason to stop using technology. The perception can aid you in being smarter with your digital choices.

HOW CAN YOU GUARANTEE YOU’RE SAFE?

The three best practices to digitise record-keeping the right way are:

• Choose the right products and platforms. When looking for a product or app, pay attention to security issues. Check what the company says about the security features and ask questions if you can’t find the answers upfront.
• Manage access. Use the option to manage and control access to your data. Ensure you understand who can access your data and how the platform stores it. The more control you have over who has access, the better. 
• Understand relevant regulations. Local authorities set clear rules on how to keep records. Be aware of these rules and ensure all your technologies comply. Again, talking to the service provider is essential to know whether it complies with the regulations. 

If you’d like to understand your current risk level better and get actionable steps to improve, take our Risk Score Assessment here. The quick assessment will reveal any problem areas in your current record-keeping and suggest ways to strengthen those areas.

A Case Study: Using Daysium to Revolutionise Your Tax Record-Keeping

We at Daysium are confident technology can revolutionise tax compliance. Our platform offers HNWIs a way to monitor how many days they spend in or out of jurisdictions relevant to their tax residency. With our app, you can:

• Establish rules to follow regulations relevant to you and you only.
• Plan your future travel to ensure you don’t break the rules.
• Log travel in a timeline to avoid data gaps in your tax records.
• Provide evidence to support your tax residence claim, making audits faster and smoother for all involved.
• Generate reports that can be securely shared with your advisors.

We use automation and cloud solutions to smoothen the above steps for you. You don’t need to spend hours adding information to our app. The automated process enables you to view your day count accurately and in the palm of your hand.

Did you get a call to attend a meeting on the other side of the world? With Daysium, you don’t have to fear missing out on this opportunity. You can look at your profile and see if you can accept it or schedule it for another time.

And you don’t need to worry about security. Daysium doesn’t sell your data or share it with anyone. You can control who gets access to the reports you generate. You are at the helm of this technological revolution, not a bystander. We like to think we are the guardians of your data.

Conclusion

Meticulous record-keeping for tax purposes ensures compliance with increasingly complex tax laws across jurisdictions. Technology can help you prepare for tax inquiries, providing irrefutable evidence to support your adherence to tax laws. The process will be smoother, and your mind will be at ease.

As authorities rely more on digital toolkits, adopting technology also becomes vital for you. Knowing things like your location data optimises your time.

At Daysium, we aim to empower you to control your data better and help you navigate record-keeping efficiently. If you want to know more about our platform, contact us and join our waiting list today.