Updated: 15 April 2020
Following Foreign Office advice to return to the UK, many individuals may not immediately think about their tax residence status. However, it is important that they consider this sooner rather than later otherwise they may find themselves with an unwelcome UK tax bill.
Why is this so important?
Tax residence is key in determining an individual’s scope to taxation. If you are UK resident you are taxable on your worldwide income and gains; if you are non-UK resident you are taxable in the UK on your UK income and the sale of UK land and property.
Individuals living or working abroad will have planned or expected to be non-UK tax resident (i.e. very small UK tax exposure). But many could unwittingly be found to be UK tax resident which will mean a UK tax liability they weren’t expecting.
How is it tested?
UK residence is determined under the Statutory Residence Test. In simple terms this provides individuals with a threshold (based on their circumstances) for the number of days that they can spend in the UK without them being considered UK tax resident. Individuals may be looking at the days that they are now having to spend in the UK and wondering where this leaves them
It is important individuals review their position to determine their exposure to UK taxes and take all appropriate action. It is not enough to assume it will all be okay.
Relaxation for UK COVID-19 activities
The Government is introducing temporary changes to the Statutory Residence Test for individuals who come to the UK to work on COVID-19 related activities. In simple terms, any days spent in the UK in the period 1 March to 1 June 2020 will not count towards the residence tests for those qualifying individuals.
Full details of who will qualify is yet to be announced but this will be a targeted measure. The Chancellor indicated this will range “from anaesthetists to engineers working on ventilator design and production”.
What other action has the Government taken?
To try and mitigate the impact of the measures taken to control the spread of COVID-19, HMRC has announced that the following will be considered ‘exceptional circumstances’ for the purposes of the Statutory Residence Test:
- quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus,
- find yourself advised by official Government advice not to travel from the UK as a result of the virus,
- are unable to leave the UK as a result of the closure of international borders, or
- are asked by your employer to return to the UK temporarily as a result of the virus.
What does this mean?
It means that HMRC are sympathetic to the situation many individuals are faced with due to the restrictions on travel and movement.
If you fall within the above, you should be able to claim that the days spent in the UK beyond your control are not included when determining your residence position. This is subject to an annual cap of 60 days.
If you don’t quite fall within the above but have returned to the UK and are unable to return to your place of work or home you may still meet the requirements for exceptional circumstances.
HMRC will consider each individual’s circumstances to determine if the days spent in the UK due to the COVID-19 response can be ignored for the purposes of day counts for the Statutory Residence Test.
We can help you to determine if you fall within the exceptional circumstances and advise what you need to do in order to help you make a claim on your tax return. Action now could save a lot of uncertainty later on.
Is there anything else I need to consider?
Whilst the Government’s announcement is helpful it is worth noting that this is not the end of the matter.
If you are working in the UK and carrying out your normal work duties this will be considered a UK taxable workday irrespective of whether you are non-UK resident. This is likely to be common as individuals will continue to work remotely from the UK rather than where they were based abroad.
There does not appear to be any relief given for additional workdays and it would be prudent to assume that the days spent working here will be taxable in the UK. There may be relief by virtue of a Tax Treaty, if an individual is tax resident in another jurisdiction but this should not be taken as a given.
Update: Relief under a Tax Treaty
The Organisation for Economic Co-operation and Development (“OECD”) has issued guidance to try and clarify the residence position for individuals forced to spend time away from the country that they were living and/or working in. They consider that this ‘temporary dislocation’ will not cause an individual to become UK tax resident under the Tax Treaty.
Even though the individual may become resident in the UK under the UK’s Statutory Residence Test, the OECD expect the Tax Treaty to override the UK’s domestic rules and treat the individual as being resident in the country where they had been living/working prior to the COVID-19 disruption.
This guidance is only applicable for countries where there is a Tax Treaty between the UK and the other country where the individual is also considered resident under the Treaty. It is important this point is checked and your Tax Treaty position confirmed.
What should I do?
Anyone unsure about their circumstances and wanting clarity on their position should contact us to help them understand their tax residence status and exposure to UK taxation.