96: What is the impact on tax residence status if the coronavirus crisis has kept you in the UK longer than planned?
The Statutory Residence Test (SRT), introduced in 2013, brought greater certainty to determining UK tax residence status. In these uncertain times, how does it provide for those who may be present in the UK for a longer period than expected?
There are various day counting elements and limits in the test (please see our SRT briefing note for more detail) but under the rules, up to 60 days of presence in a tax year can be disregarded where an individual spends a day in the UK due to ‘exceptional circumstances’ beyond their control such as:
- national or local emergencies, such as war, civil unrest or natural disasters; or
- sudden or life-threatening illness or injury.
When that provision was added to the draft legislation, following lobbying during the consultation exercise, few would have expected a global pandemic grounding planes and restricting movement around the world in addition to the serious health issues which many are facing.
In a statement published on 19 March 2020, HMRC noted as follows:
‘The coronavirus (COVID-19) pandemic may impact your ability to move freely to and from the UK or, require you to remain unexpectedly in the UK.
Whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case.
However, if you:
- are 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.
the circumstances are considered as exceptional’.
Whilst it is extremely welcome to have this prompt statement from HMRC it is important to note that it is not a blanket statement that all days at the moment can be disregarded. This new guidance needs to be read in conjunction with the current published guidance on exceptional circumstances and each situation will need to be looked at on its own specific facts.
The 60 day annual limit on days which can count as exceptional has not been changed. Once that limit is reached, subsequent days, whether involving the same or different exceptional circumstances, will count as days spent in the UK and HMRC do apply this strictly. Depending on how long the UK’s lockdown continues and the ability of individuals to travel is restricted with limited flights and countries closing their borders we might perhaps see an extension of this time limit. Although most countries are allowing their own citizens to return.
Advice when planning visits to the UK for the purposes of the SRT, particularly when nearing the end of the tax year if a person has spent some time in the UK already, is to allow for unforeseen circumstances and ensure some margin on the day count test that is relevant for them. However someone in good health on a business trip to the UK with outbound flights booked would not have expected not to be able to leave the UK and sadly, as we are seeing, no matter how fit and healthy you are the virus can have a very serious impact. Anyone whose day count has extended over the relevant limit in the tax year 2019/2020 (ending 5 April 2020) will need to carefully review their status.
The tax year in many jurisdictions is set by the calendar year. If anything can be said to be fortunate at this time it is that the UK tax year runs from 6 April and, with COVID-19 having taken hold in the UK relatively recently, the 60 days should cover those who are well but are not able to leave before the end of the current tax year and with luck will cover them in the next tax year. It is harder for those who were already into their exceptional circumstances before the virus arrived.
Now is not a time conducive to making plans for the next week let alone the next tax year (to 5 April 2021). However, those who had thought that they might spend a certain number of days in the UK next tax year without impacting on their residence status will, pending any further announcement from HMRC, need to err on the side of caution and probably include in that total any days spent unexpectedly in the UK from 6 April 2020 due to the coronavirus restrictions on travel or on health grounds to ensure they stay within the day count which applies to their circumstance to maintain non-UK tax residence.
An individual’s tax residence can affect not only their own personal tax position but could also impact on the tax status of any trust of which they are a trustee, or company of which they are a director. So, particularly for the tax year 2020/21, it is vital to keep matters under review and limit time spent later on in the tax year if necessary.
If you are concerned about your tax residence status whether in light of the current circumstances or generally, please contact Carolyn O’Sullivan, Helen Ratcliffe or your usual BDB Pitmans contact.