Travel restrictions and quarantine under current government guidance may lead to an individual staying in the UK longer than planned through no fault of their own. That could have detrimental impact on their tax residence status under the UK’s Statutory Residence Test (SRT) as it frequently considers the number of days individuals spend in the UK during a tax year.
There is existing limited relief for such situations where the circumstances are considered ‘exceptional’. However, the SRT consists of a number of day counting tests for specific situations (derived from long standing case law) and HMRC’s detailed guidance outlines which of these specific SRT day-counting tests allow relief for days of ‘exceptional circumstances’. Currently, the relief is not available for a number of the tests. The guidance also explains what circumstances might be considered as ‘exceptional’.
Where relief is available, currently, there is a general limit of 60 days of relief allowed for any circumstance that qualifies as ‘exceptional’.
Surely COVID-19 is ‘exceptional’?
New COVID-19 guidance published by HMRC on 19 March confirms that where an individual remains in the UK, this will fall within the ‘exceptional circumstances’ definition where this is due to being:
- quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
- advised by official government advice not to travel from the UK as a result of the virus
- unable to leave the UK as a result of the closure of international borders, or
- asked by your employer to return to the UK temporarily as a result of the virus.
While this clarification is welcome, areas of uncertainty remain. For example, the government’s current statement on travel is that it is advised against all non-essential international travel for a period of 30 days i.e. it is advisory and qualified. HMRC guidance seems to make a distinction between that and avoidance of all travel to a region etc.
The key point seems to come down to whether leaving the UK for residence reasons was considered ‘essential’ travel by definition, if there were no other reason for leaving i.e. employment. An example with HMRC’s guidance seems to suggest that returning to a foreign employment is ‘essential’ travel. However, in situations where an individual has no employment outside the UK, would someone just monitoring their UK days under the SRT have to leave under the current guidance because that was considered ‘essential’ travel? If they don’t leave when they intended to, and, therefore, don’t tick the ‘essential’ travel box, one assumes the extra time spent in the UK would not qualify as ‘exceptional’ days.
More clarity and leniency needed?
The current position should someone remain in the UK, may therefore, not strictly fall within the guidance. We would hope more clarity on these points will be given in due course. Even then, if ‘exceptional circumstances’ are conceded in most circumstances, it may still be subject to the 60 day limit - perhaps a longer period is appropriate during a crisis that expected to last at least 12 weeks? Equally, is there not a case to extend the ‘exceptional circumstances’ relief to all the SRT day-counting tests regardless of the historic case law.
There would, of course, be different arguments if every other country, or the country where the individual habitually lived, closed their borders to arrivers, but could individuals then be forced to have to go to a third country to prevent them from breaching the UK residence test?
Clearly, this is far from the most important issue facing the government at present. Nevertheless, the position will need to be resolved in time and we understand that this is one of the many COVID-19 related tax issues that the professional institutes will be attempting to clarify with HMRC in the next few months.
When dealing with personal tax residence, no case is straightforward and, while we expect that the COVID-19 crisis will be considered ‘exceptional’ circumstances, there is currently no guarantee that individuals who spend ‘exceptional’ days in the UK will not breach the UK’s tax residence rules.
If you would like specific advice on UK personal tax residence status please contact us.