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  • COVID-19 and the impact on UK tax residence
Article:

COVID-19 and the impact on UK tax residence

01 October 2020

Travel restrictions and quarantine under current government guidance may have led to an individual staying in the UK longer than planned through no fault of their own. That could have a 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. Read more on the SRT.

Certain previously announced planned changes to the SRT in relation to COVID-19 have now been enacted into UK tax legislation. Broadly, the SRT has now been amended so that days spent in the UK between 1 March 2020 and 1 June 2020 will not count towards certain elements of the day counting tests under the SRT for specified reasons connected with the detection, treatment or prevention of COVID-19. HMRC have recently provided further clarifications on the impact of the pandemic on a number of COVID-19 related matters, including UK tax resident status in situations which may be considered ‘exceptional circumstances’.

COVID-19 related legislation changes to the SRT

In March 2020, Chancellor Rushi Sunak wrote to the Treasury Committee to confirm changes would be made to the SRT rules to allow certain non-UK resident individuals to be present in the UK for COVID-19 related reasons, without impacting their tax resident status.

The changes which have now been enacted specifically relate to the 2019/20 and 2020/21 UK tax years only and make changes to the rules for determining what constitutes a ‘day’ of presence in the UK under the SRT.

Broadly, under the amended rules, days of presence in the UK (presence at midnight) may be ignored for the purposes of determining an individual’s UK tax resident status under certain parts of the SRT if:

  • The day falls within the period 1 March 2020 to 1 June 2020
  • The individual is in the UK as a medical/healthcare professional for purposes connected with the detection, treatment or prevention of coronavirus disease, or for purposes connected with the development or production of medicinal products (including vaccines), devices, equipment or facilities related to the detection, treatment of prevention of coronavirus disease; and
  • In the tax year under review (being either 2019/20 or 2020/21) the individual is resident outside the UK.

These changes are relevant to a number of tests under the SRT including those with straightforward day counts as well as the second automatic UK test and the sufficient ties test.

Changes have also been enacted, for certain elements of the SRT rules related to work in the UK (or overseas), to discount days where an individual was on emergency volunteering leave.

The impact of the above changes, and the allowances under ‘exceptional circumstances’, need careful consideration on a case by case basis and expert advice should be sought by individuals who feel they may be impacted by these provisions.

Exceptional circumstances

Under HMRC Guidance there is existing limited relief for such situations where days are spent in the UK and the circumstances are considered ‘exceptional’. 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’. HMRC have confirmed this limit will continue to apply in COVID-19 related cases.

Surely COVID-19 is ‘exceptional’?

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.
  • Asked by your employer to return to the UK temporarily as a result of the virus.

The HMRC guidance manuals have recently been updated in relation to the SRT and exceptional circumstances.

Whilst these clarifications are welcome, areas of uncertainty will remain in a number of cases.

Our reflections

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 no guarantee that individuals who spend ‘exceptional’ days in the UK will not breach the UK’s tax residence rules in certain cases.

If you would like specific advice on UK personal tax residence status please contact us.