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16 April 2020
Few would have anticipated only a few weeks ago that by March 2020 a large part of the world, including the United Kingdom, would be or have been in virtual lockdown, with many planes grounded and borders closed. However, that is the result of the spread of COVID-19.
Along with the numerous health considerations, there are also a number of tax consequences for individuals with connections in more than one jurisdiction, as well as for those based in the United Kingdom.(1)
In recent weeks, an increasing number of individuals have expressed concern about how their tax status will be affected by the lockdown announced on 23 March 2020 (which is expected to be extended for the foreseeable future).
At the same time, UK residents travelling abroad have been strongly advised to return to the United Kingdom, while individuals who are generally resident elsewhere may be forced to remain in the United Kingdom as a result of border closures in a number of countries and the reduction of available flights.
Of equal concern is the position for individuals who are spending more time in the United Kingdom than they would have otherwise as a result of COVID-19-related illness or anxiety over family members who live there. Others are in the United Kingdom because, having been in contact with someone who has or may have had the virus, they must remain in the country to self-isolate for seven to 14 days.
These individuals are concerned because of the statutory residence test introduced in 2013 to determine whether an individual is resident in the United Kingdom for tax purposes for a particular tax year. Broadly, the test combines a day-counting test with other considerations relating to the number of 'ties' an individual has to the United Kingdom. Such ties relate to:
The country tie applies only to individuals who have been resident in the United Kingdom in one of the three tax years preceding the relevant year. The number of days that an individual can reside in the country in any tax year varies according to the number of ties that they have with the United Kingdom, limited to 182 days. If the permitted number of days (counted as the number of days in which an individual is in the country at midnight) is exceeded in any tax year, they will be regarded as resident in the United Kingdom for that year.
The statutory residence test recognises that an individual might have to spend time in the United Kingdom for reasons beyond their control. For this eventuality, the rules recognise 'exceptional circumstances' where this might be the case, and any days spent in the United Kingdom as a result of such circumstances are ignored for the purposes of the test, subject to a maximum of 60 days in any tax year. Under normal circumstances, exceptional circumstances include:
On 19 March 2020 the government published guidance as to specific situations arising from the COVID-19 pandemic that would be considered exceptional for these purposes. While this guidance points out that whether days spent in the United Kingdom can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case, a list of situations that would fall into the exception is provided.
Specifically, the following are considered exceptional circumstances. The limit for each remains at 60 days:
While this list is helpful and will be reassuring for many people in the circumstances described above, it is quite restrictive. There are a number of situations that might require an individual to remain in the country as a result of COVID-19 that are not included. Most significantly, it is particularly limiting that the only circumstance in which someone returning to the United Kingdom is covered by the exception is where their employer asks them to do so. Those who are self-employed are not covered, nor is anyone who, for example, is working outside the United Kingdom but chooses to return here to be with their family.
Some parents will already have had to return to the country as a result of the schools closing, for example, to take their children out of boarding school. They may have been able to arrange flights to leave the United Kingdom with their children fairly quickly, but for those who were already close to their annual limit of days in the country in the tax year ending on 5 April 2020, this could be a problem if such a trip does not qualify as exceptional circumstances under the general rule. This is likely to depend on how quickly arrangements to leave the United Kingdom are able to be made.
For many people who fall within the categories listed above, or are otherwise within the scope of the exemption for exceptional circumstances, if these circumstances have arisen only recently, it is unlikely that they will have exceeded 60 extra days in the United Kingdom in the past tax year, given that it ended on 5 April 2020.
However, for the tax year 2020/21, the situation may be different, and it is to be hoped that the government will keep the position under review if it becomes clear that self-isolation, lockdown, border closures or any other necessary measures are likely to continue for a significant period. Helpfully, the new guidance indicates that events are changing rapidly and, accordingly, the guidance may change at short notice.
Relaxation of statutory residence test for individuals working in COVID-19-related fields
The general position discussed above is to be alleviated to some extent by the relaxation of the statutory residence test for certain individuals working in fields that may help in fighting the spread and effects of COVID-19 in the United Kingdom.
This measure was announced by the chancellor in a letter to the Treasury Committee dated 9 April 2020. The relaxation will apply to the period between 1 March 2020 and 1 June 2020 and will be kept under review. Examples of the people who the government hopes to attract include anaesthetists and engineers working on ventilator design and production.
The chancellor's letter indicates that details of the proposed changes will be provided in due course.
Anyone who is required to spend additional time in the United Kingdom as a result of the COVID-19 pandemic or related travel restrictions should ensure that they keep clear records of:
They should also ensure that they leave the United Kingdom as soon as it is reasonably practicable to do so. This advice extends to individuals who may be within the class of individuals for whom the statutory residence test will be relaxed.
While in the country, they should try to avoid creating another tie to the United Kingdom as far as possible, as this would reduce the number of days that they are permitted to be here under the general rules. For example, if they do not already have an accommodation tie with the United Kingdom as a result of having a place to live (eg, a holiday home) available to them for at least 91 days in the tax year, in which they spend at least one night (or 16 nights in the case of a home of a close relative), they should avoid doing so by, for example, staying in a hotel or bed and breakfast. Where this is impossible because all such accommodation is closed (as is the case under the current period of lockdown), this fact should be recorded so that all relevant evidence can be presented to Her Majesty's Revenue and Customs to support a claim that no accommodation tie has been created.
Similarly, if an individual does not already have a work tie (created by working in the United Kingdom for at least 40 days in a tax year), they should avoid creating one while they are in the country. For this purpose, a day of work is one on which an individual does more than three hours' work, so this leaves scope for maintaining contact with an employer or business during the relevant period, provided that this is not abused.
It is particularly important to note that the relief for exceptional circumstances does not apply to the work tie (or to any tie other than the 90-day tie). Thus, any day of work (within the definition above) would count as a day of presence in the United Kingdom even if the individual would otherwise be considered to be in the country as a result of exceptional circumstances.
The COVID-19 pandemic has created an unprecedented global situation, where laws and restrictions on individuals' movement and personal freedoms are changing on an almost daily basis. In the United Kingdom, the rules are changing at a rate whereby articles such as this may be out of date almost as soon as they are published. It is hoped that the situation will become clearer in time.
For further information on this topic please contact Daniel Ugur, Nick Jacob, Nicole Aubin-Parvu or Alfred Liu at Forsters LLP by telephone (+44 20 7863 8333) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Forsters LLP website can be accessed at www.forsters.co.uk.
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