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Last updated: 16 Sep 2021
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The effects of COVID-19 on UK tax residency

The effect that COVID-19 has had on our global society is far reaching, and at the time of writing, there may yet still be more to come. One consequence of the restrictions on movement has been the effect it has had on the tax residence position of those usually not UK resident.

The potential issue arises for those who have been in the UK and therefore may be classed as UK resident under the Statutory Residence Test (SRT). 

Since coming into effect on 6 April 2013, the SRT has determined an individual’s residence position for a tax year. It is a complex test that looks at a series of factors, together in many cases with the number of days spent in the UK. Depending on circumstances and ties, the number of days can vary between 16 and 183 days, but everyone is UK resident if they spend 183 days or more in the UK in a particular tax year. 

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David Conway

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conwayd@buzzacott.co.uk

The potential issue arises for those who have been in the UK and therefore may be classed as UK resident under the Statutory Residence Test (SRT). 

Since coming into effect on 6 April 2013, the SRT has determined an individual’s residence position for a tax year. It is a complex test that looks at a series of factors, together in many cases with the number of days spent in the UK. Depending on circumstances and ties, the number of days can vary between 16 and 183 days, but everyone is UK resident if they spend 183 days or more in the UK in a particular tax year. 

Tax residence is important because it affects the degree to which an individual is taxed in any one country. UK residents are generally taxed on their worldwide income and gains, with possible exceptions for non-UK domiciled individuals. Non-UK residents are not taxed on their overseas income and gains, and have liabilities limited to some UK source income, and capital gains on UK properties and UK property rich companies. 

The ongoing travel restrictions in place since the start of the COVID-19 pandemic in March 2020 will have resulted in some normally non-resident individuals potentially being unable to leave the UK through no fault of their own. This may have subsequently resulted in them being technically classed as UK resident under the SRT and suffering an increased UK tax burden. 

HMRC have confirmed that they recognise that people’s inability to move freely between countries may have resulted in unexpected and prolonged stays in the UK, and as such have extended their definition of ‘exceptional circumstances’ which can potentially reduce the number of days a person is deemed to have spent in the UK for the purposes of the SRT. The new guidance published by HMRC as of March 2021 has now been enacted into UK legislation and confirms their original indications as set out in 2020. This states that circumstances are considered exceptional 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.

There continues to be a maximum limit of 60 days per tax year that may be disregarded if your presence in the UK is due to exceptional circumstances. Documentation to support any claim to disregard UK days due to exceptional circumstances is of key importance, so record keeping needs to be thorough and precise. Individuals also need to demonstrate every effort has been made to return to their home country once any international travel restrictions have been lifted.

However, HMRC have caveated that whether days spent in the UK can be disregarded for the purposes of the SRT will be judged on a case-by-case basis and depends on the individuals’ unique circumstances. Furthermore, there have been several different periods when the UK (and other) governments restricted international travel during the period, so compelling evidence will be required to support an ‘exceptional circumstances’ claim covering periods where it could be argued travel was possible. It remains to be seen the kind of stance HMRC will take on these matters of judgement.

Lastly, even if you are eligible to deduct the maximum 60 days under exceptional circumstances, the remaining day count can still make you UK resident under SRT. 

Of course, this could affect some individuals the other way, as normally UK resident individuals may find that they are resident in another country, particularly those who have worked from home in a different country through periods of the pandemic. Care needs to be taken to ensure their UK tax affairs, and those in the other country, are correctly in order.

If you think you may be affected by this, you should seek professional advice to determine your UK residence status during the 2020/21 and 2021/22 tax years and take the appropriate action on your tax affairs.

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