Given the UK's status as an international hub, HMRC may be expecting a windfall from those who found themselves in the UK in the 20/21 tax year, and unable to leave for an extended period of time.
The Statutory Residence Test (SRT), which is itself comprised of multiple tests, is used to determine whether an individual is UK tax resident or not. One of the main elements throughout the various tests is the days spent in the UK within the relevant tax year, as well as previous tax years.
The restrictions on travel resulting from the COVID-19 pandemic have resulted in many individuals being "stuck" in the UK, as they are unable to return to wherever they call home, or it is otherwise unsafe for them to do so. Whilst it may not be at the forefront of their minds, this can result in such individuals unwillingly and unknowingly becoming UK tax residents.
Pre-pandemic, HMRC already allowed for a "safe harbour" of up to 60 days per tax year where an individual is unable to leave the UK due to "exceptional circumstances". These 60 days can be discounted from some, but not all, of the relevant UK day counts in the SRT. Last year, HMRC provided guidance that in light of COVID-19, "exceptional circumstances" will include where the individual:
- is quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus;
- is advised by official Government advice not to travel from the UK as a result of the virus;
- is unable to leave the UK as a result of the closure of international borders; or
- is asked by their employer to return to the UK temporarily as a result of the virus.
Many expressed concerns that the guidance does not go far enough, and in particular that it does not provide protection from UK tax residence in respect of the "work tie" or "family tie" to the UK. It is quite likely that whilst a person is stuck in the UK as a result of travel restrictions, they will have to continue working remotely or they may have to stay in the UK to support a hospitalised relative; it does not appear that HMRC would accept relief from the application of the SRT in these circumstances. More generally, the limited guidance provided by HMRC on the issue fails to capture the wide range of reasons why an individual may be stuck in the UK as a direct or indirect result of the global pandemic.
The Institute of Chartered Accountants in England and Wales (ICAEW) have raised these issues amongst others with the Treasury and HMRC, including requests to increase the 60-day "exceptional circumstances" threshold and to introduce an exemption for displaced workers temporarily working in the UK due to the pandemic. Despite the compelling and detailed proposals presented by the ICAEW, HMRC stated they are "...sympathetic to the disruption individuals are facing during the COVID-19 pandemic..." but otherwise have no intention of changing the published guidance.
In light of HMRC's refusal to relax the SRT rules for those who are stuck in the UK, it is important for these individuals to take expert advice in order to understand their tax residence and relating filing obligations. Please do get in touch should you think this concerns you or just for a general chat about how to navigate through the complex web of rules, tests and exceptions.
Originally published 4 May 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
