There is no doubt that the spread of Covid-19 will impact the lives of many, if not all. For UK Nationals living and perhaps working overseas, the spread of the virus will have imposed on them the significant and immediate question of; should they return to the UK? Whilst this would have been immediately answered based on the location of one’s family, home and perhaps the availability and state of the health service in their country of residence, will the UK tax implications of such a decision also have been a contributing factor? Or, will this have been considered after a return to the UK and where does that leave them now?
How we assess ‘Residency’
An individual’s UK Residency status will be a primary factor in determining the extent of which that individual is subject to UK taxes. From 2013, an individual’s residency status in the UK, is assessed using the Statutory Residence Test (StaRT). The test looks at factors such as overseas work, location of homes, other UK ‘ties’ and the number of days spent in the UK by that individual. Residence is now assessed on a yearly basis and unlike the old guidance, which depicted residence positions pre 2013, there is no ability to average your UK days over a 4 year period.
If, an individual found themselves UK resident for the current tax year, not only could that see the UK have taxation rights over their worldwide income (subject to potential treaty reliefs) , it could have knock on effects for later years.
An individual’s day count and Covid-19
For many non UK residents working overseas, they will be restricted to 90 days in the UK, for each tax year they wish to qualify as ‘full time working overseas’. Covid-19 could have seen unplanned returns to the UK or, individuals not able to leave the UK, thereby increasing an individual’s UK day count.
When considering different elements of the test, it may be possible to deduct days spent in the UK by reason of exceptional circumstances (up to the maximum of 60 days per tax year). The exceptional circumstances legislation was introduced so as not to penalise individuals, or adversely affect the residence status of those who could not leave the UK because of matters outside of their control. Following the outbreak of Covid-19, HMRC have recently updated their guidance manual to confirm that the following circumstances will be regarded as ‘exceptional circumstances’ for days spent in the UK;
1. 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,
2. where official Government advice is not to travel from the UK as a result of the virus,
3. you are unable to leave the UK as a result of the closure of international borders, or
4. you are asked by your employer to return to the UK temporarily as a result of the virus
How does this help and does it help all
For an individual who clearly fits into one of these four categories, this clarification will be welcome news from HMRC. However, there will be a huge number of individuals who returned to the UK, not at the explicit request of their employer, knowing the limitations that Covid-19 would put on them leaving the UK, who do not appear to have been given additional assistance. The original guidance provided by HMRC in respect of exceptional circumstances was always to assist those who were unable to leave the UK, not those that chose to return, and it would appear that HMRC have not altered their stance on this.
Regardless of an individual’s ability to claim exceptional circumstances, the overseas worker will still face a substantial hurdle in meeting the definition of working ‘full time’ outside the UK, in order to maintain their non residence status. In order to be non resident by virtue of an employment overseas (the third automatic overseas test), individuals must meet the definition of full time. Spending additional time in the UK will impact the number of overseas hours that employee is able to work, and without an average of 35 hours per week (computed according to the adjusted reference period outlined in StaRT), they will fail the definition of ‘full time’.
Failing the definition of full time does not automatically mean that, that individual will be UK resident for the tax year. There may be other elements of StaRT that can be considered in ascertaining one’s residency status and these will be of course be based on that individuals’ personal circumstances.
As we are at the end of one tax year, it could be that the new tax year, 2020/21, is the most heavily impacted. Depending on an individual’s date of return to the UK during 2019/20, they may have already met the definition of full time. However, the longer this crisis impacts global travel, the shorter the period an individual returning to work overseas, will have to meet the definition of full time again. In addition, with exceptional circumstances only being able to relieve a maximum of 60 days per year, overseas workers will need to have returned overseas, or otherwise left the UK, before 5 June 2020 if they are to avoid accruing UK days which will be counted in their permitted annual limit. This limit is 90 if in an individual is able to meet the full time working overseas criteria but may be as low as 45 or even 15, if they are not able to do so.
How we can assist
Harris Stewart is a specialist in advisory services for non UK residents and the UK taxation thereof. If you are concerned on how Covid-19 and your time in the UK as a result, will have affected your UK residence position please contact us or call us on 01403 216171. We will review your individual position, your reasons for your return to the UK and expected plans for the future.