Coronavirus (COVID-19) update: the Statutory Residence Test - Boodle Hatfield

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25 Mar 2020

Coronavirus (COVID-19) update: the Statutory Residence Test

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The coronavirus (COVID-19) pandemic is affecting everyone's ability to move freely around the globe including to and from the UK, and in these unprecedented times tax is not anyone's top priority.

Nevertheless, some international individuals carefully plan the number of days they spend in the UK each tax year so as to ensure they do not become UK tax resident and, particularly as we approach the end of the tax year, they will be concerned as to what impact an enforced extended stay in the UK will have on their residence status. In light of this, HMRC have specified four situations which will be considered to constitute exceptional circumstances for the purposes of the Statutory Residence Test.

Statutory Residence Test (SRT): The SRT determines whether you are considered to be resident in the UK for tax purposes in a particular tax year. The SRT takes into account a number of different factors including where you work, have your main home and the connections that you have with the UK, but the number of days you spend in the UK over a specified period is often the deciding factor.

Exceptional circumstances: There is statutory provision for your UK day count to be reduced so as not to include days you have spent in the UK due to “exceptional circumstances” up to a maximum of 60 days per tax year. However, HMRC apply this criteria strictly and whether circumstances can be regarded as exceptional for this purpose will always depend on the particular facts and the choices available to you. Normally days can only be ignored where you have no choice concerning the time you spend in the UK or, more rarely, you are forced to come back to the UK as a result of circumstances beyond your control which you could not reasonably have foreseen or predicted.

Coronavirus (COVID-19) update: In response to the developing Coronavirus (COVID-19) pandemic, HMRC have identified four specific situations which will be considered to constitute exceptional circumstances for the purposes of the SRT. These are if you:

1. 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. Find yourself advised by official Government advice not to travel from the UK as a result of the virus;

3. Are unable to leave the UK as a result of the closure of international borders; or

4. Are asked by your employer to return to the UK temporarily as a result of the virus.

HMRC’s guidance is clearly welcome but there are many possible situations which do not quite fall within these rather narrow criteria. For instance, what if you have self-isolated for 14 days and are free to leave but in the meantime your elderly mother has become seriously ill and is in hospital in the UK? Illness of others is always a grey area when it comes to applying the “exceptional circumstances” tests and generally HMRC will allow a certain amount of disregard where a spouse or dependent child is critically ill, but not necessarily otherwise. Generally, circumstances are only considered exceptional if you have no choice but to stay, not simply that you would prefer to, albeit for very good reasons.

Another potential difficulty is what if you could in theory leave and go to another country because the borders aren’t closed but practically there are no available commercial flights operating? This may well be permissible on the grounds that you have no choice but to stay, but the revised guidance doesn’t cover this.

A further potential issue, particularly if the crisis continues to escalate into the new tax year, is there is no suggestion that the 60 day limit is going to be waived and if not this may well not be long enough. For instance, consider an individual who had planned to leave the UK in March, but due to self-isolating and travel restrictions has to remain in the UK until July. In the new tax year, any days after approximately the 5th June would no longer be capable of being disregarded.

These issues are obviously not ones that are at the forefront of our minds at the moment, but as a matter of practicality there may be some interesting conversations to be had with HMRC at some point and it is hoped that they would deal with any claims in a pragmatic and sympathetic light. It is likely though that HMRC would still require supporting evidence, so it is important to continue to keep up to date records.

Other implications for residence: There are other situations where an enforced extended stay in the UK due to the current crisis could impact on your UK residence and where there is no dispensation for exceptional circumstances. For instance, if you used your time in the UK to work (for more than 3 hours a day) or if it means you have occupied your UK property for longer than you would normally, particularly in comparison to overseas homes then this may inadvertently tip you over into UK tax residence, or at least effect the amount of days you can spend in the UK in the tax year. Additionally, a director of an overseas company working remotely whilst trapped in the UK, could inadvertently have tax implications for the residence of the company.

In summary, there are various circumstances in which an unplanned prolonged stay in the UK may have an unexpected effect on your tax position. We would be happy to advise on any of the above issues; if you do have any concerns or queries, please do let us know.