Among the many impacts of the COVID-19 pandemic is that some individuals may effectively be marooned in the UK – for example, if they are isolating here in accordance with medical advice or are unable to travel home. This can have significant implications for their UK tax profile, as well as that of companies they are connected to.
Individuals – “exceptional circumstances” and the statutory residence test
An individual’s UK residence status is determined by the statutory residence test, which was introduced in 2013. Essentially, this is a day-count test, but the number of days an individual can spend here is determined by the number of “ties” they have to the UK (e.g. family and work).
The statutory residence test contains an exemption for days spent in the UK due to “exceptional circumstances”, albeit that this is subject to a 60-day limit in any tax year.
HMRC has provided guidance on how the concept of exceptional circumstances applies in the context of the COVID-19 pandemic. The following is an extract from that guidance:
“Whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case. However, the circumstances are considered as 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.”
While this is helpful, HMRC’s list covers only a fairly limited set of scenarios. Hopefully, HMRC will be sympathetic to individuals who are unable to leave the UK, but who do not fall into one of these four categories. As a practical matter, it will be vital for anyone who is at risk of becoming UK resident in the 2020/21 tax year because of the COVID-19 pandemic to keep detailed records to demonstrate why they have no choice but to remain in the UK.
Also, if lockdown conditions continue for much longer (or return later in the year), we hope that the Government considers relaxing the 60-day limit for days that can be disregarded due to exceptional circumstances.
Companies – central management and control
Under UK law a company is resident in the jurisdiction where the central management and control of that company is exercised. That is normally, but not always, where the board of directors meets to take decisions. This means that if directors are unable to leave the UK and so are only able to take part in meetings remotely, there is the possibility of a company becoming resident here.
HMRC has updated its guidance on corporate residence to state that it is “very sympathetic to the disruption that is being endured”. It goes on to say:
“We do not consider that a company will necessarily become resident in the UK because a few board meetings are held here, or because some decisions are taken in the UK over a short period of time. HMRC guidance makes it clear that we will take a holistic view of the facts and circumstances of each case.”
Again, HMRC’s guidance is helpful, but arguably does not go far enough in giving assurances to companies that are affected by the pandemic. Given the serious implications of a company becoming UK tax resident, where possible such companies may want to consider putting in place temporary measures to limit the involvement of UK based individuals in decision making.
Please get in touch with your normal Turcan Connell contact if you have any questions on the issues raised above. Alternatively, please email us at email@example.com.