Under the statutory residence test (SRT), an individual self-assesses whether they are UK resident and this is often by reference to a day count test (how many midnights are spent in the UK). Within the SRT is a let out for days where an individual finds themselves in the UK as a result of ‘exceptional circumstances’. As part of the COVID-19 response measures amendments to the SRT, legislation allows certain days spent in the UK to be treated as ‘exceptional’ if an individual was or is:
- quarantined or advised by a health professional to self-isolate as a result of the virus;
- advised by official government advice not to travel from the UK as a result of the virus;
- not able to leave the UK as a result of the closure of international borders, or
- were asked by their employer to return temporarily to the UK as a result of the virus.
The full lockdown has now moved on, and international travel is now becoming possible again. The Foreign and Commonwealth Office, as at the date of writing (20 July 2020) advised against all but essential international travel, although there is a list of around 66 countries and territories that are exempt from this advice.
So what does this mean for an individual’s residence position?
The first thing is that it is important to remember the limitations on ‘exceptional’ days:
Only a maximum of 60 days are permitted as ‘exceptional’ per year. This is laid down in the legislation and has not changed under the COVID-19 response. HMRC reminds us that this is a limit, not an allowance, and applies regardless of whether there is one or several events, so not per incident. If an individual was trapped in the UK as of 6th April, exceptional days would have run out on 5 June 2020, and any midnights spent in the UK from that date would be midnights spent in the UK by that individual for all SRT purposes.
The individual must intend to leave the UK as soon as those exceptional circumstances permit. This is a part of the test that not everyone considers, and without that intention, the days should not be treated as exceptional. How is such an intention evidenced? What if the country where you want to live or have hitherto been living, is not yet open for travel from the UK, or the UK advises against travel there? What if you intend to leave but do not? Should you go to any other country if you need to?
The exceptional days do not count for all purposes for the SRT. HMRC tell us that exceptional days do not apply to the following parts of the SRT:
The second UK residence test (has or had a home in the UK during all or part of the relevant year) – exceptional days are not discounted for the 30 days and 91-day count parts of the test.
The third automatic UK residence test (works full-time in the UK) – there is no exceptional circumstances exemption for 75% of the days worked must be in the UK, or for the significant break aspect of this test.
The third automatic overseas test (works full-time abroad) – the number of days in which the individual works in the UK must be less than 31, and the exceptional days test does not apply to this part of the test, nor to the significant break part of the test.
When looking at ‘full-time’ in respect of either of the third automatic UK and automatic overseas tests, exceptional circumstances do not apply to the gap between employments or maximum days that may be subtracted between employments.
Looking at the significant ties, exceptional circumstances days are not deducted in respect of the family tie when calculating the number of days that an individual has spent with the child in person in the UK. Additionally, when considering if the child has been forced to spend more than 21 days in the UK outside term-time because of COVID-19, these days are not deductible for that test.
The accommodation tie is hit as well – the continuous period of 91 days is unaffected if an individual has been forced to stay in the UK because of COVID-19, and a gap of 15 days or fewer is also unaffected.
Days spent forced to work in the UK because of the COVID-19 measures are not deductible when considering if an individual has spent 40 days working in the UK (a day of work for this purpose being less than three hours).
Days spent in the UK because of COVID-19 are also not discounted when considering the country tie for leavers – if an individual spends more midnights in the UK than in any other single country, this will be a tie for them, whether it was forced upon them or not.
The deeming rules are also affected for those who return frequently but do not spend midnight in the UK.
So what does this tell us? One group that certainly seem to be affected are leavers (those who have been UK resident for at least one of the previous three UK tax years) relying on the significant ties test. Those with minor children at school in the UK may be even more likely to become UK tax resident. Otherwise, those relying on the third automatic overseas test may have issues if they have worked for more than 31 days in the UK already this year.
Split-year treatment may or may not assist – and may not be available in any case. HMRC generally consider an individual to be either resident or non-resident for the whole of the tax year, and the split year treatment cases all have very specific rules attached to them, some of which may or may not apply.
Double tax treaty residence may be an option for some to claim, but not all countries have clear-cut residence rules, or day-counting residence rules. And what happens if the individual does not fulfill the residence requirements of that other country?
Where an individual is in the UK – and has been since the start of the 2020/21 UK tax year, or has been for three months – they should be reviewing their position, the basis on which they are non-UK resident, their plans to the leave the UK as soon as possible and plans to visit the UK during the remainder of the year. Advice should be taken to ensure that any non-residence position is maintained, and plans for the remainder of the year amended. It is not just current-year income that may be at stake; those who have not been non-UK resident for at least five years may be caught by the temporary non-UK residence rules if they are not careful, and may find a gain taxed in the UK that may not have been otherwise. For others, it is important to remember that even a partial year of residence in the UK can affect their deemed domiciled position, so failing to be non-UK resident for the whole year may be very costly.
It is not just an individual’s residence position that can change. An individual’s ‘being or becoming’ UK tax resident could change the tax residence of a company, or create a permanent establishment for a foreign business, and all of the tax implications that entails.
Therefore, it is important to constantly review an individual’s residence position, and how much time that individual is spending in the UK. Yes, there is some leeway for COVID-19 enforced prolonged visits to the UK, but this may not be as generous as people think, and is not blanket protection. Our advice to clients is:
Look at how long you have been in the UK. How many days actually count and can you claim the exceptional days?
Have you demonstrated an intention to leave the UK? How will you evidence this?
Consider how many days you can spend in the UK for the remainder of the year and plan around these. What would happen if you are caught in a local lockdown in the UK later in the year?
This article is written by Markel Tax, one of the UK’s leading providers of fee protection insurance and tax consultancy services, we work with over 2,500 accountancy practices and professional intermediaries throughout the UK.
