Travel restrictions because of the coronavirus (COVID-19) pandemic mean many employers are considering what impact unplanned days spent in the UK will have on their employees’ tax residence status.
HM Revenue & Customs (HMRC) published guidance in “question and answer” (Q&A) format clarifying how the statutory residence test applies to individuals who have been unable to leave the UK because of COVID-19. Under the test, the number of days an individual spends in the UK during the tax year is considered in a number of detailed tests that determine UK tax residence status. For some of those tests, a day spent in the UK can be considered “exceptional” and therefore disregarded in counting days an individual has spent in the UK.
HMRC provided further examples of when days spent in the UK are likely to be considered “exceptional” for statutory residence test (SRT) purposes. These are when an individual:
For exceptional circumstances to apply, the individuals must be able to demonstrate the presence in the UK is beyond their control, they are prevented from leaving the UK, and they have made every effort to leave once the relevant restrictions have been lifted. The limit for “exceptional circumstances” remains at 60 days, and there will be no other relaxations, such as allowing individuals to treat UK work-days as non-taxable if they would ordinarily have been working overseas.
Full-time work overseas
Many individuals who leave the UK for work aim to be considered non-residents in the UK under the automatic “full-time working overseas” test. To meet this test, an individual must spend no more than 90 days in the UK during the tax year, of which no more than 30 days can be work-days. In addition, there can be no “significant break” from overseas work—that is, a period of more than 30 days without any overseas work-days.
Although “exceptional circumstances” (if they apply) can be used to extend the 90-day limit, HMRC confirmed that a day when an individual spends more than three hours working in the UK will still be considered a “UK work-day” even if that same day is considered exceptional for 90-day purposes. There will be no relaxation on this point.
Similarly, HMRC confirmed that it will not relax the “significant break” test.
HMRC’s guidance also covers (1) the effect on the “family ties” test when an individual’s children are UK resident but not in full-time education due to COVID-19; (2) the impact (if any) on an individual’s domicile/deemed domicile position; (3) confirmation that the rules for UK residents claiming “overseas workdays relief” are unchanged, notwithstanding any duties normally undertaken overseas being carried out in the UK; and (4) that employment income articles in the UK’s double tax treaties remain unchanged, and their application depends on each individual’s circumstances.
Read an August 2020 report prepared by the KPMG member firm in the UK
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.