Coronavirus: The Impact on Tax Residency
Everyone is feeling at least one effect of the coronavirus, whether it is personally, professionally or mentally, it is a tough time for all. However, whilst certain impacts will come and go, tax implications could linger for some time. With coronavirus-related travel restrictions, many migrants who hold a UK visa but are not UK-tax residents could find themselves spending longer in the UK than planned which could result in hefty tax bills in the following years.
The Statutory Residence Test was introduced by HMRC to determine someone’s tax residence status. It is vital that you plan your residence accordingly as it has an impact on your worldwide income. Failure to correctly declare and pay tax on all relevant income could lead to penalties, fines and even criminal investigations.
Tax residency status will depend on how many days you have spent in the UK during the tax year in question, your tax residency in previous years and your ties in the UK. Residence status is determined for a complete tax year. However, if the individual’s circumstances fit one of the cases for split year treatment to apply then the tax year of departure will be split into one resident period and one non-resident period. These rules are complex so personal advice based on an individual’s circumstances is required.
One of the automatic residence tests is that of if you are present in the UK for 183 days or more in the tax year you will then be deemed resident in the UK. The rules allow for days in the UK to be disregarded if they are borne out of exceptional circumstances. At present, the number of days that can be ignored under this exception is limited to 60 days in the tax year. However, this only applies where you have no choice and circumstances are unforeseen and beyond your control – this is unlikely to include visiting an ill or dying relative in the UK, but it is likely to include the coronavirus. Whether you are officially in quarantine, or your planned travel has been cancelled, the coronavirus is unchartered territory for everyone and as such likely to constitute an exceptional circumstance.
However, it is likely that the stance of HMRC will not be fully relaxed. As such, it is recommended that if you are intending to rely on exception circumstance of being unable to leave the UK, you will need to leave the UK as soon as the restrictions are lifted as well as demonstrate that your initial plans were to leave prior to this to no avail.
It is also important that you are mindful of the activities that you undertake during this period. If you work more than 3 hours per day on more than 40 days in the relevant tax year, this will then count as a tie in the UK. Having an extra tie will in turn reduce the number of days you can spend in the UK without becoming resident, which could then increase the days you are needing to attempt to rely on exceptional circumstances for. Similarly, if you undertake work in the UK which can be considered as more than merely incidental to your duties out of the UK, it could result in you being charged tax on a proportion of your earnings.
Whilst we all remain uncertain as to when we will be free to resume coronavirus-free life, it is important to ensure that we do not become complacent with factors, such as tax residency, that may have a personal impact whether at present or in the future.
Should you have any concerns relating to the issues addressed in this article, or you are concerned as to how to meet your tax and immigration requirements simultaneously, then please do not hesitate to contact us. Astons are well versed in advising a wide range of clients on these matters.
Astons is a leading global immigration advisory firm with offices in London, Beijing, Moscow, Dubai and Limassol (Republic of Cyprus) and offers residency & citizenship investment solutions worldwide including UK, Turkey, Vanuatu, EU & the Caribbean.
For further information or to discuss your personal circumstances in a private consultation, please contact Astons at email@example.com or call +44 207 292 2977