Tax residence in a time of covid: 'exceptional' days in the UK

HMRC have updated their guidance on the UK's Statutory Residence Test (SRT) to reflect the impact that the Covid-19 pandemic is having on individuals' freedom of movement.

An individual's residence status under the SRT is often determined by the number of days spent in the UK during the relevant tax year. For these purposes, an individual will spend a ‘day’ in the UK if he or she is present in the UK at midnight at the end of that day. Typically, an individual will have a maximum number of days that he or she can spend in the UK during a tax year without becoming UK resident for that year.

However, where an individual spends a day in the UK only as a result of 'exceptional circumstances', that day may be disregarded in calculating the individual's total days for the tax year. In some cases, such discounting will prevent the individual’s maximum day count from being exceeded, resulting in the individual remaining non-UK resident for the relevant tax year.

The legislation provides that ‘exceptional circumstances’ for these purposes include 'national or local emergencies'. It seems fairly clear that the current pandemic should be considered a national emergency and HMRC evidently agree. According to their new guidance, where an individual is:

• quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus;
• advised by official government advice not to leave the UK as a result of the virus;
• unable to leave the UK due to the closure of international borders; or
• asked by his or her employer to return to the UK temporarily as a result of the virus

the circumstances will be considered ‘exceptional’.

It is worth noting that HMRC interpret the exceptional circumstances provisions as being potentially applicable not only where an individual is prevented from leaving the UK, but also if he is compelled to travel to the UK. This is clear from the fourth bullet point above, but may also be relevant in other situations. For example, if an individual needs to return to the UK to care for a family member who is suffering from coronavirus, HMRC may well be prepared to accept that days spent in the UK doing so may be discounted on the basis of ‘exceptional circumstances’. Certainly, HMRC consider elsewhere in their guidance that an individual returning to the UK to look after an ill child may have his days spent in the UK disregarded on that basis (see RDRM13240).

A crucial point is that these rules only assist where an individual is seeking to avoid UK residence, by disregarding days spent unexpectedly in the UK. They do not provide any leeway where an individual is trying to become UK resident. If an individual intends to spend certain days in the UK, but is prevented from doing so as a result of exceptional circumstances, those days cannot be taken into account under these rules. It is often surprisingly difficult to become UK resident under the SRT in normal circumstances – if an individual is unable to move to the UK when planned as a result of the pandemic, this may result in him failing to become UK resident when he expected to do so. This could affect his status (and tax exposure) in his country of origin, or another country in which he has been spending a significant amount of time.

Another point to bear in mind is that a day can only be discounted under the SRT if the individual ‘intends to leave the UK as soon as the circumstances permit’. So, if an individual is quarantined in the UK for a period and wishes to disregard those days on the basis of exceptional circumstances, it is essential that he leaves the UK as soon as possible after the end of that period. A practical difficulty here is that it may not be possible for the individual to return to his ‘home’ country, even if he is able to leave the UK, for example if the borders to his home country are closed.

Strictly, the test is whether the individual leaves the UK, not whether he returns home, so HMRC would be entitled to take the position that if the individual could leave the UK and go to a third country, he would need to do so in order for the ‘exceptional circumstances’ provisions to apply. It is not at all clear from the current guidance whether or not HMRC intend to take this (rather uncompassionate) approach, which may become more relevant with time. HMRC note that their guidance is subject to further change, so perhaps later versions will include a clear statement of their position in relation to this point.

A further important caveat is that there is a limit on the number of days that can be disregarded on the basis of exceptional circumstances – if the number of days spent in the UK due to such circumstances exceeds 60, the excess days over 60 are counted. As there are less than three weeks of the current tax year remaining, this is unlikely to be an issue for 2019/20. But the point may become more relevant in the coming tax year, as the pandemic continues. The limit is statutory and so, strictly, would require new legislation to be passed for it to be increased. However, it is possible that HMRC may be prepared to increase the limit on a concessionary basis, particularly following the recent announcement of stringent ‘lockdown’ measures to combat the spread of the virus.