In the evolving international crisis caused by the Coronavirus, the travel plans of huge numbers of people have been disrupted. Many people will have had to stay in the UK longer than they were expecting, perhaps because of a travel ban preventing them from returning home or because of illness and self-isolation while in the UK.
In this question and answer briefing we have set out some practical guidance on what to do if you are stranded in the UK for longer than expected. It covers personal tax, the taxation of any corporate entities with which you are involved, and immigration status.
Q: I was carefully monitoring my days in the UK to ensure I did not become UK tax resident but have not been able to leave the country. Is there anything I can do?
Spending more time in the UK could result in UK tax residence and, potentially, a much higher UK tax bill. This is because the UK’s statutory residence test focuses on day counts, so unexpected days in the UK will be unwelcome for many. Helpfully, the UK tax position for some individuals may not be drastically altered as a result of staying longer in the UK than planned. This is because a certain amount of time spent in the UK can be disregarded if it is due to exceptional circumstances that are beyond the individual’s control. The result is that a maximum of 60 UK days could be disregarded, which may be enough for some individuals who are unable to leave due to COVID-19 to avoid becoming unexpectedly UK resident this tax year.
Q: Will my circumstances definitely be considered as “exceptional” by HMRC?
What counts as exceptional circumstances will vary; it must be looked at on a case by case basis. The UK tax authorities have recently released guidance that they will consider circumstances to be exceptional where the individual:
- is quarantined or advised by a health professional or public health guidance to self-isolate in the UK
- has official UK Government advice not to travel from the UK
- is unable to leave the UK as a result of the closure of international borders, or
- is asked by their employer to return to the UK temporarily as a result of the virus.
As the UK Government advice has been evolving rapidly, you should keep records of the reasons why you could not leave the UK and exact dates when this applied to avoid difficulties long after the event.
Q: What if I do not come within the circumstances set out above?
The guidance from the tax authorities does not cover all possible scenarios. For example, you may be unable to go back to your country of residence but could, in theory, leave the UK to travel to another country that has not closed its borders. Or you may have chosen to self-isolate but without specific medical advice.
Given the exceptional nature in general of COVID-19, we anticipate that many of these cases would fall within the exceptional days exemption even though they are not currently identified by HMRC in its guidance. HMRC’s view represents its interpretation of the legislation but the onus remains on individuals with the help of their professional advisers to decide, on a self-assessment basis, whether the exemption applies. The best thing to do is:
- collate as much evidence as you can for why you have been forced to spend more days in the UK
- collate as much evidence as you can in relation to your intention to leave, and
- contact your professional advisers to update them on your circumstances and seek specific advice.
Note also that prior to the COVID-19 pandemic, it was generally accepted that there were situations where an individual could benefit from the exceptional circumstances reduction if their delay in the UK was due to the serious illness of a close family member. Given that household isolation is a critical part of minimising the spread of the virus, individuals in this position may also be able to reduce their UK day count, but the exact circumstances should be discussed with professional advisers.
Q: Is there anything else I need to do to make sure I can benefit from the exemption?
The discounting of days will only be available whilst you are delayed from leaving the UK and for so long as you fully intend to leave as soon as you can. This means you will need to leave the UK as soon as you can. You should avoid delaying your departure from the UK for any other reason.
Q: How do I allocate the 60-day period? Is it on a calendar year or tax year basis?
The tax year in the UK runs from 6 April one year to 5 April the following year.
The limit of 60 days that can be disregarded due to exceptional circumstances applies to each tax year. If the COVID-19 restrictions remain in place for several months, you may also be able to discount a maximum of 60 days from the new tax year which runs from 6 April 2020 to 5 April 2021.
Q: Is there any chance I might be allowed to remain in the UK for more than 60 days in each tax year and still have the excess days discounted?
The 60-day period is set in statute. It is likely that legislation would therefore be needed if HMRC wanted to grant relief for a longer period. They may deem this to be necessary depending on how long the COVID-19 outbreak continues. Given the current climate, if any changes to the 60-day period are to be made, it is possible this would only happen by informal HMRC publications rather than by formal legislative changes. This would be helpful as a last resort but we suggest aiming not to rely on it if possible eg reducing the days spent in the UK for the rest of the year. We would also suggest retaining copies of the guidance (as it is often changed), and reviewing it carefully, with your professional advisors, to see if your circumstances fit.
Q: I am also working in the UK, does this affect my UK residence status?
You need to take particular care if you are forced to remain in the UK and you need to carry out work-related activities.
The exceptional circumstances provisions set out above do not affect the level of UK work which will result in an extra connection to the UK according to the “sufficient ties” part of the UK’s Statutory Residence Test. This tie applies if there are 40 or more days on which the individual does three or more hours of work in the UK. This could mean becoming UK resident as an additional tie lowers the numbers of days on which you can stay in the UK without becoming UK resident.
Q: Are there any other personal UK tax implications of working in the UK?
There are also potentially tax implications of doing work in the UK. Subject to relevant double tax treaties, even if an individual can remain non-UK resident, they may still have to pay UK tax on earnings from work carried out in the UK.
If the individual is (or becomes) UK tax resident and they are not UK domiciled, they will have to pay tax on their UK earnings but overseas earnings throughout the current tax year would only be taxable if brought to the UK if overseas workday relief is available. From the fourth year of UK residency, overseas workday relief is no longer available and if more than an incidental amount of work for an overseas job is carried out in the UK, the whole of the earnings from that job is subject to UK tax – and the remittance basis is not available i.e. you pay tax on the whole of the earnings even if you keep them outside the UK!
Q: If I cannot avoid UK tax residence, can I get relief from double taxation if my home jurisdiction also taxes me?
If you cannot avoid UK tax residence, your worldwide taxation could be limited if covered by a double tax treaty between the UK and the relevant jurisdiction.
If you are resident in both countries, most double tax treaties determine which jurisdiction will tax under the treaty by looking at the country with which you are most closely connected (centre of vital interests). Where you live in another country, but have become UK tax resident because of COVID-19, it is very likely that your centre of vital interests will remain in the other country. Each treaty must be considered separately, but this often prevents UK taxation on sources of profit in the other country, some profits in third countries and often even work in the UK.
Q: I am a company director (of a non-UK company), does that matter?
Your presence in the UK could affect the tax residency of the company you manage.
A non-UK incorporated company will be treated as UK tax resident if its ‘central management and control’ is in the UK. There are many facets to the concept of ‘management and control’ but essentially, it refers to the executive decision-making power of the company.
Where a director’s extra UK days cause the management and control to move to the UK (for example if the director is the sole director or has board powers which give the same effect) under current law, the company is likely to become UK resident exposing it to UK tax compliance and corporation tax obligations. It could also face a tax charge in the country of its prior residency on the corporate assets deemed to be exported by the shift in residence, in accordance with domestic laws there.
Given HMRC’s decision to acknowledge the effects of the pandemic when determining residence for personal tax, it is not unreasonable to expect a similar approach for corporate tax. Where a director has been obliged to remain in the UK by reason of the pandemic and manages his or her company from here but then later returns home, HMRC may not to seek to recover tax on profits arising during that period. It is worth keeping in mind that the legal basis for establishing the residency of individuals and companies is different, so unless or until there is a formal announcement on the corporate residence point, the position will remain uncertain. See update on HMRC’s view here.
To protect your company’s position, consider doing the following:
- appoint additional board directors based in the company’s jurisdiction,
- temporarily resign from the board yourself, and
- defer making major decisions during your absence (where practicable).
UK immigration considerations
Q: I am in the UK and cannot leave as a result of COVID-19, but my visa is about to expire (or has recently expired) and I am concerned about overstaying my visa. What do I do?
The Home Office confirmed on Tuesday 24 March that if you are in the UK and unable to leave due to COVID-19 related travel restrictions or self-isolation, and your visa expiry date is between 24 January 2020 and 31 May 2020, your visa will be extended to 31 May 2020. Importantly, since this briefing was originally published on 30 March, the Home Office has updated its guidance to make it clear that such visa extensions are only for people who are not planning to stay in the UK long term, so for example, visitors.
In order to obtain the visa extension, the Home Office’s Coronavirus Immigration Team must be contacted so that the Home Office is provided with relevant information, including certain personal details and an explanation of the reason you cannot return to your country of nationality. It is important to ensure that the Home Office confirms the receipt of your request and your visa extension.
If you are in the UK and your visa is due to expire soon – and you are planning on staying in the UK long term, for example, as a worker, investor or student, or on the basis of your family life in the UK – we recommend that you submit your online Home Office application form before the expiry of your current visa in order to protect your position and avoid overstaying your visa. Please note that, as we are only able to provide general advice in this briefing and each case is different, we recommend that you obtain tailored legal advice prior to submitting such an application.
Q: What reasons will be accepted for why my visa should be extended to 31 May 2020?
According to the latest Home Office guidance, you can ask to have your visa extended to 31 May 2020 if “you cannot leave the UK because of travel restrictions or self-isolation related to coronavirus (COVID-19)”. As explained above, this provision applies to people who do not intend to stay in the UK long term, such as visitors.
Given how rapidly the situation is changing, however, the Home Office has not, as of yet, published the details of how it will be considering the reasons people cannot leave the UK and what evidential requirements will be put in place. For example, the Home Office has not explained whether extensions will be granted to people who are self-isolating out of choice rather than strict medical advice or, whether in situations where the person’s country of nationality has closed its borders, that person would be expected to leave the UK and travel to another country in which they may have residence rights, where that country is still allowing inbound flights. We are in constant communication with the Home Office regarding their policy.
In the meantime, we recommend that anyone facing such a situation takes advice to understand the options available to them and the evidence they ought to collate regarding their inability to leave the UK, as well as to take advice on the steps to be taken immediately and any planning that needs to be put in place for the future in relation to their immigration position.
Q: I heard there was a special scheme for Chinese citizens who are forced to remain in the UK to have their visas automatically extended until the end of March – is this still ongoing?
Importantly, the Home Office has changed its approach towards visa extensions for Chinese nationals. In mid-February, the Home Office announced that Chinese nationals in the UK on visas with an expiry date between 24 January 2020 and 30 March 2020 would automatically have their visas extended to 31 March 2020.
However, that position has now been superseded by the new guidance issued in March. In other words, Chinese nationals are now in the same position as all other nationals who are in the UK needing to extend their visas, in that they are required to actively request to extend their visas rather than assume they will automatically be extended. This is an important change.
Q: My visa has been extended to 31 May 2020, but what will happen after that date?
Depending on how the situation develops over the next few months in the UK and internationally, the Home Office may offer further visa extensions beyond 31 May 2020 if you are unable to leave the UK because of COVID-19 related travel restrictions or self-isolation. This is being kept under review by the government and we continue to monitor the position as it develops.
Whilst it is not clear at present whether visas will be extended beyond 31 May 2020, the Home Office has made clear that people granted visa extensions under the COVID-19 provisions will be expected to leave the UK as soon as possible once travel and border restrictions have been lifted.
A link to our COVID-19 web page is here where you can find further advice notes which is being updated on a daily basis.
If you require further information about anything covered in this briefing, please contact Elena Hinchin, Claire Randall, Ruth McKeown, Sonia Cala-Lesina or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, March 2020