COVID-19 and War in Ukraine: Tax Impact

COVID-19 and the war in Ukraine: Impact on UK tax residence

Under the UK’s Statutory Residence Test (SRT) the number of days spent in the UK during a tax year is a key factor in determining UK residence. COVID-19 and the war in Ukraine may lead to an individual spending more time in the UK than planned. Depending on the number of days spent in the UK, this could have an impact on the residence status as well as the domicile position of some individuals.

There are ‘exceptional circumstances’ rules within in the SRT, which can be helpful in some cases. These rules allow you to disregard certain days spent in the UK (up to a maximum of 60 days). In addition to the original rules, the government enacted legislation and provided guidance specifically in relation to COVID-19 and when the Foreign and Commonwealth Office advises against all travel to a certain country (as is currently the case with Russia, Belarus and Ukraine).

Where such reliefs and more detailed consideration of days spent in the UK is appropriate, this will lead to increased complexity when determining individuals’ UK tax residency position and getting expert advice is recommended to achieve certainty over your status.

Exceptional circumstances

HMRC have published specific guidance, which has been updated for events over the last three years, on the meaning of ‘exceptional circumstances’ and where this can be taken into account when determining the number of days spent in the UK for the SRT.

Broadly speaking, HMRC consider ‘exceptional circumstances’ as those beyond an individual’s control and where the individual intends to leave the UK as soon as circumstances permit. HMRC would normally view circumstances such as civil unrest, war and natural disasters as examples of exceptional circumstances.

However, days spent in the UK would not be considered exceptional where the circumstances are not beyond the individual’s control, or they could reasonably have been foreseen or predicted. For example, choosing to come to the UK for medical treatment, travel problems such as delayed or missed flights would not normally be regarded as exceptional circumstances.

Unfortunately, relief for 'exceptional circumstances' cannot be applied to all of the separate tests used as part of the SRT, including some of the automatic UK resident tests. Further, where a day of presence in the UK may be considered exceptional, there is an upper limit of 60 days that may be disregarded. Therefore, for longer periods of time in the UK, ‘exceptional’ days will count towards determining your residence status under the SRT.

Days Worked in the UK due to covid restrictions

HMRC have confirmed that for the 2020/21 and 2021/22 tax years they will not seek to tax employment income for any days worked in the UK by a non-UK resident after they had intended to leave but couldn’t because COVID-19 restrictions were in place, provided that income is taxable in the individual’s home country.

From 6 April 2022, if an individual is non-UK resident, any days spent working in the UK would be treated as days on which they performed duties in the UK and may be liable to tax in the UK (subject to any applicable Double Tax Treaty). This would be the case even if the individual was prevented from leaving the UK as a result of covid related circumstances.

Our reflections

When dealing with personal tax residence, no case is straightforward and, while we expect that COVID-19 and the war in Ukraine will continue to be considered ‘exceptional’ circumstances, there is no guarantee that individuals who spend ‘exceptional’ days in the UK will not breach the UK’s tax residence rules in their specific cases.

If you would like specific advice on UK personal tax residence status, including if you believe you may need to amend a submitted tax return, please contact us.