Tax tests for those who got stuck in Britain during pandemic
Bermuda residents who found themselves in Britain for an extended time this year, due to Covid-19 pandemic restrictions and closed borders, may have triggered British tax liabilities as a result.
The chances that this happened increase for those who worked remotely while in Britain.
Potential tax implications were discussed by Tom Neill, director in the tax practice at KPMG in Bermuda, during an online UK tax refresher for non-residents. He provided an update on British tax residence rules and tax reliefs announced by Britain's tax authority, HM Revenue and Customs, in relation to the pandemic.
Britain’s statutory residence test is one of the key criteria when determining if an individual has a tax liability in the country. The test has three categories; automatic overseas test, automatic UK test, and for those who don’t qualify in those categories, the third test looks at how many ties a person has to Britain and how many days they have been in the country during a tax year.
Lockdowns, the closing of international borders, and other pandemic-related restrictions may have resulted in some Bermuda residents becoming “stuck“ in Britain for longer than they had intended, and now needing to check if, as a consequence, they have a tax liability in the country.
A rule for “exceptional circumstances” allows for up to 60 days’ presence in Britain to be discounted from the total time spent in the country for the purposes of assessing a potential tax residency period.
“There are exceptional circumstances that apply where you can discount certain days in the UK when determining tax residence,” Mr Neill said. An example was the eruption of the Icelandic volcano Eyjafjallajökull in 2010, which disrupted air travel in Europe.
"That was considered exceptional circumstances because flights could not leave, they were stuck in the UK for a little longer. So this concession is not new. HMRC gave us extra clarification on how Covid-19 gives rise to exceptional circumstances,“ Mr Neill said.
“Essentially you should be able to discount up to 60 days spent in the UK if you were quarantined there, told to self isolate, given Government advice not to travel, if the borders were closed [international borders], or if you were asked by your employer to return to the UK.”
The most common way for people to say they are not a resident of Britain is to say they are working full-time overseas, which means spending fewer than 91 midnights in Britain in a tax year, had fewer than 31 days when they worked more than three hours while in the country, and were working at least 35 hours a week overseas with no breaks in employment greater than 30 days.
Mr Neill said: “The 60-day exception works when you think about, for example, 'have I exceeded 91 midnights?' If you've had 120 midnights in the UK, but you can find over 30 of them that are down to exceptional circumstances, you can bring your total back under 90. But if you have worked for more than 30 days in the UK then you haven't ticked all the boxes to meet the 'full-time work abroad' non-residence test. That doesn’t automatically mean you were resident, but it does mean you can't say you worked full-time abroad. So you need to keep working your way through the rules until your residence status is determined.”
An individual would then have to consider the automatic tests and the sufficient ties test, taking into account the exceptional circumstances discount, where applicable.
In October, HMRC issued further advice. “They said if you were a non-resident in the UK, and were unable to leave due to Covid-19, they won't tax your wages from the period when you intended to leave to the day you actually left. They have never, to my knowledge, done that before." Mr Neill said.
This advice stipulates that the individual had to have left Britain as soon as they reasonably could have done.