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Statutory residency test (SRT) and exceptional Circumstances

sehjal gupta accountant

Sehjal Gupta – Private Client Tax Director
DD: +44 (0)207 4651934

The Covid-19 pandemic was a tragedy on many levels whilst we have got through the worst, this continues to dominate some aspects of our lives while threatening the future of many.  As a world we find ourselves standing united in the hope that we shall collectively get through these difficult and unprecedented times which are changing globally on a daily basis. No one is in a position to predict what the future holds, but we remain optimistic that we have been through the worst and we have come out stronger as a community and nation albeit with hurdles to overcome and difficult times in the short term.

Understandably and naturally, in times of such uncertainty, concerns over seemingly insignificant matters can easily be overlooked.   However, we have had a number of clients who have raised questions over  their tax residency position. Many individuals have been left stranded and unable to return to their country of residence due to travel restrictions, being quarantined and the closure of international borders.

It is important to be aware of the UK Statutory Residence Test (“SRT”) and how this may apply under exceptional circumstances without compromising one’s residency position. HM Revenue & Customs (“HMRC”) have updated their guidance and manuals in light of the pandemic, but the rules largely remain unchanged.

The Statutory Residence Test

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The SRT guidance was effective from 6 April 2013 and is relied on to determine individual’s UK tax residence status. Under the SRT, the more ties an individual has to the UK and the more days spent in the UK, the more likely they are to become or remain UK resident for tax purposes.

Menzies SRT guidance

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In exceptional circumstances, the UK days can be ignored if they are beyond an individual’s control and prevent an individual leaving the UK.

The relief allows up to an additional 60 days in each tax year where an individual spends time in the UK for reasons beyond their control. This includes national or local disaster or serious illness. Under current rules, this is the maximum period permissible as exceptional days and is not an allowance or entitlement. Therefore, days spent in the UK above the 60-day limit will not be ignored but instead will be taken into consideration for residency purposes.

For example, those who intended to leave the UK but were prevented from doing so due to flight cancellations, travel restrictions, quarantine or border closures should be treated as exceptional circumstances.

Likewise, those who were unable to travel as a result of suffering from the virus can expect to be treated more sympathetically by HMRC.

In contrast, where individuals had the opportunity or choice to return to their country of residence but decided not to, it is unlikely that HMRC will agree to exceptional circumstances being applicable.

Furthermore, caring for a family member in the UK who is suffering from the virus is unlikely to be considered as an exceptional circumstance. While we completely understand the innate desire to look after your loved ones, HMRC see this as a choice hence you could have left if you wanted to. 

How will HMRC make decisions?

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As is always the case, HMRC will make decisions on a case by case basis dependent on facts and circumstances. Individuals should be able to prove that they had every intention to leave the UK as soon as possible for them to qualify for exceptional circumstances.

We would therefore advise individuals to maintain accurate records of events to have a valid argument to put forward to HMRC if required.

In most cases, the exceptional circumstances claim as a result of Covid-19 factors will have been made in 31 January 2021 or 31 January 2022 in the self-assessment tax returns for the years ending 5 April 2020 and 5 April 2021. It will therefore be some time before we know how HMRC will be treating these scenarios.

It is important to appreciate that one’s residence status in 2020-21 and 2021-22 can still be relevant when applying the SRT to their circumstances in a later year.  For example, if someone was looking at the sufficient ties test to determine their UK residence in 2022/23, they would need to consider their UK day count in the three previous tax years (which would include the years impacted by the pandemic) to determine if they have a 90 day tie for the current tax year.  Therefore their day count in 2020-21 and 2021-22 would be very relevant and would continue to be relevant.

Individuals need to also be aware that if they were unable to return to the UK due to the Covid-19 pandemic, they could become resident in that second jurisdiction.  If this is an area of concern, please do contact us and we will be able to put you in contact from someone from the HLB International Network to assist you.

A further relaxation of the rules

In order to overcome the burdens on the NHS and resource the UK economy during this pandemic, many individuals working within the medical field as well as engineers have come to the UK to help combat Covid-19, be it by working at or on the hospitals or in research.  Under normal circumstances, the presence of these individuals in the UK would result in them becoming UK resident for tax purposes and therefore potentially liable to UK taxes.

The Government confirmed that they will amend the SRT rules for the period between 1 March and 1 June 2020, allowing any individuals working on Covid-19 related activities to be in the UK without these days being included towards the SRT.  Obviously, the relaxation of these rules is only applicable to specific individuals and will be monitored closely to minimise the risk of abuse.  As with all other measures being implemented during the pandemic, this too will be reviewed and amended accordingly, therefore it is important to check the position and not assume the reliefs apply.

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