COVID-19 is having a potential unforeseen tax consequence on expats whose travel plans are disrupted as government close borders and impose self-isolation periods.
The travel bans could have an impact on where expats pay tax.
Many expats are concerned that if they are forced to alter their travel plans due to the coronavirus pandemic, they could become tax resident in a country which will tax them at higher rates.
Some countries have safety valves to ease the stress for expats, like ignoring residency rules due to exceptional circumstances brought about by COVID-19. Others have allowed periods of grace for filing tax returns.
To be fair, how COVID-19 measures affect tax for expats is unlikely to be a key factor when determining what action to take to tackle the spread of the virus.
HMRC And COVID-19
HM Revenue & Customs understands that COVID-19 affects the travel plans of British expats and other non-residents and has resulted in many people spending more time in the UK than they had planned.
New guidance clarifies that expats can disregard extra stays of up to 60 days if:
- A health professional orders you to self-isolate in the UK due to coronavirus
- Government advice stops you leaving the UK
- You cannot leave the UK due to the closure of international borders.
- Your employer asks you to temporarily return to the UK due to coronavirus.
These reasons are in addition to the normal exceptional circumstances allowed by HMRC, which are:
- Local or national emergencies
- Natural disasters
- War
- An unexpected life-threatening illness or injury to yourself, your spouse or dependent child
Working in the UK under COVID-19 restrictions
HMRC has also announced a tax concession for expats and non-residents working in the UK because they are forced to stay longer than planned due to the coronavirus pandemic.
Any earnings starting from the day the worker intended to depart the UK and the day they leave are not taxable if:
- The income is taxable in the country where the worker lives permanently.
and
- The worker left the UK as soon as they could.
Find out more about tax residence and COVID-19
Expats Working Overseas Full Time
Expats who work full time overseas may be forced to stay in the UK due to COVID-19 travel restrictions but would like to be considered non-resident for tax under the SRT overseas working tests.
Generally, to qualify under these tests, a worker should spend no more than 90 days in the UK in a tax year and work on no more than 30 of those days.
They must also rest from overseas work by having a ‘significant break’ of 30 days during the 90 days they spend in the UK.
HMRC has ruled although ‘exceptional circumstances’ for COVID-19 can apply to stretch the 90 day limit to 150 days with the 60 day concession, any day when three hours or more is worked is counted as one of the 30 work days.
The bottom line for expats claiming exceptional circumstances have forced them to stay beyond the Statutory Residence Test day counts must show their extended stay in the UK was beyond their control, travel restrictions kept them in the UK and that they made every effort to leave the country as soon as they could.
The result could be any expat remotely working in the UK because they cannot leave may not meet the full time overseas working test and may have to reassess if they qualify as non-resident under the Statutory Residence Test.
What To Do If You Are Stopped From Leaving The UK
Much of the proof of non-residency involves counting days spent in and out of the UK for the Statutory Residence Test.
If you are stopped from leaving the UK for a reason linked to the COVID-19 pandemic, keep accurate records that should include:
- Travel days
- Sickness days – including spouses or dependent children you cared for and days you spent in self-isolation.
- Days spent in the UK because of travel restrictions at home or abroad.
- Working days where of three or more hours
- Reasons why you could not leave the UK, ie copies of online government advice or emails from airlines cancelling or rearranging flights.
COVID-19 And Deemed Domicile
If someone was planning to leave the UK permanently during the 2020-221 tax year, which ends on April 5, 2021, deemed domicile rules remain unchanged.
Domicile is not based on the circumstance during a single tax year but looks over a 20 year period.
To be deemed domicile in the UK in the 2020-21 tax year, someone would have to be tax resident for 14 of the past 19 years.
British Expats Trapped From Travel In The USA
The US Internal Revenue Service (IRS) is allowing a similar 60-day concession as HMRC for non-residents stranded in the States due to coronavirus travel restrictions.
The IRS has confirmed the concession days will not be counted towards the substantial presence test provided they are consecutive and a direct result of the impact of the COVID-19 pandemic.
Expats and travellers in the US can also call on a COVID-19 Medical Condition Travel Exception.
The latest from America is President Joe Biden has reversed the executive order lifting travel bans from Europe and Brazil.
Find out more about IRS COVID-19 residence concessions
Expat UK Tax Residence And COVID-19 FAQ
The impact of COVID-19 on travel is affecting thousands of expats around the world who are stranded away from the countries where they live or work.
Many are concerned about the residence status for tax if they are marooned overseas.
Here are some of the most asked questions about COVID-19 and tax residence in the UK.
Many countries allow their citizens and expat permanent residents to travel even though wider border controls are in place to stop casual travellers, like holidaymakers.
HMRC states that you should be unable to leave the UK for the 60-day concession to apply.
HMRC allows no more than a 60-day extension taking the time someone can spend in the UK without becoming resident to 150 days in a tax year. IF the stay in the UK is more than 150 days, then the Statutory Residence Test will apply.
Yes. Any period of self-isolation ordered on arrival in the UK is counted within the concession.
Any days where someone works for three hours or more are considered working days and only 30 working days are allowed for remote workers during the time that they remain in the UK.
The 90-day rule applies as usual and the 60-day concession applies if you have no choice about leaving the country due to COVID-19 travel restrictions. You should note that one of the concession conditions is that you leave the country as soon as you can if travel delays apply.
In the UK, if you have a negative COVID-19 test you do not need to self-isolate unless someone you live with or have met has tested positive. The rules do change at short notice, so check before you travel.
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