COVID-19: Lockdown and impact on your tax status

Eprivateclient published our partner Liz Cuthbertson’s article, looking at how because of COVID-19, many people are now faced with unexpected circumstances that require immediate guidance. Please see Liz’s full article below:

This article has been written in light of Monday’s announcement from the UK Foreign Office who have advised against all non-essential foreign travel ‘indefinitely’.

We have had two weeks of lockdown in the UK and the government has announced an unprecedented package of financial assistance for businesses, employees, other workers and individuals and rapid and sudden change is felt in the UK and across the globe.  Inevitably, many people are now faced with unexpected circumstances that require immediate guidance. Here are just a few:

Unable to leave or enter the UK

With the UK in lockdown, many people were unable to leave or enter the UK before travel restrictions were enforced.  For some, this means they will exceed their intended day count in the UK resulting in UK residence in the UK tax year 19/20 unless the additional days they spend here beyond their control are regarded as ‘exception circumstances’. If so, these will be disregarded for the purpose of calculating their total day count in the year. Exceptional circumstances do include national or local emergencies. HMRC recently issued specific guidance on this issue in relation to detention in a country as a consequence of Covid-19.  It says circumstances will be an exception if:

• If you are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
• If you find yourself advised by official government advice not to travel from the UK as a result of the virus
• If you are unable to leave the UK as a result of the closure of international borders and
• If you are asked by your employer to return to the UK temporarily as a result of the virus.

The maximum number of days allowed due to exceptional circumstances in a tax year is 60 and it is therefore likely that if an individual’s days spent in the UK due to the Covid-19 crisis are allowed as exceptional and these are the only exceptional days in the year, then the residence position for 19/20 may not be adversely affected.

Example:

An individual carefully plans his day count to be in the UK no more than 90 days in the tax year 19/20 to ensure he is not UK resident under the UK Statutory residence test rules.

He is over 70 years of age and has a health condition that makes him vulnerable under the Covid-19 criteria. He is advised against travelling and to remain in the UK for medical reasons and stay at home. He will exceed his day count in the UK for 19/20 and will be UK resident for 19/20 unless he can claim exceptional circumstances.

The key point about exceptional circumstances is that they must be events outside of a person’s control.  No one can dispute the unprecedented nature of events during this pandemic, but it is important to have very clear evidence of the precise circumstance that are claimed to be exceptional for this purpose.

To reiterate, this week the UK Foreign Office has tightened travel restrictions further and have advised against all non- essential foreign travel indefinitely.  With no end date in sight, none of us know how long these border and travel restrictions are going to last – weeks or even months. But one thing is clear:  If restrictions do persist for a very long time it is possible that we will see individuals detained in the UK beyond 60 days. If that happens, there is real risk that some individuals will find themselves resident in the UK (or elsewhere) in a tax year for which they did not expect to be resident unless further guidance on the matter of exceptional circumstances is issued.

For some people, this may mean risk of residence status and tax implications in other jurisdictions. If this results in extension of residence in the UK beyond 15 years then deemed domicile also becomes an issue with the tax consequences attached to that.

It is, of course, hoped that in the event of protracted travel restrictions, HMRC will take a pragmatic and lenient approach. For now, this remains another uncertainty in these already very uncertain times.

Cash Flow Certainty for Individuals

Global stock markets have substantially fallen. Some companies are cancelling dividend payments and investment income will go down. Individuals and families should urgently review their cash flow to ensure they have sufficient means to meet their own expenditure and also identify their pots of wealth which may be available to assist other family members with significant expenditure. This may be assisting with school fees or other similar large expenditures as well as planning ahead for a time when the economy recovers.

To assist cashflow, HMRC is allowing all taxpayers to defer their second payment of account under self-assessment. This is normally due on 31 July 2020 and can be deferred until no later than 31 January 2021.

We can also carry out cash flow modelling with stress testing for our clients and help them plan ahead during these very uncertain times. For many this is as much about giving a layer of comfort as well as identifying steps to take now to defend long term cash positions.

Click here to view Liz’s full profile and contact details.