Tax Knock For Stranded Expats, Non-Residents - Advisors' Reactions

Jackie Bennion Deputy Editor 24 March 2020

Tax Knock For Stranded Expats, Non-Residents - Advisors' Reactions

Expats and non-doms need to look closely at their residency status and repatriation in light of COVID-19's dislocating grip. There is only so much that falls under HMRC's "exceptional circumstances" rules. Here is what some experts are warning to watch out for.

Non-residents are being struck on several fronts because of COVID-19, leaving those stranded by the outbreak, among other services groups, facing heavy tax penalties because of residency over-stays, the UK accountancy firm UHY Hacker Young has highlighted. Returning expats face similar tax dilemmas.

Depending on circumstances, non-residents can spend between 16 and 183 days in the UK before they are hit by UK taxes. Visitors who stay over 183 days are considered a UK resident. Current HMRC rules give non-residents a 60-day grace period for exceptional circumstances; which may include births, deaths, and sudden life-threatening illness or injury arising during the tax year. The accountancy firm warned that residents must keep track of their day counts, and expect penalties.

“Overstaying by just one day could result in HMRC reviewing the income a non-dom has made overseas for the whole tax year and then charging UK tax on that. Needless to say, that tax rate will be a lot more than they are used to,” Neela Chauhan, partner at UHY Hacker Young, said.

Chris Groves, a partner at Withers law firm, said he expects HMRC will take a relaxed view on interpreting exceptional circumstances in such times. “I suspect anyone who is trapped in the UK, even if it is not by a policeman standing outside their door, but because they are sick and self isolating, or trapped by social distancing, will be allowed those days as exceptional and not counted towards their day counts.”

More difficulty stems from the fact that the crisis has come at the end of the tax year when residents have already used up most of their allocated dates and are now suddenly stuck in the UK, "with very little they can do about it," in Groves view.

Even with confirmation from HMRC that exceptional circumstances will extend to those in quarantine, those advised by the government not to travel, those who cannot leave because borders are closed, and those being asked by employers to return to the UK, Groves said it won't include those who simply don’t feel safe travelling now, even it they can. Also 60 days extra residency doesn't fit with how long communities are forecasting it will take to get the spread of the virus under control.

Further, tax disruptions are likely to hit residents on the number of work days they are permitted in the UK. For some residents that means no more than 40 days in a year, and there is currently no provision to add more as exceptional days. “The exceptional days allows you to spend more time here but it doesn’t allow you to work for any extra days," Groves said. People may be stuck in the UK but "can’t work without making themselves resident and that will tip them over the threshold.”

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