New Clause 21: Modifications of the statutory residence test in connection with the coronavirus
Summary
1. The new clause modifies the statutory residence test (SRT) so that a day on which an individual is required to be in the UK in order to undertake work specifically related to coronavirus will be disregarded for the purposes of determining whether they are tax resident in the UK in either tax year 2019-20 or 2020-21.
Details of the clause
2. Subsection (1) provides that this clause applies for determining whether a person is UK tax resident in both tax years 2019-20 and 2020-21. It only applies in relation to tax year 2020-21 where the person is not resident in the UK for 2019-20, including as a result of applying this clause. It also defines “relevant tax” as having the meaning given by paragraph 1(4) of Schedule 45 to the Finance Act 2013.
3. Subsection (2) provides that, for the years mentioned in subsection (1), Schedule 45 the SRT, is modified in accordance with subsections (3) to (13).
4. Subsection (3) modifies paragraph 8 of Schedule 45. A person meets paragraph 8, the second automatic UK test, when they spend enough time in a UK home during the tax year and, under Condition B of that test, spend no more than a permitted amount of time in a home, or homes, overseas. For the purpose of Condition B of the second automatic UK test, where a person has a home overseas, the legislation will be modified so that the home test will have no effect in the relevant period. This will ensure that an individual does not become UK resident by virtue of having their only home in the UK.
5. Subsection (4) modifies paragraph 22 of Schedule 45, which defines 'days spent' for the purpose of the SRT. The modification provides for a third case when a day is not counted as a day in the UK by inserting new subparagraphs 22(7) to (12). These provide that a day is not counted if the day falls in the period beginning with 1 March 2020 and ending with 1 June 2020, if the person is in the UK in order to carry out specified coronavirus disease related work and is otherwise resident for tax purposes in another country. The specified time period and work is amendable by HM Treasury regulations.
6. Subsection (5) modifies paragraph 23 of Schedule 45 to provide that time spent in the UK should be discounted for the purposes of being in the UK for over 30 days under the deeming provisions.
7. Subsection (6) modifies paragraph 28 of Schedule 45, which applies in calculating the “reference period” (a step taken in determining whether a person works “sufficient hours in the UK” or “sufficient hours overseas” as assessed over a given number of days). The new clause inserts new paragraph 28(2)(ba) to reduce the number of days in the given period to take account of emergency volunteering leave under Schedule 7 to the Coronavirus Act 2020.
8. Subsection (7) modifies paragraph 29 of Schedule 45, which provides that there is a “significant break from UK work” or a “significant break from overseas work” if, in either case and amongst other things, a relevant day is not a day on which the person would have done more than 3 hours' work in the UK or overseas (as the case may be) but for being on annual leave, sick leave or parenting leave. The new clause extends these disregards to also disregard any emergency volunteering leave taken for reasons connected to coronavirus disease.
9. Subsection (8) modifies paragraph 32 of Schedule 45, which applies the family ties conditions with effect to partners, spouses and children. Normally a person must see their child on a least 61 days of the year to have a UK tie. The modification provides that on those days a person sees their child in the period beginning with 1 March 2020 and ending with 1 June 2020, and the person is in the UK in order to carry out specified coronavirus disease related work and is otherwise resident for tax purposes in another country, these days will now be disregarded from this total.
10. Subsection (9) modifies paragraph 34 of Schedule 45, which provides for the UK accommodation ties. A person must have a home in the UK that is available to them to use for a continuous period of at least 91 days and they must spend at least one night in that home to have a UK accommodation tie. The modification disregards these conditions and a day is not counted if the day falls in the period beginning with 1 March 2020 and ending with 1 June 2020, if the person is in the UK in order to carry out specified coronavirus disease related work and is otherwise resident for tax purposes in another country.
11. Subsection (10) modifies paragraph 35 of Schedule 45, which considers UK work ties in a year. If someone works for more than 40 days in a year (a day being considered as working for more than 3 hours), then the modification allows a disregard of any day if the day falls in the period beginning with 1 March 2020 and ending with 1 June 2020, if the person is in the UK in order to carry out specified coronavirus disease related work and is otherwise resident for tax purposes in another country.
12. Subsection (11) modifies paragraph 37 of Schedule 45, which applies for the 90-day tie. A person will have a 90-day tie for a particular year if they have spent more than 90 days in the UK in the preceding tax year or the tax year preceding that tax year, or each of those tax years separately. The modification will disregard any day if the day falls in the period beginning with 1 March 2020 and ending with 1 June 2020, if the person is in the UK in order to carry out specified coronavirus disease related work and is otherwise resident for tax purposes in another country.
13. Subsection (12) modifies paragraph 38 of Schedule 45, which applies in determining country ties. A person will have a country tie for a particular year if the country in which they meet the midnight test for the greatest number of days in that year is the UK. The modification will disregard any day if the day falls in the period beginning with 1 March 2020 and ending with 1 June 2020, if the person is in the UK in order to carry out specified coronavirus disease related work and is otherwise resident for tax purposes in another country.
14. Subsection (13) modifies paragraph 145 of Schedule 45 to insert a definition of “coronavirus disease” for the purpose of the new provisions.
Background note
15. The SRT was introduced in 2013 to replace the mostly case law based definition of residence. The intention was to provide greater clarity and certainty to individuals when determining their residence status for UK tax purposes. The SRT is designed so that people can use a series of tests to determine whether they are resident or non-resident in the UK.
16. Broadly, under the SRT an individual is UK resident for a tax year if they meet one of four automatic residence tests and none of five automatic overseas tests, or meet the 'sufficient ties' test.
17. Due to the coronavirus pandemic, the UK government wants to encourage non-UK resident workers to come to the UK to work on various aspects of combatting the disease. Although they would currently only be taxed on their UK source income, any days present in the UK would count towards their total time spent in the UK under the SRT and therefore potentially change their residence status.
18. The new clause modifies the SRT so that the days certain individuals are present in the UK for reasons specifically related to coronavirus will be discounted for the purposes of determining whether they are tax resident in the UK in either tax year 2019-20 or 2020-21.
19. This is in line with the government's policy of supporting work to combat the effects of the coronavirus in the UK.
Modifications of the Statutory Residence Test in connection with the coronavirus
Who is likely to be affected
This measure will affect individuals who are in the UK specifically to work on coronavirus (COVID-19) related activities.
General description of the measure
This measure will disregard, for the purpose of the Statutory Residence Test (SRT), time spent by non-UK resident individuals in the UK while carrying out certain coronavirus related activities.
Policy objective
The SRT is being modified for people who come to the UK and have the skillsets currently required to help the government tackle the coronavirus pandemic.
Background to the measure
To help address the impact that the coronavirus pandemic is having on the health of the nation, some organisations and companies may need to bring expertise to the UK from within their workforce who are normally based outside the UK. Under normal circumstances, the actions and presence of these individuals in the UK could affect their own tax residence status.
There has been no consultation on this measure as it is connected to the government's response to the coronavirus situation.
Detailed proposal
Operative date
The measure will have effect from Royal Assent of the Finance Bill 2020 and will be retrospective to 1 March 2020.
Current law
The SRT is contained in Schedule 45 of the Finance Act 2013. It is designed so that individuals are able to use a series of tests in order to determine whether or not they are tax resident in the UK for a tax year.
Broadly, a person is UK resident if they meet one of four automatic residence tests and none of five automatic overseas tests; or they meet the sufficient ties test. If none of those tests are met for that year then the person is not UK resident.
Proposed revisions
Schedule 45 to Finance Act 2013 will be modified to disregard any days and ties while individuals are in the UK specifically to work in a specified sector or profession and working directly on coronavirus related activities. The disregard will apply to qualifying days in the period from 1 March 2020 to 1 June 2020.
Summary of impacts
Exchequer impact (£m)
2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
negligible | — | — | — | — | — |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is expected to have a positive impact on non-UK resident individuals, who are in the UK specifically to work on coronavirus related activities. As a result of the measure, those individuals will be taxable in the UK only on their UK source income and not on their worldwide income, as may otherwise be the case.
There is expected to be a positive impact on customer experience. The measure provides certainty to non-UK resident individuals that they will not become UK resident if over a limited three month period they come to the UK to work on coronavirus-related activity.
There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a positive impact on qualifying sectors and professions engaged in coronavirus activities, by making it easier for non-UK resident individuals to work for them in the UK. There is therefore expected to be a positive impact on customer experience. There is expected to be no impact on administrative burdens on businesses. There is expected to be no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will incur costs developing and updating IT, and in ensuring compliance. These costs are still being established and will be finalised in due course.
Other impacts
Other impacts have been considered but none has been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Paula Thomas on Telephone: 03000 546697 or email: paula.m.thomas@hmrc.gov.uk
Declaration
The Rt Hon Jesse Norman, MP Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.
Technical Note: Modifications of the Statutory Residence Test in connection with coronavirus
Introduction
In response to the unprecedented health crisis, the UK government has taken steps to welcome to the UK talent and expertise from around the world to help tackle coronavirus.
Legislation is being introduced to provide a new disregard in the Statutory Residence Test (SRT). Provided they meet the specified qualifying conditions, the time spent in the UK by individuals who are in the UK specifically to work on coronavirus related activities will not be taken into account for the purpose of deciding their UK residence status.
This note provides guidance in relation to Finance Bill legislation published alongside this note.
1.1 What is the Statutory Residence Test (SRT)
The SRT is contained in Schedule 45 of the Finance Act 2013 (Schedule 45). It is designed so that individuals are able to use a series of tests in order to determine whether or not they are tax resident in the UK for a tax year.
Broadly a person is UK resident if they meet one of the four automatic residence tests and none of the five automatic overseas tests; or, if they do not meet any of the automatic tests, they meet the sufficient ties test.
HMRC's published guidance on residence can be found in the Residence, Domicile and Remittance Basis Manual — RDRM11000.
1.2 What is changing
For any “relevant period” spent in the UK (see 1.4 below) days and ties are to be disregarded when applying any of the SRT tests. Days are considered as neither spent in the UK nor spent overseas and any UK ties created as a result of the individual's physical presence in the UK, in the relevant period, are ignored for the purpose of the sufficient ties test.
For the purpose of Condition B of the second automatic UK test, where a person has a home overseas, the legislation will be modified so that the home test will have no effect in the relevant period. In all other respects the SRT tests will apply as normal outside of a relevant period.
1.3 Who will qualify
To qualify individuals must be:
non-UK resident in the tax year 2019-20, even if that is a direct consequence of this measure
tax resident in another jurisdiction in accordance with the laws of that territory
present in the UK:
i. as a medical or healthcare professional, for purposes connected with the detection, treatment, or prevention of coronavirus disease
ii. for purposes connected to the development or production of medical products, (including vaccines) devices, equipment or facilities related to the detection, treatment, or prevention of coronavirus disease
1.4 Relevant Period
The legislation applies to the 2019-20 and 2020-21 tax years. The relevant period is any period from 1 March 2020 to 1 June 2020 in which a qualifying individual is engaged in a qualifying activity.
If an individual departs and then returns to the UK for unrelated purposes, or stops doing the specified activity, but remains in the UK the SRT will apply in the normal way to any days spent in the UK that are outside the relevant period.
The time period to which the disregards apply will be kept under review as the situation changes.
Example 1.
P was not previously resident in the UK. P arrives in the UK on 1 April 2020 to work on coronavirus related work, ceases working on these activities on 1 June 2020 and leaves the UK the following day. In 2020-21 he spends 57 days in the UK and works for 36 of those days on coronavirus related work. The relevant period is 1 April 2020 to 1 June 2020.
Applying automatic tests
First automatic overseas test —
The days spent in the UK in the relevant period are disregarded. P doesn't spend any other days in the UK over the remainder of the year, so P meets the first automatic overseas test.
P is not UK tax resident for 2020-21.
Example 2.
P was resident in the UK in one of the previous three years and has a 90-day tie. He is not married and does not have a UK home, staying in a hotel when in the UK.
P comes to the UK 1 April 2020 and works on coronavirus related work until 1 June 2020 but remains in the UK until 10 July 2020 when he returns to Sri Lanka.
P returns to the UK on 1 February 2021 and remains in the UK until 6 April 2021 when he returns to Sri Lanka.
The relevant period is 1 April 2020 to 1 June 2020.
In total P spends 159 days in the UK, 57 days of which are during the relevant period and he works for 36 of those days on coronavirus related work.
Disregarding days spent in the UK in the relevant period, P spends 102 days in the UK:
2 June 2020 to 9 July 2020 = 38 days
1 February 2021 to 5 April 2021 = 64 days
Applying automatic tests
The days in the UK in the relevant period are disregarded, looking at the remainder of the year, P spends 102 days in the UK.
First and second automatic overseas test
P spends 102 days in the UK, so he does not meet the first or second automatic overseas test.
Third automatic overseas test
P spends 102 days in the UK, so he does not meet the third automatic overseas test.
First automatic UK test
P spends 102 days in the UK so, he does not meet the first automatic UK test.
Second automatic UK test
P doesn't have a UK home, so he doesn't meet the second automatic UK test.
Third automatic UK test
P doesn't work sufficient hours in the UK, so he does not meet the third automatic UK test.
Sufficient ties
As none of the automatic tests are met, the sufficient ties test needs to be considered.
As P was resident in the UK in one of the previous three years and has spent 102 days in the UK (Paragraph 18 of Schedule 45) he will need two ties to meet the sufficient ties test and be UK resident.
a. Family tie — he is not married and does not have a child under the age of 18
b. An accommodation tie — there would be an accommodation tie for the period 6 April 2020 to 9 July 2020. As the proposed modification says ties in the 'relevant period' are to be disregarded then the 91-day period falling within the relevant period is ignored and there isn't an accommodation tie. There isn't another continuous period of 91 days within the period when P has a place to live in the UK that is available to him
c. A work tie — P does not work on 40 days in the UK, but if he had, the work tie in the relevant period would be disregarded
d. A 90-day tie — P has a 90-day tie
e. A country tie — P spends 159 days in the UK and could potentially have a country tie. Ties in the 'relevant period' would be disregarded and so only days outside the relevant period would count towards the country tie.
P does not have a country tie
P has one tie and does not meet the sufficient ties test. P is not UK tax resident for 2020-21.
Example 3
P was not resident in the UK in the previous three years. He is married and his wife lives in the UK home. P works full-time overseas.
P comes to UK 1 April 2020 and works on coronavirus related work until 1 June 2020 but remains in the UK until 10 July 2020 when he returns to India. P returns to the UK 1 February 2021 and remains in the UK until 6 April 2021 when he returns to India.
The relevant period is 1 April 2020 to 1 June 2020.
In total P spends 159 days in the UK, 57 days of which are during the relevant period and he works for 36 days on coronavirus related work
Disregarding days spent in the UK in the relevant period, P spends 102 days in the UK:
2 June 2020 to 9 July 2020 = 38 days
1 February 2021 to 5 April 2021 = 64 days
Applying automatic tests
The days spent in the UK in the relevant period are disregarded, looking at the remainder of the year, P spends 102 days in the UK
First and second automatic overseas test
P spends 102 days in the UK, so he does not meet first or second automatic overseas test.
Third automatic overseas test
P spends 102 days in the UK, so he does not meet third automatic overseas test.
First automatic UK test
P spends 102 days in the UK, so he does not meet the first automatic UK test.
Second automatic UK test
Paragraph 8(1) of Schedule 45:
a. he has a UK home
b. where he spends a sufficient amount of time
c. there is at least one period of 91 (consecutive) days
d. when Condition B is met
Paragraph 8(3) of Schedule 45:
Condition B is
a. P has an overseas home, but
b. The overseas home is where P spends no more than a permitted amount of time in Year X
Paragraph 8(5) of Schedule 45:
P spends no more than a permitted amount of time there in Year X if there are fewer than 30 days in year X when P is present there for at least some of the time.
In this case there is potentially a period of 91 consecutive days (6 April 2020 to 9 July 2020) where he spends fewer than 30 days in the overseas home but the proposed modification is that the home test will have no effect in the relevant period.
Third automatic UK test
He does not work sufficient hours in the UK.
Sufficient ties
As none of the automatic tests are met, the sufficient ties test needs to be considered.
As P was not resident in the UK in any of the previous three years and has spent 102 days in the UK (paragraph 19 of Schedule 45) he will need three ties to meet the sufficient ties test and so be UK resident
a. Family tie — he is married and has a family tie
b. An accommodation tie — there would be an accommodation tie for the period 6 April 2020 to 9 July 2020 but the proposed modification says ties in the 'relevant period' are to be disregarded. However, there is a continuous period of 91 days (ending on 5 April 2021) when P has a place to live in the UK, that is available to him, where he spends at least one night, so there is an accommodation tie.
c. A work tie — P does not work on 40 days in the UK, but if he had, the work tie in the relevant period would be disregarded.
d. A 90-day tie — P does not have a 90-day tie
e. A country tie — does not apply as P was not UK resident in any of the previous three years
P has two ties and does not meet the sufficient ties test.
P is not UK resident 2020-21.
Example 4.
P works full-time overseas and was UK resident in one of the previous three years. P arrived in the UK on 14 March 2020 to visit his family, he intended to spend 2 weeks in the UK and leave the UK on 28 March 2020 to return to Sweden. However due to the international travel restrictions P was unable to leave the UK as planned; he remained in the UK until 1 July 2020, when he was able to return to Sweden and resume his full-time employment.
P returned to the UK in December 2020 and spent 15 days in the UK. P returned to the UK again on 14 March 2021 and spent 15 days in the UK.
When P was in the UK in the period 28 March 2020 to 1July 2020 he was able to work remotely and did so for more than three hours on a total of 50 days.
P considers he will be covered by the new legislation as he was working in the UK due to coronavirus.
However, P's work was not specifically related to the coronavirus medical response so he is not entitled to the benefit of the new legislation, but some of the days he spent in the UK can be disregarded as it was due to exceptional circumstances.
As P had planned to be in the UK until 28 March 2020 that period cannot be treated as exceptional circumstances. However, the period from 28 March 2020 to 5 April 2020 will meet the criteria for exceptional circumstances.
P was in the UK from 6 April 2020 to 1 July 2020, due to travel restrictions, this period (86 days) will be covered by exceptional circumstances, but subject to the 60-day limit. In tax year 2020-21 P spent a total of 56 days in the UK, after excluding days spent in the UK due to exceptional circumstances.
P does not meet any of the automatic tests and so his residence falls to be considered under the sufficient ties test. As P was resident in one of the previous three years, he will need three ties to be UK resident with 56 days spent in the UK.
P has a family tie, an accommodation tie and a work tie so he will be UK resident in tax year 2020-21.
Even though some of the days on which P worked are excluded from the day count, due to exceptional circumstances, this does not extend to excluding the days he worked in the UK for the purposes of the work tie.
1.5 How to tell us
For the tax year to 5 April 2020 (2019-20), individuals who are required to complete a Self-Assessment tax return, should provide details at box 40 'Any other information' on the SA109 supplementary page. The information to be included is the amount of days that qualify to be disregarded and also the period covered.
1.6 Record Keeping
Individuals will need to keep records and documents to support their statements made when considering the statutory residence test. Guidance is available at RDRM12910. Individuals should keep evidence and records relating to;
the nature and duration of their coronavirus related work activities — a work diary/calendar or timesheet is likely to indicate this. It might be found to be beneficial to ensure the diary is sufficiently detailed, maybe reflecting hours worked, and the nature of the work. For example, reviewing and responding to emails, meetings or completing travel claims,
breaks the individual had from working, for example between jobs, and why,
any periods of annual, sick, gardening or parenting leave and,
their contracts of employment, and documentation/communications which relate to these, particularly to curtailment or extension of these or other changes to them.
HMRC will consider the weight and quality of all the evidence as, taken together, a number of pieces of evidence may be sufficiently strong enough to demonstrate their circumstances met the disregard's conditions.
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