HMRC is challenging non-residence claims

The issue

Thousands of taxpayers are receiving ‘educational’ letters to tell them about how ‘exceptional circumstances’ should be applied to the statutory residence test. HMRC’s suspicion is clearly that individuals have been wrongly claiming that they are non-resident on the basis of days where they were stuck in the UK due to Covid 19. Many people may well have been tied up in the UK for longer than they intended in 2019/2020,  2020/2021 and 2021/2022 due to travel restrictions.

Recap on the statutory residence test (SRT)

The SRT works by factoring various ‘connection factors’ (eg available accommodation) of an individual and then uses these to determine the number of days in the UK that will trigger UK residence. However, there is a let-out whereby some days spent in the UK for exceptional circumstances are not counted for the SRT. The broad spirit of this legislation is to avoid an individual unwittingly getting caught by the rules in unavoidable circumstances. The key Covid-19 related points here are as follows:

As a general rule, nobody can claim more than 60 exceptional days for whatever reason, but the below points show circumstances that can make up those 60 days:

1. You are quarantined or advised by a health professional to self-isolate in the UK as a result of the virus.
2. You find yourself advised by official Government advice not to travel from the UK as a result of the virus
3. You are unable to leave the UK due to the closure of international borders.
4. You are asked by your employer to return to the UK temporarily as a result of the virus.

The other non-Covid 19 exceptional reasons that HMRC listed previously were:

1. Local or national emergencies, such as civil unrest.
2. Natural disasters.
3. War.
4. A sudden serious or life-threatening illness or injury to an individual.
5. In limited situations, where an individual comes back to the UK to deal with a sudden or life-threatening illness or injury to a spouse, partner or dependent child.

Forbes Dawson view

As usual with HMRC ‘nudge letters’, the approach may not be particularly well-focussed. It is likely that many tax-payers receiving these letters will have correctly assessed themselves as being non-resident, using the ‘exceptional circumstance’ rules appropriately. However, it is likely that some will have incorrectly assessed themselves as non-resident by (for example) discounting more than 60 days due to ‘exceptional circumstances’.  In these cases, the position should be corrected by either amending the return or through the online disclosure mechanism. The stakes are often quite high if somebody suddenly finds out that they are resident and targeted advice should be taken, not only to confirm the position but also to consider the knock-on effects on tax liabilities in other jurisdictions.




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