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20 March 2020COVID-19
Our Global Mobility Partner, Sarah Robert answers some of your questions for international businesses.
Q: We have a UK employee who is a foreign national now working from home and he/she requested to return to their home country because of the Coronavirus. Would we run into any tax or social security issues if they remain outside the UK for a long period of time?
A: If you have a UK employee who has returned to their home country whilst continuing to work for you then as their employer, you may run into issues such as overseas payroll requirements. The risk of having to operate an overseas payroll is usually reduced if you do not have an overseas entity in that country where salary costs can be recharged, although some countries have much lower thresholds for payroll taxes to be operated than others.
If the employee triggers tax residence and/or exceeds 183 days in the overseas country the risk of an overseas payroll having to be set up also becomes more significant. Note that tax residence rules in some countries again may have lower thresholds in terms of days of presence or different criteria for residence status than simply counting days.
From a social security perspective, the advice depends on which country combinations are involved; the UK is currently part of the EU social security agreement and has other reciprocal agreements with various countries (e.g. UK-USA, UK-Japan). In the absence of any agreement, UK domestic rules should be followed.
In order to provide more guidance we would need to know which country combinations are involved.
Q: Would you have any thoughts as to whether the “exceptional circumstances beyond your control that prevent you from leaving the UK” would apply in my case? I left the UK with the aim of breaking UK tax residence/maintaining non-UK residence but I am now going to exceed my UK day count because I cannot leave the UK and travel back to my country of residence.
A: HMRC has not issued any specific guidance with regards to UK tax residence status and days spent unintentionally in the UK in light of the Coronavirus. However, they have commented on visa regulations as follows:
“Due to travel restrictions because of coronavirus some individuals may be facing uncertainty in relation to the expiry date of their current visa or leave to remain in the United Kingdom. The Home Office understands that in many cases this is because of circumstances outside of your control…..”
Based on this and previous examples where travel restrictions were in place (Icelandic volcano eruption grounding flights) then HMRC may be sympathetic to adverse UK tax consequences which may arise as a result of being stuck in the UK.
HMRC look at this on a case by case basis; in one example from the Statutory residence Test they allow an additional 60 days under exceptional circumstances. The taxpayer has to have the intention to leave as soon as the restrictions are lifted, this will also be taken into account as evidence.
HMRC has now issued some guidance as to what constitutes “exceptional circumstances” which should help. However, there is no commentary on the limit of days which can be counted as exceptional so as it stands, this limit is still set at 60 days. We will need to wait and see whether the 60 day limit is increased if the impact of the virus on travelling or even leaving your home lasts longer than 60 days.
Please contact Sarah Robert on +44 (0)1635 35255 or any member of the global mobility tax team if you have concerns and they can provide further advice and guidance, including an analysis of the tax implications in your situation.