For those who rely on travelling between countries to perform their everyday employment duties, COVID-19 has caused even more uncertainty and disruption to their travel plans than the rest of the population. If your movements for work have been impacted by COVID-19 with travel restrictions preventing you from leaving the UK, the following article should help provide clarity on your liability to UK income tax on your earnings.
Non-UK Residents
HMRC have acknowledged that instances arise where a non-UK resident is restricted from leaving the UK due to COVID-19, and consequently carries on working in the UK unexpectedly.
With the above in mind, HMRC’s guidance states that the UK will not tax the employment income of a non-UK resident for the period between 1) when the individual planned to leave the UK (was it not for the restrictions of COVID-19); and 2) when the individual actually departed the UK.
In order for the concession to apply, HMRC require the following conditions to be met:
- The individual was unexpectedly prevented from leaving the UK;
- The UK workdays discussed above are subject to tax in the individual’s home country; and
- The individual left the UK as soon as COVID-19 restrictions stopped preventing them from doing so.
Where the above conditions are satisfied, non-UK residents can submit a claim through Self-Assessment so that this income is not subject to UK tax. Although, HMRC have made it clear that they will require evidence that an individual could not return to their home country as a result of COVID-19 travel restrictions and that they left as soon as it was possible to do so, as well as proof that that they were taxed in their home country on the income attributable to the extra days spent in the UK.
In the case where individuals have been forced to self-isolate and therefore have been restricted from travelling home, this is deemed as a valid reason by HMRC for being unable to return home. Although, it appears the guidance is less clear in other circumstances, including where there were no available flights for individuals to leave the UK. With this in mind, HMRC are likely to review more complicated scenarios on a case-by-case basis.
A further point to note is that regardless of whether HMRC conclude to tax the UK workdays discussed above, where the individual spends more than three hours working on any of these respective days, they will each count as a day spent working in the UK for the purposes of the statutory residence test.
Overseas Workday Relief
What is it?
Overseas Workday Relief (OWR) treats part of an individual’s earnings from UK employment as if it was foreign income, which therefore means that a proportion of their employment income is not subject to taxation by the UK government.
The following conditions must be met for an individual to claim OWR:
- Non-UK domiciled;
- Employed in the UK, but perform some (or all) of their duties in a foreign country;
- Tax resident in the UK in the current tax year;
- Have an offshore bank account holding their foreign income;
- They claim the remittance basis of taxation;
- Non-UK resident for the 3 consecutive tax years prior to either: a) the current tax year or b) one of the two previous tax years.
UK Resident Employees Eligible for OWR
In the instance where an employee qualifies for the conditions discussed above regarding OWR, they would be able to exempt any earnings from their foreign duties from UK taxation during their first three years of UK residence.
In light of the above, where COVID-19 travel restrictions have prevented people from leaving the UK, inevitably this will mean that these individuals benefitting from OWR will spend more time in the UK, and will be able to exempt less income from their foreign duties.
HMRC have confirmed that despite the above, they will not change their stance and any income earned as part of employment duties in the UK will also be taxed in the UK, regardless of whether these employment duties would have been carried out abroad without the impact of COVID-19.
The reasons HMRC give for this in
EIM77045 - Appendix 5 are:
- One of the fundamental rules to qualify for OWR is that income cannot be ‘general earnings in respect of duties performed in the United Kingdom’.
- No other country has the right to tax the income for the time period the UK resident taxpayer spends in the UK, therefore it is rational for HMRC to impose tax on its residents for work performed in the UK.
If you have any queries on any of the topics discussed in this article around the impact COVID-19 might have on your taxable employment income, please do not hesitate to get in
contact with a
member of the team for expert tax advice.
Related Articles
https://www.stratostax.co.uk/insights/coronavirus-the-statutory-residence-test/
https://www.stratostax.co.uk/insights/travelling-man-income-tax-relief-temporary-workplaces/
