Tax issues for the internationally mobile

    Contents

  1. UK residence issues
  2. Domicile status
  3. Compliance issues
  4. Payroll withholding and reporting
  5. UK short-term business visitor agreements (Appendix 4)
  6. Modified payrolls ― Appendix 7A and 7B returns
  7. Social security

The spread of coronavirus (COVID-19) is having a significant impact and increasingly disrupting supply chains, as well as interrupting cross-border travel.

In these unprecedented times, there are several issues that employers need to consider, particularly around the safeguarding and protection of employees and assignees who are stationed around the world.

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Beyond this, global employers also need to consider any potential tax, residence, social security and payroll implications for employees:

  • who are currently on assignment and now need to return to the UK
  • who were planning to start an assignment or relocate to another country but are now remaining in the UK
  • who have already been repatriated to the UK (and may now be working from home)
  • who are unable to return to the UK due to a specific country’s quarantine rules

Increasing travel restrictions are also impacting the way employees work, especially those requiring immigration permissions to enter their intended country of travel. The information is quickly changing as countries start to develop their own in-country immigration policy restrictions and guidance (for example, Switzerland) and, as a result, immigration implications should not be forgotten when reviewing the impact of coronavirus on mobile employees.

UK residence issues

Under the UK statutory residence test (SRT), individuals prevented from leaving the UK may be able to discount days of presence for determining tax residency if they qualify as ‘exceptional circumstances’. Examples of ‘exceptional circumstances’ include national or local emergencies, such as war, civil unrest or natural disasters, and a sudden or life-threatening illness or injury.

HMRC has confirmed that the following days will be regarded as exceptional circumstances due to coronavirus (RDRM11005):

  • the individual is quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
  • the individual is advised by official Government advice not to travel from the UK as a result of the virus
  • the individual is unable to leave the UK as a result of the closure of international borders, or
  • the individual is asked by the employer to return to the UK temporarily as a result of the virus

It is important to note that there is a 60-day cap for days disregarded through exceptional circumstances. RDRM13230 states:

‘The maximum number of days spent in the UK in any tax year that may be ignored due to exceptional circumstances is 60. This is a limit, not an allowance or entitlement. It applies whether there is one event or several events in the same tax year. Days spent in the UK over the 60-day limit count as a day of presence for the purposes of the SRT.’

The new guidance needs to be read in conjunction with HMRC’s current published guidance, which sets out some scenarios relating to what are considered exceptional circumstances (RDRM13240) and exceptional circumstances where Foreign and Commonwealth Office advice applies (RDRM13250).

HMRC also expects individuals who are claiming to be in the UK for exceptional circumstances to leave as soon as those circumstances are over. If an individual remains in the UK, this can jeopardise the relief (see RDRM13240).

It should be noted that the exceptional circumstances disregard does not count for all SRT purposes. It applies only when counting days spent in the UK and in determining whether an individual has a ‘90-day tie’ under the ‘sufficient ties test’. It does not apply to the ‘work tie’ or the ‘family tie’ (RDRM13230). As a result, if an individual is in the UK because of exceptional circumstances, they could still be resident if, for example, they work on those exceptional days.

Further to the exceptional circumstances due to coronavirus listed in RDRM11005, on 9 April 2020 the Chancellor announced a limited exemption for individuals. This limited exemption means that any days spent in the UK between 1 March 2020 and 1 June 2020 do not count as a UK day if the individual is:

  • present in the UK for ‘an applicable reason related to coronavirus disease’, and
  • resident in another jurisdiction in the tax year in question

FA 2020, s 109

An individual who is a medical or healthcare professional is considered to be present in the UK for ‘an applicable reason related to coronavirus disease’ if they are here for purposes connected to the detection, treatment or prevention of coronavirus. Other individuals are considered to be so present if they are here for the purposes connected with the development of medicinal products (including vaccines), devices, equipment or facilities related to the detection, treatment or prevention of coronavirus.
FA 2020, s 109

These days are also ignored for the purposes of:

  • the 60-day exceptional circumstances rule
  • the day counting deeming rule in FA 2013, Sch 45, para 23(3)
  • time spent with a child for the purposes of the family tie
  • availability of UK accommodation / days spent in UK accommodation for the accommodation tie
  • UK work days for the work tie
  • the 90-day tie
  • the country tie

FA 2020, s 109

Note that all the changes introduced by FA 2020, s 109 apply when determining the individual’s residence status for the 2019/20 tax year. However, they apply when determining the individual’s residence status for the 2020/21 tax year only if the individual was non-resident in 2019/20. If the individual was UK resident in 2019/20, the changes in FA 2020, s 109 should be ignored for the purposes of determining the individual’s residence for the 2020/21 tax year.
FA 2020, s 109(1)

For more details of the SRT, see the Determining residence status (2013/14 onwards) and Determining residence status (2013/14 onwards) ― important definitions guidance notes.

Certificates of residence service

HMRC updated its internal manual in respect of the issue of certificates of residence (CORs) and procedures during the coronavirus period (see INTM162180).

HMRC will continue to receive the vast majority of requests electronically, even where they are posted to HMRC. The necessary compliance checks will be carried out, as is usual, before CORs documents are posted out centrally. As a result, most customers who request CORs will not notice any disruption or delay.

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However, a potential delay of up to 30 working days may arise in respect of certain jurisdictions that have further formatting requirements, ranging from requiring a ‘wet’ signature, to requiring an apostille. See INTM162180 for further details.

Domicile status

If employees are unable to leave the UK because of travel restrictions, this may also affect their domicile status. Non-UK domiciled employees who are resident in the UK can benefit from the remittance basis of taxation on their overseas earnings. However, since 2017, it is possible for non-UK domiciled individuals to acquire a UK deemed domicile for income tax and capital gains tax purposes. This change affects individuals who have been resident in the UK for at least 15 of the 20 tax years immediately preceding the relevant tax year.

For more information on domicile, deemed domicile and the remittance basis, see the Domicile, Deemed domicile for income tax and capital gains tax (2017/18 onwards) and the Remittance basis ― overview guidance notes.

Compliance issues

Employees working in different countries may find themselves in a position where they have a tax return filing obligation in more than one country. Unless otherwise notified, normal compliance obligations should be followed for each country.

In the UK, the tax year runs from 6 April to the following 5 April. The filing deadline is 31 January following the end of the tax year. For the 2019/20 tax year, the filing deadline is 31 January 2021. For the 2020/21 tax year, the filing deadline is 31 January 2022. These filing deadlines remain in place.

See the Self assessment filing deadline guidance note for more information.

Where it might be difficult to obtain information required to complete a tax return, applying for an extended filing deadline may be possible in some jurisdictions.

Where non-UK resident employees, who would normally work overseas as a result of being on assignment, return to the UK to work for their UK-based employer in response to the spread of the virus, UK income tax is likely to become due on their UK duties. In this case, the UK employer would be required to operate PAYE on the employee’s income, even where the income is paid from outside the UK and the period of repatriation is only temporary (for example a few months).

For further details, see the PAYE obligations guidance note.

The employee may also trigger personal income tax liabilities, in which case they need to understand the potential personal tax implications of their presence in the UK, assess their residence status and consider whether they can mitigate any double taxation.  

See the UK tax liability on arrival in the UK guidance note.

From a practical side, it is therefore important for employees to keep a careful record of the number of days they spend and work in a country, whether in the UK or any other country, in order for issues to be more easily identified.

Payroll withholding and reporting

Employers will need to review their payroll reporting and tax withholding obligations for their mobile employees, whether through a local entity or as a non-resident employer.

Businesses need to understand these obligations to ensure continuing global compliance, as these could result in additional complexities and tax costs, particularly where local employment tax liabilities are considered.

For further details, see the PAYE obligations and the Outbound employees ― payroll issues guidance notes.

UK short-term business visitor agreements (Appendix 4)

Where a UK employer has employees from overseas working for the UK business, PAYE withholding is normally due from the first day of working in the UK. If the employee would qualify for income tax relief under a double taxation agreement, the PAYE requirements can be relaxed for these business travellers by employers entering into a short-term business visitor agreement (STBV) (Appendix 4) with HMRC. The reporting is usually due on 31 May 2020. HMRC has confirmed that the 2019/20 Appendix 4 STBV filing deadline has been extended to 31 July 2020.

Similarly, the 2019/20 filing and payment deadline has been extended to 31st May 2020 for those with PAYE ‘special arrangements’ for STBVs with less than 30 UK workdays.

Modified payrolls ― Appendix 7A and 7B returns

Due to the coronavirus outbreak, HMRC has confirmed that employers who file returns and make payments under the procedures at Appendix 7A and 7B due by 31 March 2020, have now until 31 May 2020 to meet their filing obligations (see HMRC’s notifications on Appendix 7A and Appendix 7B).

See the NIC settlements for outbound employees with UK employer and NIC settlements for inbound employees with UK employer guidance notes.

Social Security

Social security is a particularly difficult area for expatriate employees.

Employees working in new country locations may trigger additional social security liabilities for themselves and their employer, which can be very high.

For example, if an employee initially working in the UK returns to his home country to work from home somewhere in the EU, this could potentially trigger a social security liability (non-UK) where the employee works in the overseas territory for more than 25% of their total working time (normally measured over a 12-month period). In such circumstances, UK employers would still be required to register to operate employer social security in the overseas EU country.

See the EU provisions guidance note.