HMRC clamps down on those claiming exceptional circumstances
During the course of October 2022, HMRC wrote to groups of taxpayers (and their tax agents) asking them to consider their UK tax residence positions for tax years that were affected by the Coronavirus pandemic. The letters focused on individuals who had claimed exceptional circumstances or that they were in the UK to carry out Coronavirus-related work.
This is the latest in what now seems to be a relentless campaign of ‘nudge’ or ‘one-to-many’ letters from HMRC in recent months, inviting certain groups of taxpayers to consider whether particular areas of their tax affairs are in order. The purpose of these nudge letter campaigns is simple: HMRC wants taxpayers who may have got their tax position wrong and filed incorrect tax returns to make voluntary disclosures to HMRC, before HMRC investigates their affairs instead.
There were two provisions in the UK tax residence legislation under which the risk of some individuals becoming UK tax-resident could be reduced, by disregarding days of presence in the UK.
What provisions apply?
The first provision is narrow and time-limited as a direct result of the early days of the Coronavirus pandemic. The focus was for qualifying workers who were asked to come to the UK to assist with some Coronavirus-related work activities between 1 March and 1 June 2020. This covered medical or healthcare professionals who came to the UK to help detect, treat or prevent the Coronavirus disease. The purpose was to disregard days of presence in the UK by such people during that limited period, when considering whether they were UK tax-resident or not.
The second provision has been in the current UK tax residence legislation since it originally took effect on 6 April 2013. It concerns situations in which days of presence by individuals in the UK can be disregarded due to ‘exceptional circumstances’ beyond their control that prevented them from leaving the UK.
The interpretation of what counts as exceptional circumstances has never been particularly easy for taxpayers and their advisers to conclude, aside from the examples explicitly stated in the legislation and some guidance provided by HMRC which was not exhaustive. But with the global issue of Coronavirus and the knock-on effect of lockdowns, border closures, quarantine requirements and so on, many taxpayers found themselves in the position of having spent more time in the UK than they planned.
Responding to the HMRC nudge letter
Generally, UK tax residents pay tax on their worldwide income as it arises and on their gains when realised. So, for those individuals who found themselves in an unexpected position of potentially being UK tax-resident due to a pandemic that led to their presence in the UK for more days than they planned or desired, this could result in an exposure to UK tax that they would previously not have suffered.
It is important that the tax position of the person concerned is reviewed to ensure that all is in order. The correct way to respond is not always obvious and careful consideration should be given before any response is provided.
While the position may be considered straightforward, the reality is that it is far from straightforward in many cases. It is best to seek advice from expert tax advisers. They will review the position and respond to HMRC on the taxpayer’s behalf.
Get help from the tax experts
We specialise in assisting clients to review and regularise their tax position. This will give clients the peace of mind that their risk of HMRC investigation is minimised or eliminated altogether.
If you have received one of these letters or would like any advice on the matters involved, please contact Joseph Adunse or John Hood.