In a game of 20 questions, the aim is to guess what one person is thinking. But the full 20 questions are not necessary to divine HMRC’s approach to the statutory residency test (SRT) in light of the unique circumstances created by the Covid-19 pandemic.

Certainty balanced against flexibility

The benefit of the SRT is certainty. Its rules apply mechanically. For example, if you are present in the UK for 183 days (or more) you are automatically resident in the UK for tax purposes.

The drawback of the SRT is inflexibility. There is little wiggle room, although the “exceptional circumstances” rule allows qualifying days spent in the UK to be disregarded for certain purposes of the SRT.

Certainty weighs more, says HMRC

Given the extraordinary circumstances we are all living in, some flexibility in the application of the SRT might be expected. Instead, HMRC’s newly released Q&A on the application of the SRT and Covid-19 is conservative in tone.

Nevertheless, HMRC accepts that Covid-19 can result in “exceptional circumstances”, including where:

  • the UK Government advises against travel outside of the UK because of the virus;
  • you are self-isolating in accordance with UK Government advice; and
  • there is a closure of international borders which inhibits your “every effort” in leaving.

But some uncertainty remains

Multiple answers in the Q&A refer to decisions taken by the UK Government. But it is not clear that HMRC accept such decisions automatically extend to non-British nationals for all purposes of the SRT (which most would say isn’t obvious to the dispassionate observer). Certain countries responded to the pandemic by advising that all nationals "return". A situation may conceivably arise where the advice of the UK Government and the advice of an individual’s home state pull in two different directions and HMRC takes the position that the UK advice can’t be invoked by a visitor. Would HMRC accept that a non-British national who preferred the UK Government’s guidance faced "exceptional circumstances"?

Reference to UK Government decisions also seems potentially unsympathetic to people who chose to abide by the spirit, rather than the letter, of the guidance. For example, if you landed in the UK on 17 March to find lockdown on the horizon you might still have escaped. But if you took at face value the "guidance" against non-essential travel and chose not to leave the UK, it is not clear that HMRC will accept that your circumstances are exceptional. We would hope however that, given the circumstances, HMRC will take a pragmatic approach, as they have been encouraged to do in comments made by the OECD in April.

HMRC also makes the point that an international border may be closed except for nationals of that country. It could be inferred from this that HMRC have an expectation that a non-British national should have left the UK for their country of nationality, regardless of their actual desired destination. However, the ambiguity may allow HMRC to take a flexible approach and accept that an individual may have a preferred destination, which could be for important reasons, such as family or work, or simply because it is their main place of residence.

Overlaying the question of whether Covid-19 created “exceptional circumstances” for you, is HMRC’s expectation that you have clear records to prove that you faced such difficulties. In the face of the real practical difficulties caused by Covid-19 this may be difficult at best, and unrealistic at worst.

Concluding thoughts

Covid-19 might ostensibly create pretty evident "exceptional circumstances". You might even have meticulous records to show this. But this is a reminder that the rule is narrower than the name suggests. First, by statute only a maximum of 60 days can be disregarded. But lockdown started over 140 days ago. Secondly, it does not assist those who, forced to stay in the UK, work more than three hours in one day. Too many such "work days" may decrease the number of days you can spend in the UK before you are considered tax resident.

Our private client team have also published a note considering HMRC’s original guidance relating to Covid-19 and the SRT.