HMRC is issuing “nudge” letters to thousands of individuals whose submitted self-assessments tax returns included claims that at least some of the days spent in the UK were due to “exceptional circumstances” and should therefore be disregarded when determining their UK tax residence.
UK tax residence is determined by the statutory residence test which permits days of presence in the UK due to exceptional circumstances to be disregarded. Considering the widespread disruption to international mobility because of the Covid-19 pandemic, HMRC issued revised guidance for the 2019/20, 2020/21 and 2021/22 tax years setting out when it considered that days spent in the UK due to Covid-19 might be treated as exceptional. The position was also relaxed for skilled persons moving to the UK to work on Covid-19 related activities so that periods spent in the UK by such individuals would not count toward their days of presence for the residence tests.
The number of days of presence that could be treated as “exceptional” however remained limited to 60 days and very unhelpfully, HMRC did not confirm this until later when many had been unable to leave the UK for longer than that due to lockdown restrictions.
Having reviewed self-assessment tax returns submitted for the relevant tax years, HMRC believes that many include errors in respect of claims of presence in the UK due to exceptional circumstances. Rather than open enquiries into those returns, it is writing to taxpayers who have made claims, providing a summary of its guidance and highlighting common errors. Taxpayers, and their agents, are asked to check their tax returns against this guidance and, where applicable, amend the returns.
The issue of so-called “nudge letters” has become a favourite compliance tool for HMRC. They enable HMRC to target a large number of taxpayers in a single campaign by shifting the burden of undertaking compliance checks from HMRC to the taxpayer, requesting that the taxpayer checks his or her affairs and, if required, makes a disclosure of any unpaid liabilities. Unlike other instances, the exceptional circumstances letters will not include “certificates of tax position” to complete but instead request taxpayers, or their agents, to review their claims and if appropriate amend the relevant tax return.
Taxpayers in receipt of such letters should consider their claims carefully. However, they may also wish to consider their claims in light of the recent First Tier Tribunal decision in A v HM Revenue & Customs [2022] UKTT 133 (TC) which rejected HMRC’s approach to the interpretation of exceptional circumstances (see our discussion here).
If you receive a nudge letter about your claim to exceptional circumstances or are unsure about non-UK residence status following the pandemic, please contact us.
