Expats around the world have suffered a variety of inconveniences as a result of Covid-19. From halting relocation plans to trapping people abroad, the pandemic has certainly made its presence felt among the expatriate community. In this article, we’re going to focus on the impact it’s had on expat tax.
My name is Oliver Heslop, and I am an expatriate tax professional based in the UK. My foundation skills are in UK tax, but when it comes to tax planning and Covid-19, I have been working with expats in Saudi Arabia, Singapore, Zambia, Spain, Germany, the USA, and more. Here are some of the issues my clients have faced, as UK expats living overseas.
UK non-resident tax issues for expats in Saudi Arabia
Let’s dive straight into a story that has affected hundreds if not thousands of people. During 2020, the Saudi Arabian government closed the country’s borders for extensive periods (several months at a time) due to Covid-19. I know several UK nationals who were sent home from their Saudi jobs to their UK homes to ‘wait it out’. However, they became trapped outside their assignment country (KSA). Before Covid-19, they had been happily treated as UK non-resident for tax. However, they were suddenly now spending several months in the country, thus jeopardising their UK non-residence status. It has been a dreadful headache for many clients.
If I were writing a client advice paper now, this paragraph would cover a tax technical review of the key issues. We could look at the rules governing permitted days in the UK and the UK tax definition of exceptional circumstances. However, this article is not the place for a technical deep dive, as every client case is different.
In the Saudi Arabia story, the main headlines are that these people have been spending four, five, six, and more months back in the UK. They infringed the UK residence rules (a.k.a. ‘SRT’), and it has been a fight to overturn or reverse this outcome. Many clients are determined to challenge HM Revenue & Customs (if they lose the initial fight), since they feel very hard done by. I am dealing with each person case by case to determine whether any leniency is possible at HMRC.
The impact of new travel rules on expats’ ‘available homes’
In the UK, we have a number of tax tests, which determine whether a person has an ‘available home’ or a ‘permanent home’ in the UK or elsewhere. Due to Covid-19, this has thrown up quite a few problems. For example, there was an engineer who was due to move to Dubai, but whose plans were delayed by travel restrictions. He had no regular home in the UK; he was just staying with a friend. In Dubai, on the other hand, he had a rented flat waiting for him. But can we really call this an available home if he cannot visit the country?
In the tax world, the location of your main home can strongly influence your tax position, so Covid-19 and the resultant travel rule changes have led to various tax issues. Again, I look at this area on a case-by-case basis, because personal facts are diverse.
Tax implications for expats forced to relocate earlier than planned
A British client acquired his new home in Germany in early 2020, then moved to Germany much earlier than planned, due to fears that he would otherwise become ‘locked out’. This had a number of tax implications, not least of which was that he had to pay much higher rates of social security one year early.
Managing tax affairs during the pandemic
We have a long-term client from Canada, who, in the past 18 months, has lived in the UK and Peru and is now settled in France. During 2020 and 2021, HMRC were lax with their records and paper tracking. HMRC lost all records. This can happen to any taxpayer. However, the mistakes were not detected by my client, because her personal and family life had been so disrupted by Covid-19. In other words, she had not been checking her papers each month. This is a classic tale of 2020, when expat life was so difficult for some that they did not have the time to manage their tax affairs. Fortunately, 2021 has not been a repeat of this.
Benefits for self-employed expats in the UK
You may wonder whether we have seen any UK tax benefits or advantages triggered by Covid-19. We did not witness many clients on furlough, but we did observe many expats retreating to their home offices and continuing to work full-time. For the self-employed in the UK, there have been generous business grants (SEISS), and we have applied for these on behalf of clients. But don’t forget that these grants are taxable and reportable on UK tax returns – unfortunately!
HMRC Time To Pay scheme
The last thing to mention is some positive Covid-19 tax related news. I just want to highlight a UK scheme which is genuinely beneficial. HMRC’s Time to Pay scheme allows all taxpayers to apply to pay their taxes in instalments. For those who owe less £30,000, they (or their tax advisor) may go online to apply for a 12-month instalment plan to lessen the impact of personal tax bills. This scheme was “pepped” up by the UK Chancellor in direct response to Covid-19. It is highly popular with my clients. An £8,000 tax bill can be spread over the whole year following tax return filing. I am very happy to praise and commend the simplicity of this scheme.