Mishcon Academy: Digital Sessions – Tax Aware: How to handle your business and personal tax needs from home

Mishcon Academy: Digital Sessions are a series of online events, videos and podcasts looking at the biggest issues faced by businesses and individuals today.

This session was recorded on 7 May 2020. The information in the film is correct at the time of recording.

To review the key insights from the event, please view the film or read the write up below.

In the UK, we determine tax residence by following the “statutory residence test”, which is formulaic but complex. Under normal circumstances whether you’re a UK tax resident will depend on your ties to the UK and the number of days you spend here in any one tax year. In the UK our tax year runs from 6 April to the following 5 April. However, if you spend more time in the UK than you expect because of what HMRC would deem “exceptional circumstances”, up to 60 such days per tax year can be disregarded from your UK day spend count for certain aspects of the statutory residence test.

In light of COVID-19, HMRC have published guidance specifically on this and have confirmed that the days you spend in the UK for the following reasons would indeed be treated as exceptional circumstances (and therefore potentially ignored):

  1. You are quarantined or advised by a health professional of public health guidance to self-isolate in the UK;
  2. The UK Government has officially advised you not to leave the UK;
  3. You can’t leave the UK as a result of closure of international borders;
  4. Your employer asks you to return to the UK temporarily.
  • Firstly, if you become a UK tax resident this will affect your personal UK tax obligations.
  • Secondly, your UK tax residence may in turn affect your company’s tax residence.

UK tax residence: Personal tax obligations

  • Becoming UK tax resident individual will affect your exposure to UK tax. Both in terms of payment and filing obligations. Your tax residence largely affects how you are taxed in terms of income tax and capital gains tax in the UK.
  • Secondly, the number of years you have been UK tax resident may affect your domicile, and your domicile broadly affects your UK inheritance tax exposure. UK inheritance tax is taxed at 40%, so it is important for international clients to be aware of this risk.
  • Whilst you may become a UK tax resident, you might still also be tax resident elsewhere.  That other country may also tax you on certain income, gains and assets, which can lead to double taxation. This can however be managed with preparation.
  • Lastly, the number of days you spend in the UK this year may limit the number of days you can spend in the UK in the next tax year without becoming a UK tax resident.

UK tax residence: How it could affect your company’s tax residence?

  • If you’re looking at non-UK companies in which a UK tax resident person is a key player, such as a director, that key person’s tax residence may affect the company’s tax residence. If senior members of businesses are making key decisions from the UK, that company may either inadvertently become UK tax resident by being “managed and controlled” here, or they might create a UK “permanent establishment” by trading in the UK through either a fixed place of business or an agent in the UK.
  • However, HMRC and the OECD have agreed that any temporarily UK tax resident directors, or occasional board meetings held in the UK, due to COVID-19, should not impact the company’s permanent establishment or tax position.

If a person becomes UK tax resident or has a UK tax liability that is not dealt through PAYE, they will have to file a UK tax return and that’s where you can notify HMRC that you are a UK tax resident, and/or claim the remittance basis (which is relevant for non-domiciled, UK tax resident clients). It is due on 31 January after the tax year that you’re dealing with (if filing online). So for this current tax year you’ll have to file by 31 January 2022.

If you are working you may need to apply for a national insurance number or a unique tax reference number from HMRC.

You can also apply for a certificate of UK tax residence if you want (for example) to claim foreign tax credit relief to deal with any double taxation issue.

  • At this time, those who want to execute their wills at home have no option but to comply with the Wills Act 1837. In England, the Wills Act provides that the testator or testatrix must execute the will by signing at the bottom in front of two witnesses to indicate that they’re attesting to the document as their last will and testament.
  • The two witnesses need to see the testator or testatrix sign the will, and then they need to append their signatures as witnesses to the will.
  • In relation to witnesses, although they must see the testator or testatrix sign their will, there is no requirement for them to all be together in a room. For example, each person can be two metres apart in an open space, and only approach the will to sign as and when it is their turn. We recommend initialling every page and having the witness do the same. The solicitor can be there by video and observe whilst a client is executing their will, and in this scenario, it is important for the solicitor to take a proper attendance note which may be helpful if there is any issue around undue influence or capacity.

For US citizens in the UK, it is necessary to navigate the two countries’ tax systems simultaneously. Good and efficient estate planning for US citizens in the UK who are exposed to estate taxes in both countries involves drafting an estate plan that utilizes exemptions in both countries.

One trust company director being locked down in the UK shouldn’t, in normal circumstances, cause the entire offshore trust company to become UK resident.

Once it is established that the trust company is not UK resident, it is then necessary to look at the residence of any trusts for which the trust company is a trustee. In the UK, we have separate rules on the tax residence of trusts. Where the sole trustee of a trust is a non-UK tax resident company, the trust should remain non-UK tax resident. In that scenario, the trust can only be UK resident if the trust company carries on core trustee activities through a UK permanent establishment.

In this regard, a senior director sitting in a house in the UK can in certain circumstances constitute a permanent establishment. There are two kinds of permanent establishment: a fixed place of business and the dependant agent route. Practical mitigation steps would be to take away their authority to do their work in the UK.

Since April 2019:

  • both UK tax resident and non-UK tax resident persons are subject to Capital Gains Tax (CGT) on both residential and non-residential UK property disposals;
  • offshore landlords, who previously paid income tax, pay corporation tax on rental income – and as a result their rate of tax goes down to 19%.

From April 2020, UK residents (as well as non-UK tax residents) who dispose of certain types of UK residential property, will have to notify those disposals for CGT purposes within 30 days of completion.

We have a general stay of proceedings in the Tax Tribunals until the end of June, albeit a few remote hearings are taking place, which means there is not much progression in terms of appeals as yet.

HMRC have written to many people who are subject to ongoing investigations to offer a temporary break to proceedings if the client so wishes.

Many people are worried and concerned about the payment of tax at the moment. HMRC have largely moved their resources to deal with queries in that area.