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TAXguide 08/21: COVID-19: Displaced expatriate employees statutory residence test and social security: correspondence with FST & HMRC

Technical release

Published: 30 Mar 2021 Update History

This TAXguide contains correspondence between ICAEW, the Financial Secretary to the Treasury and HMRC on the statutory residence test and social security in relation to expatriate employees that have been displaced due to the impacts of the coronavirus pandemic. This TAXguide replaces TAXguide 06/21 which predated HMRC’s reply on social security contributions.

ICAEW’s Tax Faculty initiated correspondence on this matter in response to HMRC publishing guidance on coronavirus and the statutory residence test as Annex D of Residence Domicile & Remittance Manual RDRM13400 on 17 August 2020 and on social security Employees Working Abroad on 19 August 2020.

ICAEW’s letters dated 28 August 2020 to the Financial Secretary to the Treasury (FST) and HMRC requested amelioration of the impact of the strict application of the statutory residence test on the remuneration of employees who have been unable to leave the UK owing to COVID-19 and made recommendations as to how the this might be achieved.

The letters also drew attention to the limitations of HMRC’s Annex D guidance and suggested further and improved guidance.

In summary, the faculty requested:

  • an exemption for displaced workers temporarily working in the UK due to the pandemic;
  • a change in law to increase the 60-day exceptional circumstances threshold;
  • an extension of exceptional circumstances to include the 30-workday and 31-day significant break thresholds of the third automatic overseas residence test;
  • an extension of exceptional circumstances to cover workday and family ties;
  • a report on any discussion with the OECD regarding displaced workers;
  • further guidance aimed at non-tax professionals on tax, NIC and PAYE, including easements on s690 determinations and to relieve double taxation gross-ups;
  • comment on the impact of the pandemic on Appendix 4 reporting;
  • guidance on the taxability of remuneration of furloughed employees under domestic law and under treaties;
  • guidance on tax treatment of available accommodation unable to be used;
  • clarification regarding the 52-week social security contributions exemption and the 52-week continuing liability for displayed workers from non-agreement countries;
  • guidance on non-resident directors stranded in the UK after a board meeting;
  • guidance on displaced workers from social security agreement countries; and
  • guidance in respect of new hires who cannot start work in the relevant country due to travel  restrictions.

The FST in his reply dated 10 September 2020 expressed sympathy about the concerns raised, but said government did not feel there was a compelling case for change. He did, however, ask HMRC to consider our points about providing further guidance.

HMRC’s replies dated 22 January 2021 and 16 March 2021 include clarifications and explanations that the faculty believes will help expatriate employees and their employers settle income tax and social security contribution liabilities.

The full text of the letters, questions and responses are detailed in the PDF download of TAXguide 08/21.

Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

TAXguide 08/21

This guide can be download in full

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