COVID-19: Travel Restrictions and Tax Consequences
Worried about travel restrictions impacting where your business is managed and controlled from and the potential UK or overseas tax consequences? Below sets out some guidance from our Tax Team.
Whether a non-UK company is considered resident in the UK for tax purposes or otherwise has a taxable presence in the UK – a permanent establishment in tax parlance – depends in broad terms, on:
- where the company is managed and controlled from, i.e. physically, where are the individuals making the key business and strategic decisions based; and
- whether the company has some other presence in the UK in the form of a permanent establishment, e.g. a warehouse, a factory, individuals signing contracts.
The finer detail in respect of both and whether one or both apply to a company is a topic in itself and far beyond the scope of this note.
What has become clear is that the outbreak of the Covid-19 pandemic creates difficulties around both of these points for businesses, particularly those operating across borders. Individuals may be restricted from travelling and so as a result be obliged to manage and control a business in the UK when normally, those operations would take place outside of the UK. Equally, the ability of a warehouse and/or factory to operate may be limited or closed, forcing other facilities to be used in other jurisdictions.
In light of these difficulties, HMRC has given some new guidance on its approach to the tax residence of companies bearing in mind the potential impact of the pandemic. HMRC appear sympathetic to the disruption arising as a result of the pandemic and specifically to the consequences travel restrictions may have on the running of cross border business. Two aspects of particular note in HMRC’s guidance are that:
- a non-UK resident company will not necessarily be considered to have become resident in the UK during the pandemic as a result of holding board meetings or taking some key decisions in the UK as a result of travel restrictions or other difficulties experienced by the business as a result of the pandemic; and/or
- a non-UK resident company is unlikely to create a permanent establishment in the UK for tax purposes, provided that the activities which might otherwise create a permanent establishment are carried on only for a short period of time and as a result of the pandemic.
While the guidance is helpful and is a clear indication of the general stance HMRC are likely to adopt in such matters, the assurances and guidance are couched in the most general of terms. The guidance is just that, guidance and not legislation.
If you have any queries or concerns, contact out tax team for more specific guidance.
