’Social distancing’ measures and ‘lockdowns’, introduced to reduce the spread of COVID-19, involve restrictions on travel – with a potential impact in respect of UK tax residence. For individuals, guidance on what constitutes ‘exceptional circumstances’ for the statutory day-count test has been updated. For companies, the situation may be more difficult and additional tax authority guidance would be welcome.

Individuals

Tax residency broadly depends on the number of days spent in the UK during a tax year. A day spent in the UK as a result of ‘exceptional circumstances’ can, however, be disregarded. HMRC have issued guidance confirming that where an individual is:

• quarantined or advised by a health professional to self-isolate in the UK as a result of the virus;
• caught in a ‘lockdown’ situation as a result of the virus;
• unable to leave the UK due to the closure of international borders; or
•  asked by his or her employer to return to the UK temporarily as a result of the virus

the circumstances will, understandably, be considered ‘exceptional’.

Companies

It is generally important to keep a company’s central management and control in the UK in order to ensure that the company is and/or remains UK tax resident. If a company is incorporated in the UK, there is a presumption of UK tax residence but this can be displaced if, under a double tax treaty, the UK agrees to allocate the taxing rights to another jurisdiction, for example on the basis that the company’s central management and control is located there. Similarly, a company incorporated abroad can be tax resident in the UK, if its central management and control is in the UK. 

Generally, a company is centrally managed and controlled where its board makes strategic decisions – so, normally in the jurisdiction where its board meetings take place. Companies wishing to ensure UK tax residence normally require that most board meetings are held in the UK with the majority of directors physically present. But, as board members become subject to travel restrictions, it may not be possible to follow usual procedures. 

As the central management and control concept is laid down by case law, it obviously does not expressly include a carve-out for exceptional circumstances in the same way as the statutory residency rules for individuals do. 

Whilst holding one-off quarterly meetings remotely should generally be insufficient to shift the central management and control of a company from the UK, it would be helpful if HMRC could follow the lead of other tax authorities and clarify the position in light of COVID-19. Similarly, it would be helpful if HMRC confirmed that, for companies who are not currently UK tax resident, holding a one-off quarterly meeting in the UK due to travel restrictions associated with COVID-19 will not, absent unusual circumstances, mean that HMRC will seek to assert taxing rights and instigate treaty discussions based on the central management and control of the company being located in the UK. 

In terms of practical steps that can be taken:

•  if a meeting is to be held remotely, it is advisable that the board minutes explain the COVID-19 situation and its impact on travel
•  where appropriate, non-UK resident directors could attend board meetings as observers and not exercise their voting rights, or alternate directors present in the UK could be appointed. 

It is also worth remembering that a company’s articles of association may dictate certain requirements for board meetings. These may be rather inflexible, for example requiring board meetings to be held in the UK, with all directors physically present. If a company’s articles contain such provisions, the company may need to proceed with a bare quorum of directors who can be physically present in the UK. In an extreme situation, the articles may need to be amended (unless the UK government follows Luxembourg’s lead and introduces measures to allow meetings to be held remotely during the COVID-19 pandemic notwithstanding any provisions to the contrary in the company’s articles).