Coronavirus: how do travel restrictions impact non-resident employees?

Non-UK residents

HMRC has updated its guidance on the impact of the coronavirus on non-UK residents’ earnings. Section 41Z of Income Tax (Earnings and Pensions) Act (ITEPA) 2003  determines the earnings that are taxable in the UK on a “just and reasonable” basis which has always been based on the number of days worked abroad and in the UK except where this is inappropriate. The guidance clarifies that if a non-resident is stranded in the UK due to the coronavirus any employment income earned whilst unexpectedly stuck here can be excluded if that income is taxed in their home country. They will need to provide evidence with their UK self-assessment return that they were prevented from leaving the UK and that this income has been taxed in their home country.

Overseas workday relief (OWR)

ITEPA 2003, s. 26 allows UK residents who work partly here and partly overseas to be eligible for OWR. This means they don’t pay UK tax on their overseas duties as long as they are paid overseas for this portion of their earnings. One of the restrictions of OWR is that they will not receive relief for any duties performed in the UK. So, any day spent working in the UK will continue to be subject to UK tax, even if they were prevented from leaving the UK as a result of the coronavirus. HMRC has taken the view that as no other country would be able to tax this income as it is for duties performed here, it is only appropriate that it is subject to UK tax.

Quarantine after a business trip

Employees who have been required to travel overseas on business to countries on the UK’s red list have to quarantine in a hotel for ten days on their return to England. Employers should not automatically assume that if they pick up the cost of the quarantine (up to £1,750 per person) this is not classed as a taxable benefit in kind.

Employers should seek advice from HMRC before taking a decision on meeting this cost, as they may find that it must be included in a PAYE settlement agreement if the business wants to pay the charge on behalf of the employee.