Our team: Gemma Grunewald
With international travel almost a distant memory and quarantine measures implemented across the globe, directors of non-UK companies who are currently in the UK may need to take steps to ensure they do not accidentally expose the non-UK company to UK corporation tax.
The UK’s corporate residency rules mean that if a non-UK company is “centrally managed and controlled” in the UK, that company will be treated as UK tax resident and within the charge to UK corporation tax on its worldwide income and gains. In contrast, if a non-UK company is not UK resident it should only be taxable on its income which arises in the UK.
If directors of non-UK companies who are living in the UK hold board meetings in the UK, dial into local board meetings from the UK or make strategic decisions in the UK, as opposed to flying out of the UK to make decisions and attend local board meetings, the “central management and control” of a non-resident company could shift to the UK along with its tax residency.
In its guidance, HMRC confirms that it does not consider that a company will necessarily become UK tax resident because it holds a few board meetings in the UK, or because some decisions are taken in the UK over a short period of time. But, to-date, no extra concessions have been announced by HMRC in light of COVID-19.
For companies that rely on flying directors to local board meetings, HMRC’s guidance in response to COVID-19 must offer a degree of comfort. However, we suggest that businesses exercise a degree of caution and the following steps may be helpful:
UK entities may also need to consider rules in other jurisdictions where travel restrictions and lockdown measures might have resulted in directors and/or employees being stranded abroad. Where necessary, legal advice should be sought.
As with many tax matters, corporate residency is a complex area so if you would like any further information, please do not hesitate to get in touch.