25 May 2022
HMRC has recently issued an update concerning the Ukraine crisis and the tax and social security implications for employees displaced to the UK. It primarily covers Ukrainian employees, but could also include employees currently working in Russia, Belarus and Ukraine who have had to return to the UK temporarily. The update refers to existing guidance on these types of situations and HMRC has not issued anything specific to the Ukraine crisis. The guidance is as follows:
Residence for tax purposes
Current Foreign Office advice is against all travel to Russia, Belarus and Ukraine. In line with existing HMRC guidance, individuals returning to the UK from these territories would qualify for exceptional circumstances. Whether or not this means they are tax resident for 2021-22 or 2022-23 depends on their individual circumstances, most notably the number of days spent in the UK.
The current HMRC guidance provides an example of an individual who returns to the UK because of Foreign Office advice in response to war. ‘Exceptional circumstances’ will apply in their case. However, HMRC will also take into consideration any wider reasons that are outside of the individual’s control, and look at the facts and circumstances of the situation.
When determining how many days an individual has been present in the UK, a maximum of 60 days in each tax year can be disregarded due to exceptional circumstances.
Taxation of UK workdays
Where, even after disregarding the 60 days’ exceptional circumstances rule, the individual is still a UK resident for tax purposes, then they will be liable to UK tax on their UK workdays. Those who are not UK-tax residents may be able to exclude their UK workdays from UK tax.
Payments to employees
Payments to employees present in the UK (for accommodation, relocation or cash support) may be deemed to be earnings/benefits and taxable in the UK. The normal guidance on these types of payments to UK employees applies.
There is an argument that the UK is a temporary workplace where an employee is expected to return home within 24 months, which would mean that certain accommodation costs could be treated as not taxable. However, the situation would need to be closely monitored and there would have to be a reasonable expectation that the individual will return to their normal workplace within the 24 months.
There are no social security agreements between the UK and either Russia, Belarus or Ukraine, meaning that the employee would not be subject to UK NIC for the first 52 weeks spent in the UK, provided that:
- they are not ordinarily resident in the UK;
- normally work outside the UK for a foreign employer; and
- continue to work for that employer while in the UK.
For employees returning to the UK from these countries, those that have been working outside the UK for more than 52 weeks can ignore the first six weeks back in the UK before they are required to pay UK NIC. Those employees who were still paying UK NIC under the 52-week rule will continue to do so.
As the Ukrainian crisis develops there may be more specific guidance issued but, for the time being, HMRC’s stance is that the existing guidance is sufficient.
If you have any questions or concerns about NIC / social security, please contact Joanne Webber or Ian Jones.