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Covid – Unintended Tax Residence?

Much of the fanfare around Ireland – UK tax issues in recent months centres around Brexit.  Certainly, with indirect taxes there are real tax problems.  VAT as a practical example, is a harmonised EU tax, with common rules applying across the union.  Brexit has certainly changed that landscape; cross border supplies of goods and services are causing administrative and logistical issues, many of which could have been avoided (or more correctly pre-empted) had a last minute deal been reached other than at the last minute.

However, on the direct taxes side, i.e. income tax or corporation tax, Brexit is not a big issue for the employee working from home; Amazon’s delivery schedule (partially brought about by VAT and Customs issues) being a much more real concern.  Whilst domestic law changes are required and are in process to acknowledge the Brexit transition from EU to non EU / EEA, many of those changes only impact corporate groups and international arrangements.  All the while, we must not forget that Ireland has a Double Taxation Agreement with the UK dating back to 1976, and that DTA remains in place and today and going forward.  That tax agreement is the law that ultimately governs how direct taxes interact between Ireland and the UK.

In this author’s view, Covid rather than Brexit is a much greater concern in the tax world in 2021, particularly for persons moving between the UK and Ireland on a regular basis.  With the onset of Covid, many people moved away from cities, and / or closer to home, generally with a temporary mindset.  However, the pandemic is now part of our daily lives for over 12 months, whilst many of those temporary intentions continue. 

We all have friends and family who relocated from the city of London during Covid.  How are those people treated from a tax perspective; perhaps working from home in Ireland for a UK employer.  We anticipate there are two potential tax issues.  Firstly, does the UK employer have an Irish tax obligation by reference to the employee working in Ireland.  Secondly, has the now Irish based employee unintentionally become resident in Ireland, such that they also have Irish tax obligations.  Whilst every individual and circumstance should be looked at on its own merits, the answer to both questions could quite probably be yes in many cases.

The Revenue Commissioners issued an update on Covid measures related to personal taxes on 21 December 2020.  The updated guidance is certainly useful to a broad range of circumstances and reliefs.  However, it focuses on alleviating tax for people who can’t travel due to Covid, and certainly does not give a free pass from Irish taxation for previously non-resident individuals spending significant parts of 2020 and 2021 working from home in Ireland.

Likewise, the HMRC in the UK have issued useful guidance, albeit with a similar outcome.  Travel restrictions brought about by Covid are the central thread.  Whilst a form of relief has been introduced which allows an individual to spend additional time in the UK owing to Covid, the relief has a 60 days limit.  This is likely insufficient when compared with the length of the latest lockdown period.

In either UK or Ireland scenario, the double taxation agreement may be the saving grace.  Notwithstanding, if you are an employer with employees working from home overseas, or if you have moved be it temporarily or permanently as a result of Covid, get advice and understand your options.