Contractor compliance during coronavirus: What do expats need to know?

Contractor compliance coronavirus expats

12th May 2020

There’s no doubt that COVID-19 has ushered in unprecedented levels of economic uncertainty across the globe as markets reel from the effects of the global pandemic, and international contracting is no exception.

While many are worrying about their health and finances, for international contractors, tax and compliance is, of course, still a concern. With billions of people locked down across many countries, some contractors are forced to stay in the place where they were when non-essential travel was banned. This has naturally brought up a number of compliance concerns from affected individuals.

Unfortunately, due to the complexity of global tax compliance, spending time somewhere you do not normally inhabit could impact residence status and unravel carefully laid financial plans. But as tax residence in most countries is based on counting days within the borders, HM Revenue & Customs has published some additional guidance for expats. Here’s what you need to know.

Contractor compliance: Information for expats during coronavirus

In the UK, the statutory residence test determines tax status. Typically, spending 183 days or more in the destination during a financial year is an indicator of tax residence – and that makes someone liable to UK taxes on their worldwide income and gains. This is also the case in a number of countries across the world.

The current coronavirus lockdown started in the UK on March 23rd – 36 days ago at the time of writing. The likelihood is the lockdown and travel restrictions on flights will last until at least the end of May, adding about another 40 days to the lockdown.

Currently, HMRC guidance states that ‘the pandemic may impact your ability to move freely to and from the UK or, require you to remain unexpectedly in the country. Whether days spent in the destination can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case. There are four exceptional conditions for avoiding expat reclassification as a UK tax resident. These are:

  1. Self-isolating or other quarantine measures on the advice of a medical professional
  2. Obeying government advice not to travel from the UK as a result of the virus
  3. Staying in the country because international borders are closed
  4. Your employer directing you to return to the UK temporarily as a result of the virus.

It’s important to note that events resulting from the impact of the virus are changing rapidly and this guidance may be amended at short notice. As always, we will endeavour to update concerned expats on the latest changes as and when they occur.

Compliance still crucial

Just as it was before the outbreak, contractor compliance is still crucial during the coronavirus pandemic, with the taxman still hunting down anyone suspected of hiding their wealth offshore despite suspending most other investigations. While HMRC has put thousands of onshore inquiries on the back burner for the duration of the coronavirus, no mercy is being shown to taxpayers with offshore assets, income or gains. HMRC has confirmed no flexibility is available for them to meet deadlines to produce details about their holdings.

Remote contractor compliance

Another important related aspect to bear in mind in these challenging times for expats and recruiters alike is remote contractor compliance. In order to continue doing business throughout the current lockdown and beyond, many contractors are being given the option to deliver or even temporarily start contract services from their home countries rather than in a host destination.

For contractors, this throws up a number of challenges, as they will have to choose what model to invoice their services and may opt to use their home country PSC. For recruitment firms, there will be greater commercial, administration and time pressures to ensure assignments meet these temporary solutions.

Another difficulty for recruitment agencies will be that they will have to adapt contracts to reflect the current COVID-19 enforced locations of service, the change of contractual parties, and factor in that this is a fluid situation pending further clarification. If this wasn’t already a compliance minefield, the proofs and documentation required will, in most cases, all need to be in the local language and format.

Generally speaking, place of service will define where taxes are due to be paid. The Criminal Finances Act 2017 (CFA), which is increasingly being used to target businesses that are non-compliant with tax requirements, will continue to apply wherever the worker delivers their services, regardless of the global crisis. Potential fines for any breaches are unlimited for the owners of the business – and there has been no change to this in light of the COVID-19 pandemic.

Contractors and agencies need to be aware

In the current climate, we encourage anyone with even the slightest uncertainty over remote contractor compliance to get in touch with 6CATS. With laws like the CFA still in full effect, contingency workers and agencies may still be held liable for the smallest oversight in tax and compliance.

Fortunately, our breadth of knowledge of international markets will allow to you to remain in operation throughout the current pandemic. We will continue to update contractors and agencies with the latest changes to legislation around the world during COVID-19, and encourage any contractor who has had a change to their working life to contact us.

We are also offering a number of solutions to help agencies during the crisis, especially when it comes to facilitating remote contractor compliance. For instance, at 6CATSPRO, we are offering one-off vetting services to assist firms in reviewing the compliance of prospective models.

We can also provide recruitment businesses with a certificate of vetting approval with specific notes on items that need to be considered or monitored in line with the CFA obligations to demonstrate ongoing monitoring and control.

Please do not hesitate to contact us if you have any questions or would like more information.




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