Tax situation with losing a job due to Covid

AlexFullerton1987

Hello there,

A friend recommended writing a post on this forum for some free advice. 

I am very concerned about my tax situation due to circumstance that have came about due to Covid. I intend to take professional advice, but I’m looking for free advice on what I can expect to happen – so I can prepare myself mentally for it, as I don’t think it is going to be good news.

In October 2018 my UK company sent me to a permanent position in Abu Dhabi, I became non-resident in the United Kingdom. All was going really well in my new role and I returned home for a 25 day holiday on February 24th. This was just as the Covid crisis was starting, and had no idea how far reaching it would become.

Long story short, I got stuck in the United Kingdom – the client I was working for in the UAE called the force majeure clause on our contract on March 30th, and my company went out of business in early-June. I have been out of work until very recently, where I secured a temporary factory job. All changed very rapidly from a fairly secure job to being unemployed.

During my time in the UAE I was paid off the UK payroll. I was paid approximately £81k between October 2018 and March 2020. It is important to note I was not out of the country for a full tax year, as per the requirements. 

It sounds a good job, however the cost of renting a 1 bedroom apartment on Al Reem was approximately 85k AED (£18,000) per year, and to lease a Nissan X-Trail was 2500 AED per month (about £500). Neither are particularly lavish, it is just the price of things in the UAE. The cost of a mobile phone, utilities and broadband were also expensive. So in 16 months my expenses on accommodation and vehicle leases were about £32k, before considering food, fuel, bills, social costs, etc. However, I had a saving goal of £1500 a month and I had managed to save approximately £20k in my 16 months there (I failed to meet that savings goal for my first 3-4 months, with getting established and experiencing the UAE, I was meeting that savings goal for my last 12 months in country)

After the job was cancelled the client had expressed an interest in taking me on directly, and to move back over there. Thus, I maintained payments on my apartment and vehicle until the end of August, when the project was mothballed. When it became apparent that there would be no work in the UAE in the medium term I cancelled my leases and paid to get my remaining stuff sent back to the UK. This cost over £6000, coupled with spending approximately £4000 in keeping the leases going until August.

On being made redundant, I was not entitled to any benefit in the UK, however I do own a flat in the UK. The flat was rented out, but as I had no permanent accommodation, I gave the tenant notice and moved back in September. With having to re-establish myself in the UK (purchase a cheap runabout car, some furniture and household essentials, and support myself) I’ve spent another £5-6k since June.

In short of that £20k saving, only about £3k remains. The whole process has proven expensive for me.

I have secured a factory job, it is temporary until the job market opens up in my field again (hiring has ground to a halt), but it keeps the bills paid – however I am not in a position to save much money from it (after tax it is about £285 per week).

This brings me to my concern. HMRC are undoubtedly going to take an interest in me, and I fear I could be faced with a tax bill of up to – if not over - £20k.

I have an asset in my flat which could be sold to cover this bill, but that isn’t a desirable option. Can any of the community see any way the bill could be avoided, or should I just accept the inevitability? Is there anyway this can be considered exceptional circumstance, as this has been out of my control? I don't feel that I have did anything particularly wrong - sure better decisions could have been made in hindsight, but nobody knew what the right thing to do was. However I just feel very low over this whole issue as it potentially is going to leave me thousands out of pocket. 

Jeremy535897

Why were you not out of the country for a full tax year, if you started in October 2018 and returned here on 24 February 2020? The position may not be as bad as you think. Study https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1

AlexFullerton1987

I was out of the country over 2 tax years, but neither were for the full 12mths of the tax year. If I had remained out of the country until April 2020 I would be absolutely fine, but as I see it I spent 6mths outside in the 2018/19 tax year, and 10mths outside in the 2019/20 tax year. To my understanding I would be eligible for full UK taxation on earnings (given UAE is tax free) upon returning? 

Jeremy535897

Yes, I see you weren't out from 6 April to 5 April in any tax year, but look at the split year rule. See https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm12030

unholyangel

Tests for residency (both automatic & sufficient ties) can be found here: 
https://www.legislation.gov.uk/ukpga/2013/29/schedule/45/enacted