Essential Tax Guidelines for Non-Resident UK Company Directors
There are specific rules that apply to non-resident UK company directors which may apply equally to digital nomads. We discuss these and how you remain compliant with HMRC in this article.
Overview for Non-Resident Directors of UK Companies
When it comes to the UK tax system, directors’ income, such as fees for attending board meetings, will always be taxable. What's more, this rule applies even if you live in another country and your tax liability is covered by a double tax treaty.
Therefore in this case a UK company must include directors on their payroll and deduct tax through PAYE where UK duties apply. Failing to do so could result in penalties and interest for underpaid taxes.
Tax Obligations for Overseas Directors
Directors often have additional employment duties alongside their director roles. If these duties are carried out both overseas and in the UK, the income relating to UK duties is taxable in the UK.
Non-resident directors are not taxed in the UK if their UK duties are incidental to their overseas work. However, attending board meetings is never considered incidental by HMRC Therefore, income from these duties remains taxable in the UK.
So it will be necessary for non-resident directors of UK companies must apportion their overall remuneration to separate employment duties from director duties.
Travel and Accommodation Expenses: the rules
The tax treatment of travel and accommodation expenses will depend on whether the UK is deemed a permanent or temporary workplace. HMRC usually considers travel for UK board meetings as travel to a permanent workplace. This usually means directors cannot claim deductions for these expenses.
However, if you're a non-UK domiciled director you might be able to claim a deduction for travel costs in specific circumstances,
National Insurance Contributions for Non-Resident Directors
Non-resident directors of UK companies may be exempt from UK National Insurance if:
If none of these conditions apply, the director is exempt from UK NICs for only the first 52 weeks. After that, they must pay NICs unless:
Reporting Requirements for Non-Resident Directors
PAYE
For non-resident directors of UK companies who perform UK duties, PAYE must apply to their UK earnings. Therefore It’s important to check the relevant double tax agreement to confirm the UK's taxing rights.
Additionally, the employer must apply to HMRC for permission to operate PAYE. This ensures PAYE applies only to those earnings relating to UK work.
If the director becomes a UK resident and still has duties abroad, Overseas Workday Relief or split-year treatment may apply in the first year.
Self-Assessment tax returns:
Non-resident directors of UK companies will need to complete a Self Assessment Tax Return if HMRC issues a notice to file or if there is chargeable UK tax exceeding what has been deducted at source.
If HMRC does not issue a return but there is a UK tax liability not covered by PAYE, the director must notify HMRC within the usual deadline. Where no tax return issued and no additional tax liability, there is no statutory requirement to file a tax return. However, it is best practice to inform HMRC of the tax position
Summary
By following these guidelines, non-resident directors of UK companies can ensure they comply with UK tax laws and avoid any potential issues with HMRC.
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