You should carefully assess your residency status if you’re a non-resident member of a UK organization. This is due to the impact this status might have on your tax situation in the UK. You must determine whether you have to file for self-assessment, if you have taxable income and if you owe the correct tax amount. Businesses that have non-resident executives must be aware of their tax liabilities in the UK.
But what exactly is a resident status? The domicile status, along with the tax residence, determines whether a person is liable to pay taxes in the United Kingdom. You can easily use the Statutory Residency Test issued by the UK government to determine your residency status and ensure that you won’t be considered a resident of the UK.
But do the legality factors change when you’re a non-resident director visiting the UK? In this case, you are not needed to acquire a UK tax residency to make brief trips there. But, you might need to pay tax for NICs and incomes; more details are provided below.
Income Tax As A Non-Resident Of The UK
Non-UK residents who enter the UK to perform director-related tasks for UK businesses for which wages or expenses are given will be liable to PAYE. They will still be liable for PAYE even though the non-resident only visits the UK for one day while the tax year is in progress to conduct business or attend an event.
PAYE may still be applicable, even when the UK organization makes no payments or if there is a distinct compensation arrangement for UK taxes. That’s why it could be feasible to settle on pay for the UK directorship in certain circumstances. For an in-depth analysis, corporate tax advisors are to be consulted.
Income Generated While Being In The UK
The rules appear to be quite easy. Any compensation a manager or non-executive director receives for performing their duties in the UK (such as attending conferences) is entitled to UK PAYE. All income derived from tasks carried out in the UK during a tax year is fully taxed.
Your tax advisor will inform you that double taxation agreements typically do not shield the director. But, there won’t be any UK tax responsibility if the UK or other countries don’t pay the person for the UK role. A chartered accountant will help determine whether to file a self-assessment tax return.
Tax Returns For Non-Residents
A UK organization’s director, even those who are not residents, may be subject to the self-assessment requirements. These are the guidelines:
- The person must submit a self-assessment tax returnby the applicable time—this only concerns those who are liable for UK tax returns.
- If HMRC issues a return, it needs to be filed even if no tax is owed.
- If it is submitted after the due date, a fine will be assessed just like with any other tax filing.
You need to inform and sign up with UK’s HMRC if you’re not a resident director who earns money from your UK-related operations but for which no UK tax return has been received by HMRC. A fine for neglecting to inform HMRC will follow if you don’t let them know. This is in case the tax is paid before the filing time.
A person must tell HMRC by the fifth of October after the end of the applicable tax year if they’re eligible to record their revenue as a non-resident. The following are the due dates for tax returns that need to be filed and given to HMRC:
- If the filing is done on paper, the due date is 31st
- If the filing is done electronically, the due date is 31st
But not everybody can file online. To do so, you’re going to need a Unique Taxpayer Reference (UTR). This can be provided by HMRC. Be mindful that the tax year ends on 5th April in the UK.
Spouses or people in civil marriages are handled differently for tax reasons. This means each spouse is in charge of filing their respective tax return. Their individual tax obligations are determined by tax advisors.
While submitting a tax return as a non-resident, you need to consider certain things. Whenever a tax year ends, the HMRC sends a notice informing you to file a tax return. If you don’t receive that notice, you need to contact HMRC before the aforementioned deadline. The next step is to finish and submit your tax return.
In the UK, there is a stringent penalty system in place for those who fail to file their tax returns. If the deadline is missed, you’re subjected to a GBP100 late filing fee. If three months have gone by without you submitting a tax return, you’ll be subjected to a daily charge of GBP10. These extra fees keep increasing if you let 6-12 months pass by. Consequences for wilful concealment or withholding of the tax return might be as high as 100% of the tax due (in rare situations, including offshore issues, the fine may be greater than 100%).
Global Roles And Tax Implications In The UK
To be able to file with HMRC, it’ll be required to determine the percentage of the non-resident director’s compensation. This is related to the directorships held by several foreign corporations in international roles.
The UK organization and director are responsible for having methods in place that will monitor the director’s UK-based activities and the income generated from such activities. The benefits and fees paid to the director while they’re performing their UK-based duties may also be subject to employment tax and NIC duties and liabilities. However, there are numerous variables involved in this tricky topic. In this situation, it’s suggested that you get expert guidance from tax accountants.
IBISS & CO are professional chartered tax advisers and accountants in London. They will be able to provide you with the most relevant knowledge and help you out with tax-related issues. Their chartered accountants and business advisors offer useful self-assessment and tax returns advice so that organizations and people may make the proper earnings. Their accounting services include inheritance tax planning, corporation tax, personal tax, non-resident landlord self-assessment, and much more. Reach out to them for more information today!
About the Author
Natalie Schiffer is a managing partner of one of the top accounting firms in the country. She is an accountant with extensive experience assisting enterprises with their tax-related matters.