The world is a small place and it is important to have flexibility to choose where to live and for employers to access skills and talent wherever in the world they are sourced. This could involve living overseas whilst working for a UK company and returning to the UK for visits.
To determine the tax treatment, you should first consider where an individual is resident for tax purposes. Time spent in the UK should be recorded to include the reason for the visit and the number of days spent here. Even if someone is non-UK tax resident, there could be a liability to UK tax and national insurance.
Failure by a UK company to correctly address PAYE obligations for non-UK directors and employees visiting from overseas, could expose it to underpaid liabilities including income tax, employees’ and employer’s national insurance, interest and penalties. PAYE obligations are often missed by UK companies and this makes it an area of interest for HMRC, who can easily identify non-resident directors by reviewing Companies House records.
Non-UK resident directors of UK companies are considered office holders and they are generally not protected under double tax treaties and HMRC short term business visitors arrangements, meaning the UK company will invariably be required to operate tax via PAYE on the director’s earnings from day 1.
It becomes more challenging when the directorship is unremunerated in the UK and the UK company is part of an overseas group, with the director having duties for the overseas group that are remunerated. Consider where the directorships are performed, when do you need to obtain direction from HMRC to operate PAYE on the estimated percentage of the director’s total earnings relating to UK workdays and is a UK tax return needed to record the director’s UK taxable earnings? Is it appropriate to add a proportion of the salary from the overseas employment to the earnings for directorship duties being subject to tax in the UK?
National insurance must be considered separately to the UK tax position. With some limited exceptions, payments to a director are treated as earnings for class 1 national insurance purposes.
A key consideration is whether the non-resident director’s workplace in the UK is (for tax and benefit in kind purposes), a temporary or permanent workplace. This decision will also impact whether tax relief is available for expenses paid on behalf of the employee for travel and accommodation expenses met by the employer.
The rules can be complex and there is scope for UK companies to miss the issue or reach the wrong conclusion. It is important that every case is addressed and considered on its own merits. It is imperative therefore that advice is taken before a non-UK based employee begins working for a UK company.
If you have any queries on tax residence or would like assistance please contact Diane Nettleton on 01633 643167 email@example.com.
Alternatively, please contact your usual advisor on 01633 810081 or email firstname.lastname@example.org.