If you’re a non-resident director of a UK company, you should think about your tax situation, whether you need to register for self-assessment in the UK, and if you’re paying the correct amount of tax. Companies having non-resident directors must also be aware of their responsibilities.
In the United Kingdom, a person’s income tax burden is determined by their tax residence and domicile status. You may utilise the UK Government Statutory Residence Test to be sure you won’t be considered a UK resident.
Non-resident director’s visiting the UK
You can visit the UK for brief periods of time without establishing tax residency in the UK if you’re an overseas director of a UK firm but are classified as a non-resident. However, you may be subject to UK income tax and National Insurance Contributions (NICs) – read below for further details.
Do I pay UK income tax as a non-resident director?
Non-UK resident directors of UK firms who visit the UK to perform responsibilities related to their director function and receive compensation are liable to PAYE.
Even if a non-resident director only works or attends a meeting in the UK for one day during a tax year, PAYE may still apply. PAYE may apply even if no money is received by the UK firm or if there is a separate payment arrangement for UK duties. As a result, in some situations, it may be feasible to agree on a pay for the UK directorship.
Income derived from your UK role
On the surface, the regulations appear to be straightforward. Any income received by a director (executive or non-executive) for their job in the UK (e.g., attending meetings) is subject to PAYE in the United Kingdom. Any profits from responsibilities performed in the UK during a tax year are fully taxed.
In most cases, double tax treaties do not protect the director. There will be no UK tax liability if the individual is not compensated by the UK or foreign firms for their UK directorship (see below about whether you still need to complete a self-assessment tax return).
Self-assessment & PAYE for non-resident director’s
Self-assessment criteria can apply to any director of a UK firm (including non-resident directors).
The following are the rules:
If the director is required to file a UK tax return, they must do so by the applicable date. If a return is sent by HMRC, even if there is no tax payable, it must be submitted. A penalty will be imposed if it is filed after the deadline, just like any other tax return.
If you’re a non-resident director who earns money in the UK but isn’t required to file a tax return, you must inform and register with HMRC in the UK. If you don’t tell HMRC, you’ll face a penalty unless the tax is paid before the filing time (and the return submitted).
Global roles and the UK tax consequences
If a non-resident director is given a salary for a worldwide function that includes directorships with many foreign corporations, the proportion of that compensation that is related to the director’s UK obligations must be determined in order to disclose to HMRC.
HMRC has the authority to deduct a part of a director’s total remuneration for the UK director function they perform. Because HMRC finds this challenging, it is the obligation of the UK firm and director to have systems and processes in place to keep account of time spent executing UK responsibilities and the value of money earned as a result of those duties.
NICs for non-resident director’s
There may also be employment tax and NIC duties and liabilities to consider with regard to costs and perks paid to the director while they work in the UK. However, this is a complicated topic that will be influenced by a number of things. In this case, we recommend that you seek expert guidance from accountants such as CBM Accounting.
Expenses for non-resident director’s
Non-resident directors are frequently reimbursed or compensated for expenditures such as travel, lodging, and subsistence. Expenses shall be taxed according to the usual concept of the temporary workplace, regardless of whether they were expended entirely, exclusively, and necessarily for employment purposes. If the director is not a U.S. citizen, there is a limited exception for travel expenditures that must be reviewed on a case-by-case basis. Employers should obtain expert guidance before paying expenditures because they may create extra reporting duties.
Tax treaties between the UK and other countries
From a UK tax standpoint, tax treaties do not provide protection to directors. Many individuals assume that if the UK and the director’s country of residence have a tax treaty, their income in the UK will be free from UK income tax. This isn’t always the case, so seek guidance. If they are board directors, they must be treated differently than regular guests.
HMRC checks and investigations on non-resident director’s of UK companies
HMRC is increasingly looking for non-resident directors in business documents, so keeping proper records, registering for self-assessment if appropriate, and completing a return by the deadline are all essential to staying compliant.
What to do if you’re a non-resident director of a UK company
Now is the moment for directors and their companies to assess their current arrangements to ensure that any UK tax or NIC requirements are addressed. Take into account the following:
- How do you figure up your profits for UK duties?
- Ascertain that the director understands their duty to file a self-assessment tax return in the United Kingdom, as well as how to prevent double taxation.
- Seek guidance on whether the director’s profits are subject to employee and employer Class 1 National Insurance contributions.
With HMRC increasingly scrutinizing business directors and those who are not UK residents, it’s critical that both the director and the firm in question understand their UK tax requirements and reporting in order to avoid fines now and in the future.