Can non-residents be company directors? - Your Accounting Team

November 17, 2021by CBM Accounting0

It is not commonplace for multinational firms to designate a director of a UK company who is a tax resident of another country. This could be for a variety of reasons; for example, the UK Company may want to take advantage of an individual’s experience and talent while living abroad, or the UK Company may be a subsidiary of a larger overseas-based group that has decided to appoint a senior employee or director to the UK Company’s board of directors. Non-Resident Directors are what these people are called in the UK for tax reasons (NRD).

The place of residence of someone applying to be a UK business director is irrelevant. A UK business director can live anywhere in the world if he or she is not a UK resident. A director of a UK business is not required to live in the UK during or after their employment as a company director. However, in today’s worldwide environment, HMRC has enhanced its scrutiny of non-resident directors’ tax compliance.

Is it permissible for a UK company to have a non-resident director?

‘Can a UK business director be situated abroad?’ we are regularly asked. and the answer is yes in a nutshell. A director of a UK corporation is not required by law to be a British national, to reside in the UK, to maintain a base here, or to pay regular trips here.

When should an NRD file a tax return?

NRDs who have no UK duties or get no revenue from the UK are not required to file a UK tax return.

In general, a Non-Resident Director must file a UK tax return with HMRC if they have any of the following:

  1. Working days in the United Kingdom (If just for a day).
  2. A fee for the director.
  3. Expenses that were reimbursed.
  4. Salary in the United Kingdom.

HMRC undertakes frequent compliance checks on UK enterprises, and appropriate NRDs should submit a tax declaration and, in certain cases, PAYE on this employment. Despite the foregoing, HMRC expects directors of UK firms to file a UK tax return owing to their directorships, even if there is no duty to file a tax return as a consequence of an NRD.

Why is it necessary for NRD’s to file?

  1. Directors are officials of the company, and any income or costs reimbursed are taxed as ordinary UK employment income in the UK on the NRD.
  2. Officeholders’ compensation does not have the same degree of tax protection as employed people’ income earned in another country under the OECD model and International Double Tax Treaties.

NRDs are so ‘caught’ by the Act, although having relatively restricted obligations in the United Kingdom.

Note – EU citizens are still entitled for the UK Personal Allowance, which allows them to earn up to £12,570 tax-free in the UK..

Taxes/NIC’s non-residents needs to be aware of?

Non-resident directors should be aware of some tax and national insurance rules and regulations, as well as items they need know to avoid UK tax penalty regimes –

Company residence for taxation purposes

If a business is incorporated in the UK, it is assumed to be liable to UK taxes (specifically corporation tax). This regulation applies regardless of where the directors live or where important company decisions are made.

Non-resident directors visiting the UK

Overseas directors of UK firms are allowed to visit the country for brief periods of time without having to establish tax residency.

On the surface, the regulations appear to be straightforward. Any remuneration received by a director (executive or non-executive) for performing their duties in the United Kingdom (e.g. attending meetings) is subject to UK PAYE. Earnings related to responsibilities performed in the United Kingdom within a tax year are fully taxable.

In most cases, double tax treaties do not protect the director. There will be no UK tax responsibility if the individual is not paid by the UK or foreign firms for the UK directorship (see below for further information on self-assessment).

Directors visiting the UK to open a company bank account

A director may be required to go to the United Kingdom in order to create a UK company bank account. Both UK and European money laundering regulations must be followed by banks. A bank may need a business director to visit a UK branch; in other circumstances, the director’s native nation may have a branch. Regardless of where the director visits the bank, the director must complete the different money laundering and identification processes through the branch.

Self-Assessment & PAYE for non-resident directors

Any director of a corporation based in the United Kingdom will be subject to self-assessment. Non-resident directors are included in this category. The following are the rules:

  • If the director is required to file a UK tax return, they must do so by the applicable date. There will be a penalty even if there is no tax payable and the return is filed after the deadline.
  • If a UK tax return isn’t filed but the director is required to pay tax, the failure to inform HMRC will result in a penalty unless the tax is paid before the filing date (and the return submitted).

Any gains earned by non-resident directors outside of the United Kingdom can be paid out in salary or dividends without the requirement to file any UK tax returns.

Keeping records for non-resident directors

HMRC may attribute a percentage of a director’s total salary to the UK director function they fill in specific instances. This is a challenging task for HMRC in general. However, we urge that firms that employ non-resident directors have systems and processes in place to keep track of time spent performing obligations in the UK and the amount of the director’s salary relating to those activities.

A pay clause should be included in a letter of employment.

Tax treaties between the UK and other countries

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, though.

Expenses incurred in the UK

The HMRC has issued clear advice on directors’ lodging and travel expenditures. While the director expenditures should still be reported to the UK employer through Form P11D or payroll, Subject to certain criteria, directors may be able to consider certain things as non-taxable. These requirements include just travelling to the UK for a “temporary purpose” or “short duration” assignment and spending less than 40% of their director role at a firm. These conditions only apply in certain cases, so check with an accountant to see whether they do.

Is NIC’s due?

This is a complicated issue that is determined by the director’s continuous social tax duties, as well as other directorships, their locations, and the regulations in those tax jurisdictions. We recommend that you consult with a UK accountant for expert guidance.

What should companies and non-resident directors do?

All UK firms with overseas-based directors who may return to the UK for board meetings should assess their current arrangements to ensure that tax and national insurance obligations are satisfied. Businesses in the United Kingdom, in particular, should think about the following:

  1. how to compute the exact level of revenues (including costs and bonuses) connected to UK duties and how to report these profits to HMRC
  2. The requirement to get a special instruction from HMRC (s690 application), allowing the company to deduct tax solely from the percentage of a director’s income or fees that is related to predicted UK responsibilities.
  3. If the director’s earnings are subject to employee and employer Class 1 NIC, as well as any exclusions or rules that may apply.
  4. In circumstances when they are also taxed in another jurisdiction on their profits, discussing double taxation problems with the director; and
  5. Notifying the director that a personal tax return must be filed in the UK in connection with the UK directorship and offering advice on how to prevent double taxation.

CBM Accounting can help you assess the situation if you have any questions or concerns concerning the treatment of non-UK resident directors under employment tax and national insurance.

Conclusion

Many corporations will hire international talent and install foreign directors to their boards of directors. Non-resident directors and their firms should be aware that such business travels might trigger tax and NIC duties under PAYE in the UK, since it is typical for foreign directors of UK companies to visit the UK for short-term excursions.

The tax situation for non-UK tax resident directors of UK firms, both executive and non-executive, can be complicated. We advise you to obtain clear guidance from a UK accountant.

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CBM Accounting LtdHeadquarters
Serving all kind of businesses for over a decade.
Our locationsWhere to find us?
cbmaccounting
Get in touchCBM Accounting Ltd Social links
Taking seamless key performance indicators offline to maximise the long tail.

Copyright by CBM Accounting LTD. All rights reserved.

Copyright by CBM Accounting. All rights reserved.

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