Many overseas directors of UK companies visit the UK for short periods of time and do not establish tax residence in the UK. However, with a harsh penalty regime there could be potential issues that non-resident directors and UK companies should be aware of. Fortunately, some straightforward planning does exist. This Global Insight provides an overview of the key changes and the main issues to consider.
Is a UK tax return due?
Yes, according to HM Revenue & Customs (HMRC), any director of a UK company is within the criteria for self-assessment and this includes non-resident directors. The current penalty regime applies as follows:
- If HMRC issue the individual with a UK tax return, they must file the return by the relevant filing deadline. For 2013/2014, the statutory filing deadline is 31 January 2015. A late filing penalty will be incurred if the return is filed after the deadline even if no tax is due.
- If the return shows that there is no UK income and the tax is NIL then an appropriate disclosure should be made on the return. HMRC have said that they will not issue a tax return, every year in respect of these cases and will instead review the position every few years.
- If HMRC do not issue a UK tax return but UK tax is due, then a penalty for failing to notify HMRC will be imposed unless that tax is paid by the filing deadline. The penalty is potentially up to 100% of the tax due, but is likely to be much lower if the failure can be notified within 12 months of the tax becoming unpaid and is unprompted by HMRC.
Will director remuneration be subject to UK tax?
A non-resident director of a UK company is an office holder, and strictly any income received in relation to this UK role should be treated as earnings in the UK and subject to UK wage withholding (PAYE). Tax treaties will not normally offer protection from UK tax in this situation. However, if the individual is not remunerated in any way, either by the UK or overseas company, for the UK directorship role then there should be no UK tax. It is helpful to support this view with underlying documents such as Director contracts.
Are UK accommodation expenses taxable?
HMRC take the view that accommodation expenses of a non-resident director performing a UK director role are taxable in the UK, regardless of whether the costs are borne in the UK or overseas, because the accommodation is provided at the normal place of work for the UK role (e.g. staying at a UK hotel while attending UK board meetings).
The employer tax treatment will depend on the form in which the accommodation is provided.
1. If the company is providing or settling the accommodation costs directly e.g. the invoice for the costs are sent directly to the company, this would need to be reported as a taxable employee benefit on Form P11d.
2. If the individual is reimbursed for the accommodation expenses e.g. where the invoice for accommodation is in the director’s name, this would be regarded as the employer giving the employee non-business expenses which would be taxable in the same way as any other cash payment. Similarly, if the company settles an invoice in the individual’s name, this would be regarded as discharging his pecuniary liability and should be subject to PAYE via the payroll.
The company may have a PAYE withholding obligation on this remuneration, despite not physically paying the director and in some instances not knowing what they are paid. It may be possible to include the taxable expenses on a PAYE Settlement Agreement (PSA) whereby the company would gross up the taxable benefit and meet the tax liability on the individual’s behalf, thereby removing the requirement to report the expenses paid on the individual’s P11d. This can provide a practical solution.
Are travel expenses taxable?
The reimbursement of UK director expenses incurred travelling to and from work in the UK (such as attending UK Board meetings) will typically be taxable regardless of whether they are borne in the UK or overseas. Strictly, if reimbursed, the expenses should be taxed through the payroll as normal (or in practice reported on Form P11d).
However, assuming the individual is not UK domiciled it is likely that UK tax relief can be claimed on a UK tax return for this travel under home leave tax provisions such that there is ultimately no UK tax due.
Are UK social security taxes (NIC) due?
The NIC position is potentially complex. The position may depend on where the director has ongoing social tax obligations, other directorships held and whether the other territory treats directors as employees or self employed. As broad principles though, a director who comes to work in the UK from an European Economic Area (EEA) country or from a country with which the UK has a Reciprocal Agreement on social security, will be exempt from paying UK NIC provided an A1/E101 or Certificate of Coverage is held for the relevant period.
There are also concessions for non-resident directors who come to work for a company in the UK from non EEA/ agreement countries. For example, where the only work the director does in the UK is to attend board meetings (subject to conditions such as attending less than 10 meetings per year).