It is not uncommon for global corporations to appoint an individual who is a tax resident overseas as a director of a UK company. This could be for a variety of reasons; for example, the UK Company may wish to leverage the experience and talent of an individual resident abroad, or the UK Company may be a subsidiary of a larger overseas-based group and has decided to appoint a senior employee or director to the UK Company’s board of directors. For UK tax purposes, these individuals are referred to as Non-Resident Directors (NRD).
For anyone applying to be a UK company director, the residence of that person is not important. The UK allows a UK company director to be a non-UK resident and live anywhere in the world. There is no requirement for a director of a UK company to live in the UK during or after their appointment as a company director. However, with today’s globalised world, tax compliance for non-resident directors has come under increased scrutiny from HMRC.
- Is it permissible for a UK company to have a non-resident director?
- When should an NRD file a tax return?
- Why it is necessary for NRD’s to file?
- Taxes/NIC’s non-residents needs to be aware of?
- Keeping records for non-resident directors
- Tax treaties between the UK and other countries
- Expenses incurred in the UK
- Is NIC’s due?
- What should companies and non-resident directors do?
Is it permissible for a UK company to have a non-resident director?
We are frequently asked 'Can a UK company director be based abroad?' and the simple answer is yes. There is no legal necessity for a director of a UK company to be a British national, reside in the UK, maintain a base here, or pay regular visits here.
When should an NRD file a tax return?
If an NRD has no UK duties and receives no income from the UK, such NRD's are not required to file a UK tax return.
In general, if a Non-Resident Director has any of the following, they are required to file a UK tax return with HMRC:
- UK workdays (If just for a day).
- A director’s fee.
- Reimbursed expenses.
- Salary in the UK.
HMRC conducts compliance checks on UK companies on a regular basis and would expect relevant NRD’s to make a tax declaration and, in some situations, PAYE on this employment.Despite the above, even if no requirement to file a tax return exists as a result of an NRD, HMRC requires directors of UK companies to file a UK tax return due to their directorships.
Why is it necessary for NRD’s to file?
- Directors are officers of the Company, and as such, any income or expenses reimbursed are taxable in the UK on the NRD as regular UK employment income.
- Under the OECD model and International Double Tax Treaties, officeholders' remuneration does not have the same level of protection from taxes like that of employed individuals' income received in another jurisdiction.
Thus, even with extremely limited duties in the United Kingdom, NRD’s are nevertheless 'caught' by the legislation.
Note - EU nationals continue to be eligible for the UK Personal Allowance, which means that an NRD can earn up to £12,570 tax-free.
Taxes/NIC’s non-residents needs to be aware of?
There are some rules and regulations from a tax and national insurance perspective that non-resident directors need to be aware of and things they need to know to avoid UK tax penalty regimes -
Company residence for taxation purposes
Regarding taxation, a company will be deemed to be subject to UK taxes (namely corporation tax) if it was incorporated in the UK. This rule applies irrespective of where the directors live or where key decisions for the business are taken.
Non-resident directors visiting the UK
Overseas directors of UK companies can visit the UK for short periods and do not need to establish tax residence in the UK.
The rules are simple on the surface. Any income received by a director (executive or non-executive) for undertaking their role within the UK (e.g. attending meetings) is subject to UK PAYE. Earnings which relate to duties performed in the UK in a tax year are taxable in full.
Double tax treaties don’t usually protect the director. However, if the individual isn't remunerated by the UK or overseas entities for the UK directorship, there will be no UK tax liability (see below about self-assessment).
Directors visiting the UK to open a company bank account
There can be instances where a director needs to visit the UK to open a UK company bank account. Banks are required to comply with both UK and European money laundering provisions. Sometimes a bank requires a company director to visit a UK branch; in other cases, there may be a branch in the director’s home country. Wherever the director visits the bank, the various money laundering and identification procedures must be satisfied by the director through the branch.
Self-Assessment & PAYE for non-resident directors
Any director of a UK company will fall in the criteria for self-assessment. This includes non-resident directors. The rules are as follows:
- If the director is issued with a UK tax return, they must file the return by the relevant filing deadline. Even if there is no tax due and the return is filed after the deadline, a penalty will be incurred.
- If a UK tax return isn’t issued, but the director is obligated to pay tax, then there will be a penalty for failing to notify HMRC unless the tax is paid by the filing deadline (and the return submitted).
Any earnings by the non-resident directors earn outside of the UK can be drawn via salary or dividends without a need to do any UK reporting.
Keeping records for non-resident directors
In some circumstances, HMRC can allocate a proportion of the director’s total pay to the UK director role they fulfil. This is generally difficult for HMRC to do. However, we recommend that companies employing non-resident directors ensure that they have systems and processes in place to keep track of time spent on performing duties in the UK and the value of the director’s income related to the UK duties that the director is carrying out.
It’s recommended that a letter of appointment contains a remuneration clause.
Tax treaties between the UK and other countries
Often people believe that if there is a tax treaty between the UK and the director’s country of residence, this will exempt their income in the UK from UK income tax. However, this isn’t always the case.
Expenses incurred in the UK
There is clear HMRC guidance regarding the accommodation and travel expenses of directors. Whilst the UK employer should continue to report the director expenses via Form P11D or the payroll. Directors may be able to treat these items as non-taxable subject to some conditions. These conditions include only coming to the UK to perform a task for a ‘temporary purpose’ or a ‘limited duration’ and spending less than 40% of their director role at a workplace. These conditions only apply in some circumstances; so check with an accountant if these conditions do apply to you.
Is NIC’s due?
This is a complex area and depends on where the director has ongoing social tax obligations, as well as other directorships, their location, and rules in those tax jurisdictions. We recommend you seek professional advice from a UK accountant.
What should companies and non-resident directors do?
All UK companies with overseas-based directors who may resume board travel to the UK should consider reviewing existing arrangements to ensure that tax and national insurance requirements are met. UK businesses, in particular, should consider the following:
- how to calculate the correct level of earnings-related to UK duties (including expenses and perks) and how these profits should be reported to HMRC.
- The obligation to get a special direction from HMRC (s690 application) allowing the firm to deduct tax only from the portion of a director's pay or fees relevant to projected UK duties.
- If the director's earnings are subject to employee and employer Class 1 NIC, or whether certain exemptions or regulations apply.
- Discussing double taxation issues with the director in cases where they are also taxed in another jurisdiction on these earnings; and.
- Notifying the director of the necessity to file a personal tax return in the UK in connection with the UK directorship and providing guidance on how to avoid double taxation.
If you have any queries or concerns about the handling of non-UK resident directors under employment tax and national insurance, dns can assist you in reviewing the position.
Many companies will often draw on global talent and appoint overseas directors to the board. As it’s common for overseas directors of UK companies to visit the UK for short-term trips, non-resident directors and their companies should be aware that such business trips can trigger tax and NIC requirements under PAYE in the UK.
For non-UK tax resident directors of UK companies, both executive and non-executive, the tax position can be complex. We recommend that you seek clear advice from a UK accountant.
dns accountants have a thorough understanding of the tax consequences for non-resident directors of UK companies and can assist you in resolving any issues and ensuring compliance.If you would like to speak with a specialist adviser and want to know more about the non-residents UK company directors, please contact dns right now on 03330886686, or you can also e-mail us at email@example.com.
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