Where Is Tax Paid For A UK Company With Foreign Directors?

Generally, foreign directors of UK companies visit UK for a short time and do not establish their tax residency status in UK. For ex – Business meetings. Some companies still remain in confusion that what will be its tax impact in UK as any wrong declaration to HMRC may incur harsh penalty. Therefore, every UK Company and foreign director should be aware of the tax issues in relation to foreign directors which may arise in future and incur heavy penalty from HMRC.

Whether Foreign Director remuneration is subjected to UK tax?

A foreign director or a non-resident director is an office holder and any income received by the foreign director (either in UK or overseas) in relation to his or her roles & responsibilities in UK will be treated as UK earnings and subject to tax under PAYE. In case, foreign director is not paid by the UK Company for his or her position as a director, then there will be no tax.

Whether Foreign Director accommodation expenses are taxable?

HMRC says that the accommodation charges of a foreign director will be taxable in UK (regardless of the cost is borne in UK or overseas) as the accommodation is provided to the individual (foreign director) at the place of work and for the UK role. For ex – Foreign director staying at a UK hotel for the purpose of attending company’s board meeting.

Employee tax treatment depends upon the form in which accommodation is provided as foreign director has to report this income in form P11d.

Some of the situations are as follows -

1. In case the company is providing accommodation to the individual or directly settling the accommodation cost, the invoice issued by the hotel will be directly sent to the company. In this case, P11d is used to report this income as a taxable employee benefit.
2. In case the accommodation expenses are reimbursed by the company i.e. accommodation invoice is issued in the director’s name which means the employer giving the employee non-business expenses which will be taxable in the same way as any other cash payment. Similarly, if the company settles an invoice in the director’s name, the director will subject to tax under PAYE.
3. Now day's companies are having a PAYE system which clearly indicates how much amount is paid to the director. Therefore, it is very important to include the taxable expenses in PAYE settlement agreement (PSA). In PAYE settlement agreement, company will gross the taxable benefits and pay the tax liability on individual’s behalf. It eliminates the individual requirement to report the expenses paid by the company on the basis of P11d form.

Whether Foreign Director travel expenses are taxable?

Travel expenses incurred by a foreign director while travelling to/from UK are taxable (whether they are borne in UK or overseas) under UK tax regulation. In case, travel expenses of the foreign director is reimbursed, the expenses should be taxed through PAYE (or in practice reported on form P11d).

In case the individual (director) is not UK domiciled, an individual can claim the UK tax relief at the time of submitting UK tax return for such travel under home leave tax provisions which leads to no UK tax due.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.