Three Tax Questions for Non-Resident Directors
In our online age, you don’t have to live in the UK to work for a UK company. Plenty of people take the opportunity to live in one country while being employed in another. The same applies to company directors. It’s perfectly legal for a company based in the UK to have a director who is based abroad, even full-time. And this kind of cross-border appointment can be a great way to ensure that your company has the best and most talented people on board – regardless of location.
However, it’s also true that non-compliance is a serious risk when it comes to non-resident directorships. The penalties for this can be severe, so it’s important to make sure you’re in good standing with HMRC. Here are three key questions to ask for non-resident directors and the companies that appoint them.
How non-resident is non-resident?
UK-based company directors are paid by PAYE. If your non-resident director lives and works abroad 100% of the time, then this obligation shouldn’t apply – although it’s still worth checking with your accountant. However, if the director does spend any time working in the UK, then PAYE compliance becomes an issue.
Because many UK companies get this wrong, it’s something HMRC look out for when performing compliance checks. The best way to avoid penalties is to take advice and get it right from the start.
Is a UK tax return needed?
It isn’t just the company that needs to worry about the (non-)residency question. As a rule, an employee or contractor working for a UK company isn’t considered tax resident unless they also spend at least 183 days per year in the UK.
However, the situation is more complicated if you are a company director. If you spend a single day working in the UK, then you may need to file a UK tax return for that year. The same applies if you receive any income with a UK source, including salary, director’s fees, and expenses. Unless the income is already covered by PAYE, you must report it to HMRC – even if your country of residence has a double taxation agreement with the UK.
What about National Insurance?
This is a complex question for both director and company. Here, too, the general principle is that individuals are covered by – and obliged to pay into – the social welfare system in their country of residence. However, a company director who performs any work in the UK may be deemed liable to pay National Insurance contributions.
Whether or not this applies depends on a number of conditions, including whether the director’s country of residence is in the EU. It can also be possible to apply for an exemption depending on the nature and duration of the work.
When it comes to appointing a non-resident director for a UK company, these three questions are just the start. The best way to ensure that your company and its director(s) remain compliant with HMRC is to take expert advice before making any decisions. If you’re interested in finding out more, just get in touch with our online accounting service for a free, no-obligation quote.