By understanding the UK tax system, you become better informed to take the best course of action.

Tax advice should be considered prior to the start of a period abroad and before you leave the UK or your home country. So often advice is obtained after an individual has moved, meaning they may end up paying more tax then they need to.

Common areas where advice should be sought are:

TAX RESIDENCE & DOMICILE STATUS

These are two separate things, with UK tax residence being established under the Statutory Residence Test (SRT), which can be lengthy and complex depending on your circumstances. Residence is fundamental as to how you are taxed in the UK, with split year treatment often needing to be considered in the years of departure from and arrival to the UK.

TRAVEL AND SUBSISTENCE EXPENSES

If you are assigned to the UK by your overseas employer for a limited time or overseas by your UK employer and you remain a UK tax resident, then it may be possible to obtain tax relief for your travel and subsistence costs under a relief known as detached duty. Subsistence includes your accommodation costs.

Certain important conditions apply which must be satisfied, and providing your assignment is correctly structured, it may be possible to obtain this generous tax relief.

OVERSEAS WORKDAYS

If you are a non-UK domicile working in the UK, it may be possible, not to pay UK tax on the earnings from any days which you work overseas (you need to consider the tax implications in the country you are working), however the remittance basis rules will have an effect on this relief  and whether it is beneficial or not to claim it.

STRUCTURE OF ASSIGNMENT CONTRACT

The structure of your assignment contract or letter, can have a big impact on how you will be taxed in the UK and what tax reliefs you may be entitled to. Any tax advice should take place when the contract is being drafted, however, commercial aspects should also be taken into account at this stage as well as tax considerations. With whom you have an employment contract can also have a big impact on how you are taxed in the UK depending on your circumstances.

UK TIMING OF MOVE

The timing of your move can often be crucial from both a UK & overseas tax perspective. Again, this consideration should take place at the planning stage of your move or you could find yourself in a double taxation situation.

TRANSFER OF FUNDS INTO THE UK

If you are a non-UK domicile coming to work and live in the UK you need to consider when is best to transfer funds into the UK, and the impact of the remittance basis on taxing your overseas income & gains in the UK.

SHORT PERIODS OVERSEAS / IN THE UK

Double taxation may be avoided if the conditions of any relevant double tax agreement are satisfied. Many short periods either in the UK or overseas do not satisfy these conditions and therefore, double taxation can arise on the same income, with no relief or exemption from tax under a double tax treaty and that person's tax situation becoming more complex.

UK ASSETS

If you have assets  which are potentially subject to UK capital gains tax when you are resident there, then you may want to consider when is the best time to dispose of them. UK land and property you may own, will remain taxable in the UK even if you are non-resident when you sell it and a capital gains tax return needs to be filed and any tax due paid within 60 days of completion.

ESTATE

Your domicile status is important in establishing the inheritance tax liability on your estate and not your tax residence status. If you are a UK domicile your estate will be subject to UK inheritance tax, even if you are not a UK tax resident. Adopting a foreign domicile is possible, but is difficult to achieve, therefore, professional help is necessary.

TAX COMPLIANCE

You should seek advice on what tax and NIC compliance obligations you have while living overseas or in the UK. Failure to do these by set deadlines can lead to hefty panalties - see tax compliance information below.

The above information is intended to give you ideas of what areas you need to consider. Professional advice should always be sought when moving between countries.

ARRIVAL AND DEPARTURE ADVICE

UK Expat can advise you (usually in a detailed written report) about your arrival to or departure from the UK. This advice will explain the key UK tax and social security issues affecting you, along with your tax obligations.

There will be plenty of opportunities for you to ask any questions you may have about your move.

One of the main benefits of having this advice is to ensure you are paying the right tax (not too much or too little) and give you peace of mind and reassurance that your UK tax affairs are under control, thereby reducing one of the many stresses you encounter when moving abroad.

For details on obtaining this assistance, please contact UK Expat.

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There are various actions you need to do or consider when moving abroad or to the UK. The following highlight some of the more common areas you need to consider.

UPON ARRIVAL / DEPARTURE

If you arrive in or leave the UK, you will need to inform the Revenue of your arrival or departure, although it may no longer be necessary to complete a departure tax form when leaving the UK. This will depend on your circumstances, however, if HM Revenue and Customs (HMRC) do request you to complete this form, great care is needed when completing it, as it will determine how HMRC will tax you in the UK. It is easy to make a mistake on this form, as the questions appear harmless, however, an innocent mistake can cause you to pay tax unnecessarily in the UK.

It is advisable to seek professional guidance when completing this form.

When arriving in the UK, you will most likely need to register for self-assessment, which is the UK’s tax return system (the UK has a self-assessment regime).

SOCIAL SECURITY

If you are seconded to an EEA (European Economic Area) country or you are an EEA national seconded to the UK, you may be eligible to remain in your home country social security system (NIC in the UK). Your employer must apply for this.

Similarly, if you are seconded from or to a country with whom the UK has a Reciprocal Agreement for social security purposes, an appropriate certificate will need to be applied for by your employer if you wish to remain in your home country system.

These certificates will only last for a specific time.

You will need to consider whether you need to apply for a National Insurance number in the UK, if a foreign national moving to the UK.

If you normally live in the UK and have moved overseas, then you need to consider whether you want to pay voluntary national insurance contributions (NIC) to protect your State Pension and make the appropriate application if you do.

TAX RETURNS

Regardless of whether you are moving to or from the UK, it is highly likely you will need to file a UK self-assessment tax return. Tax returns for expatriates are often more complicated than most UK residents’ returns, especially if you are tax equalised, and/or claiming the various tax reliefs to which expatriates are entitled. Professional assistance is therefore advisable.

The deadline for filing your return is the 31 January following the tax year in question if you are filing your return online, otherwise it is 31 October following the relevant tax year. Any tax which is due, will need to be paid by 31 January.

There are hefty penalties for the late filing of your return e.g. if a return is over 12 months late the minimum penalty will be GBP1,600 even if it is a nil return and no tax is due. Interest will be charged on a daily basis on any outstanding tax after 31 January, together with a number of penalties for the late payment of tax each one being at a rate of 5% of the tax due.

It is currently the case that you cannot file the “Residence, Remittance Basis etc.” pages using the Revenue’s tax return filing service on their website. You need to file these pages if you are non-resident and want to claim this along with your personal allowance and also if you wish to claim relief for any double tax situation you may be in. Equally, if you are a foreign domicile who has moved to the UK, you will need to complete these pages if you wish to claim non-domicile status and/or the remittance basis of taxing your overseas income and gains and also if you wish to claim relief for any double taxation . For both individuals coming to or leaving the UK, it is on these pages you claim split year treatment, if applicable, for the years of your departure from or arrival to the UK. To complete these pages you either have to use a professional adviser who has the appropriate tax return software such as UK Expat or purchase commercial software that has these pages. It really is not advisable to ignore filing these pages, for example an individual living overseas may end up with a higher tax liability on their UK income, because they have not claimed the personal allowance as a non-resident.

RENTAL INCOME

If you are living overseas and are renting out a UK property, be aware that this income will remain taxable in the UK and your tenant or your letting agent will need to deduct basic rate tax from your rental income. In order to avoid this tax being deducted at source, an application can be made to have the income paid gross, however, certain conditions need to be satisfied otherwise HM Revenue & Customs may turn down your application. Remember, this application is only to stop tax being deducted from your rental income. If tax is due on this income, you still need to pay this over via your self-assessment tax return.

UK PENSIONS

If you leave the UK and are in receipt of a UK pension, UK tax will continue to be deducted from your pension, however, depending on which country you are living in and the relevant double tax treaty, it may be possible to apply for your pension to be paid gross.

OTHER INCOME

If you have income which is taxed in both your home/host country and the UK, then the taxation of some types of income such as earnings, royalties, dividends, interest, rental income, pensions etc is determined by double tax treaties the UK has with numerous countries around the world. These agreements may exempt or partially exempt some types of income from one country’s tax, however, you need to look at the specific agreement relevant to your situation, as each double tax agreement is different. If you are exempt from tax or pay a reduced rate of tax in the UK, then you need to claim this relief on your UK tax return. You may also want to consider applying for relief to be given at source in the future. Again, a specific tax form needs to be completed.

OTHER TAX FORMS

If you have arrived in the UK to work, it is very likely tax will be withheld at source by your employer (or whoever you are assigned to in the UK, if on assignment) under the PAYE (Pay As You Earn) system. Issues may arise if you work for a foreign employer who has no place of business in the UK, with the result you may need to operate a PAYE scheme for yourself.

Near the end of the tax year you will receive a P60 form showing how much you have been paid during the tax year and the amount of UK tax and NIC (National Insurance Contribution) that has been deducted from your salary, where applicable. Keep this form safe, as you will need it for the completion of your UK tax return.

You may also receive a form from your employer called a P11D. This form shows the benefits in kind your employer has provided you with during the tax year. Again, keep this form in a safe place as you will need it for the completion of your tax return.

A P2 form shows your tax code for the PAYE system. Check this code carefully to ensure that the correct tax is being deducted from your salary. Very often when someone arrives in the UK, not enough tax is deducted under PAYE resulting in a large underpayment, which needs to be paid by the tax return deadline of 31 January. This can cause cash flow problems, if you leave the filing of your tax return to the last minute.

During the year, you will receive Statements of Account from the Revenue, which will show the movement on your self-assessment account.

 

If you need any help completing or understanding the above forms, then contact UK Expat and we will be happy to help. We can help you with the completion of your UK tax returns and assist you with the various tax forms HM Revenue & Customs require.