Visiting Non-Resident Directors: beware the tax pitfalls

It is very common for directors of UK businesses to live abroad, having become expatriates: or because they are foreign nationals.

Problems can occur when they visit the UK on business. Even short stays can give rise to a liability to Income Tax, NIC and PAYE.

The HMRC Position

HMRC regard a visiting non-resident company director (of a UK-registered firm) as being an ‘office holder’: and as such they say that his or her salary and any fees paid must be taxed through the PAYE system.

Many wrongly believe that this is only for those directors who spend 3 or 6 months in the UK on business: in fact one single day spent at a meeting or in the UK office will trigger this demand for UK taxation.

This sort of treatment differs from that of normal visiting employees, so beware the implications of getting the tax reporting wrong. Tax treaties cannot be relied upon to avert this problem in the case of directors.

Whereas the PAYE position is quite stark and clear-cut, when it comes to Class 1 NIC it is possible to use certain allowances that are officially conceded, so that if correctly handled, the potential NIC liability may be avoided. Please consult Odiri Tax Consultants for further details and advice.

Complications

It is all too easy to forget the need to make returns for non-resident directors, especially if their visits to the UK are irregular and infrequent. Be assured that HMRC are focusing on this issue and they can simply rely upon official Gov.uk and Companies House data, not to mention your company’s own publicity, to highlight individuals for whom no tax return has been made.

This is often a grey area. How do you apportion a person’s salary (and maybe bonus) between differing locations, especially if there are several international offices and/or the individual travels frequently to see suppliers, colleagues and clients?

It is not an area in which you can afford to be lax. If HMRC find you to be in breach of your reporting duties, they are able to claim back taxes and NIC payments for 6 years, plus a penalty and interest.

Action Plan

Assuming that you have individuals who are caught by this legislation, you have these issues to review and then take action:
1. What salary, expenses and other benefits in kind apply to the directors’ UK activities
2. Report these to HMRC
3. Apply to obtain special HMRC direction allowing you to tax only on the estimated UK-relevant earnings
4. Get a ruling on the director’s earnings and whether their potential liability to Class 1 NIC can be waived
5. Ensure that the directors fill in their own UK tax returns and seek to benefit from double taxation relief (where available and applicable)

Given the uncertainties surrounding individual companies and their directors, we advise an early meeting with our experts at Odiri Tax Consultants to ensure that you do not suffer from the potential pitfalls in the legislation.

Loveth Watson

Loveth is a qualified accountant and tax consultant with over 20 years experience. She started her career with top 5 accountancy practice and held the position of tax manager prior to starting her own practice. Loveth is a member of the Institute of Financial Accountants, Institute of Public Accountants and the Association of Taxation Technicians. Loveth’s background in accounting, corporate and personal tax enable her to advise shareholders on the personal tax implications of corporate structuring and transactions, ensuring a holistic approach to tax planning is provided. Loveth advises clients in the areas of accounting, tax and business development. Her main focus is in delivering services to owner-managed businesses and seeking structured solutions to the challenges that they face.