Tax can be a complicated matter, especially when it crosses international borders. In our latest blog post Peter Dobson from our international tax team explains the rules and regulations around non-resident directors.
The title refers to anyone appointed a director of a UK company who is not a resident in the UK. The critical element here is that the residency status of the director is assessed by the Statutory Residence Test (SRT).
The SRT considers the amount of time you spend and, where relevant, work in the UK as well as the connections you have with the country. Put simply, if a person has been in the UK for 183 or more days, then they are classed as a UK resident. Beyond this there are a series of three conditions which automatically make a person a non-UK resident and three conditions which automatically make a person a UK resident, all of which can be found here.
It is important to note if a director is deemed to be a UK tax resident through the SRT, they will be subject to UK taxation on their worldwide income.
In the case of non-resident directors, we always recommend seeking expert advice to ensure that a company follows the correct process with all income or reimbursed expenses taxable in the UK. It’s also important here to note that for many non-resident employees there are tax treaties between the UK and other countries which provide relief from double taxation, more details on these can be found here [https://www.gov.uk/government/collections/tax-treaties]. However, as directors are office holders the rules vary slightly, and their remuneration is not afforded the same protection as that of employed individuals. In fact, non-resident directors are required to make the disclose if they have just one of the following:
- A UK work day, yes even just one
- A director’s fee
- Any reimbursed expenses
- A UK salary
The complexities don’t end there either, and issues can also arise if directors are paid a single salary in respect of a global role which involves employment and directorships with numerous entities.
Ultimately, all businesses should ensure their non-UK directors comply with UK tax obligations which will include registering for self-assessment and filing an annual tax return. Failure to do so could not only result in penalties and interest charges imposed by HMRC but also present challenges down the line when it comes to the sale of a business.
It’s with the above in mind that we’d always recommend clients seek expert advice. If you’d like to discuss non-resident directors or other tax issues relating to cross-border employment, please drop me an email and myself and colleagues would be happy to help.
