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Top Tax Tips For Non-Executive Directors

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It has been the case for some time that Directors, not living in the UK, have been employed as board members of UK companies. The way in which we now work, due to Covid, will increase the opportunities for this type of working.

It has long been a common myth that those individuals are not subject to UK taxes. This can however be incorrect and is a complex area that needs specialist advice. This is an area that HMRC increasingly look at during compliance checks.

Certain exemptions, available through double tax treaties, are not available for Directors, as Directors are typically covered by the articles of a double tax treaty. Said treaties afford the country in which the duties are physically performed to tax those days, thereby meaning that if a Director is a non-UK resident for tax purposes (which will need to be assessed annually) they would only be liable to UK tax on the days attributable to work performed in the UK. The issue then becomes how they should be taxed on the UK payroll.

Where a Director works in the UK periodically, they should be included on the UK payroll in full, unless they have sought guidance and applied to HMRC for special dispensation to only tax a certain amount of the Director’s remuneration package. In some instances, it will be difficult to determine exactly what, if any, remuneration should be taxed in the UK, for example, if they are on the UK board as part of a wider global role, and do not get directly remunerated for UK board duties.

It is also important to distinguish the treatment of Income Tax and National Insurance as the position will not always be the same. National Insurance is typically due in the country in which the employee works, but this can be more complex if a Director works in multiple jurisdictions. As the employer contributions follow those of the employee, it is in the interests of the employer to make sure that they are compliant and know their obligations under the relevant legislation.

In addition, the company needs to consider whether a Director living and working overseas creates corporation tax issues in the country of the Director’s residence – for instance, if their role creates a “Permanent Establishment” for corporation tax purposes in that country.

As you can see this is a highly complex area and specialist advice needs to be sought to ensure the correct amount of liabilities are paid in the correct jurisdictions with penalties and interest highly likely if you get it wrong. If you would like advice in this area, please get in touch.