Non-resident directors of UK companies and the tax implications

In an increasingly globalised world, it is quite common for overseas directors of UK companies to visit the UK for short term business trips. UK companies should be aware that such business trips can trigger tax and NIC requirements under PAYE in the UK.

Background

Non-UK resident directors of UK companies visiting the UK for business are office holders and salaries or fees paid to them should be subject to UK tax under PAYE. This is the case even if the overseas director spends only one day working in the UK during a tax year, or if they only visit the UK to attend a single board meeting in a year. Tax treaties will not normally offer protection from UK tax in these circumstances and so such directors must be considered separately to other short-term business visitors to the UK.

Employee’s and employer’s Class 1 NIC may also be due under PAYE on salaries or fees paid to non-UK resident directors. For NIC, however, there are potential concessions and regulations which, if relevant, may ultimately mean that there is no liability for UK Class 1 NIC on the director’s earnings.

The Issue

HMRC are aware that UK companies with non-UK resident directors who work in the UK often overlook the requirement to operate PAYE on their earnings. As a result, this has become an area of compliance which we are increasingly seeing HMRC check during reviews of company records. It is also a relatively easy issue for HMRC to spot. For instance, a simple check of Companies House records or a UK company’s website will often enable HMRC to identify that a UK company has an overseas director who may be working in the UK.

Complexities can also arise where the overseas director is paid a single salary in respect of a global role which involves employments and directorships with a number of different entities as it will be necessary to establish the proportion of that salary which is attributable to the director’s UK duties. There can also be employment tax and NIC obligations and liabilities to consider in relation to expenses and benefits provided to the director while they are working in the UK.

Non-compliance can lead to significant and unexpected liabilities for UK companies. For example, where PAYE is not applied when it should be, and the UK company is found not to have exercised reasonable care, HMRC can go back six tax years to recover the underpaid tax and NIC from the UK company, together with penalties and interest charges.

What should companies do?

All UK companies with overseas based directors should consider whether those directors perform duties in the UK. Where those directors are performing duties in the UK the UK company should urgently consider whether its tax and NIC obligations are being fulfilled. In particular, UK companies in this situation should consider:

  • how to calculate the appropriate level of earnings (including expenses and benefits) which are attributable to UK duties, and how these earnings should be reported to HMRC;
  • the requirement to obtain a special direction from HMRC which will allow the company to deduct tax only from the proportion of the director’s salary or fees which are attributable to estimated UK duties;
  • whether the director’s earnings are liable to employee’s and employer’s Class 1 NIC, or whether concessions or regulations apply which remove this requirement; and
  • discussing the double taxation issues with the director concerned where they are also paying tax on these earnings in another jurisdiction, and alerting the director to their requirement to complete a personal tax return in the UK in respect of the UK directorship.

If you have any questions or concerns about the employment tax and NIC treatment of non-UK resident directors, please contact Lee Knight, David Williams-Richardson or your normal RSM contact who can help you review the position.

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