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If you are working somewhere other than your home country, even for a short period of time, you could be exposed to additional tax implications. Tax can seem daunting and can quickly fall to the bottom of the agenda, which comes with a huge risk.
With the world of travel opening back up, we are seeing lots of individuals decide to travel once again, especially for work purposes. When working in more than one jurisdiction, tax can seem complex and we are here to help.
There are different issues from a UK tax perspective to consider whether you are leaving the UK to work, or coming to the UK. In this first article, I look at what considerations are required if a UK resident leaves the UK.
Leaving the UK to work overseas
When leaving the UK to work overseas, HMRC must be notified of the departure. If the individual is registered for Self-Assessment, notification can be made via a UK tax return for the year of departure, otherwise, HMRC can be notified by submitted a P85 form. Notifying HMRC is important to ensure the amount of tax being paid is correct and to determine whether a repayment is due.
UK tax residence status
An individual’s UK tax residence status will be determined using HMRC’s Statutory Residence Test (SRT). If leaving the UK for a short period of time or spending substantial time back in the UK (for either work or personal reasons), a person may not necessarily break UK tax residence.
A detailed review is required to determine whether or not tax residence will be broken, and whether the split year rules can apply. Split year treatment can be tax advantageous for an individual departing the UK and therefore it is important to determine whether the rules apply.
Factors such as whether the individual has property available to them in the UK, whether they have family living in the UK and how many workdays they spend in the UK per tax year can all be applicable to determining their tax residence status.
If considered domestically resident in two jurisdictions with a double tax agreement in place, the agreement can be reviewed to determine where the individual is considered treaty tax resident. This will help minimise any potential double taxation and decide which country will have primary taxing rights on their income. A foreign tax credit can then be claimed via Self-Assessment to offset any overseas taxes paid against UK taxes, reducing the liability.
UK income following departure
Individuals may continue to receive income from UK sources following their departure. The treatment of this income will depend on the source and can vary. As a rule of thumb, any UK sourced income will remain subject to UK tax, regardless of an individual’s residence status.
A non-UK tax resident is no longer able to contribute to an ISA. If the ISA was opened pre-departure, the account can remain open, however further contributions cannot be made for the period the individual is overseas and considered non-resident.
If the individual is spending time working back in the UK, these duties may be subject to UK tax and we would be required to review whether or not they can be classed as incidental or substantive. A UK tax return may be required to report these duties to HMRC and ensure the correct tax is paid.
Where UK property owned by a non-UK resident is rented out, this will remain subject to UK tax. An application can be made to HMRC to receive rental income without any tax deductions (NRL1). In the absence of this form, the letting agent should deduct tax at 20% and pay this over to HMRC. HMRC introduced this recently as they found a number of British nationals were leaving the UK, renting out their property and not paying any tax. With this scheme in place, this helps prevent and minimise the potential loss of tax for HMRC.
Similarly to an individual coming to work in the UK for a short period of time, where a person leaves the UK to work overseas, there are various potential tax relief available. Relief may be available on travel and subsistence costs where the individual is leaving the UK for a period of less than 24 months, or spending less than 40% of their time working overseas.
Relocation expenses can also be reimbursed tax free, similarly to someone relocating to the UK.
There are additional reliefs available for individuals working outside of the UK. The specific relief available will depend on whether the individual is spending all of their work duties outside of the UK, or just a portion of them. Interim visits by the individual’s spouse and family can also be exempt if various conditions are met, set out in the legislation.
UK National Insurance
Unless covered by a reciprocal agreement, after leaving the UK, automatic National insurance contributions will come to an end. Without continuing contributions, an individual may end up with gaps in their National Insurance record, which may in turn have a knock on effect to their state pension.
It is possible to pay Voluntary National Insurance to bridge any gaps in your record (using form NI38), and these can be backdated by 6 years. The rate at which voluntary contributions are payable will depend on an individual’s circumstances but this will either be class 2 or 3. The rates for these are below:
The rates for the 2022 to 2023 UK tax year are as follows:
Temporary non-residence rules
Anti-avoidance rules were introduced to prevent formerly UK tax residents from leaving the UK for a short period of time to sell an asset and escaping capital gains tax. These rules apply where an individual has been tax resident for at least four out of the previous seven tax years prior to departure and are overseas for less than five years.
Under the anti-avoidance measures, if an individual meets the criteria set out in the legislation, sells an asset during the period of absence and then becomes a UK tax resident again, any gains made in the intervening period will become taxable in the year of return. This means that any gain made in that period will only escape UK tax if the taxpayer remains outside of the UK for five complete tax years. The rules are slightly different depending on whether an individual is considered UK domiciled or not and will only apply to assets held prior to departure. Any assets purchased following an individual’s departure and subsequently sold whilst out of the UK will not be subject to UK tax.
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