Overseas working

My client is non-UK resident on a full-time non-UK Contract of employment. He has a local ID card proving residency. My questions are as follows:
1. As a non-resident can he continue to operate his private UK limited companies, of which he is a director & shareholder.
2. As a non-resident can he continue to be employed by his private UK limited companies 3. As a non-resident can he continue to receive dividend income from his private UK limited companies?

I have assumed you are comfortable that your client is non-UK resident under the provisions of the statutory residence test (“SRT”) (FA 2013, schedule 45). Please note that your client being resident in another country does not necessarily mean they will be non-UK resident under UK tax law. However, if they are UK tax resident under the SRT (and therefore dual resident) they may still ultimately be non-UK resident under the terms of a double taxation agreement. I have not further commented on this point as it is not the focus of the question. HMRC’s guidance at the following link and at RDRM11000 set out the UK residency tests under the SRT, including detailed examples: –

https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt

1. There is nothing from a UK tax or company law perspective to prevent a non-UK resident director from continuing to operate his UK limited companies from abroad. Your client should seek specialist advice as to whether this will create any tax (or other) implications for the company in the country where your client is resident.

2. Again, there is nothing to prevent a non-UK resident individual from being employed, either as an officeholder, director or an employee of a UK private limited company. If the individual is a salaried UK director, his earnings should still be reported through a UK payroll. However, if he is non-UK resident and not expected to perform any employment duties in the UK, this can be done on a gross basis (see below).

If the individual is non-UK resident under the provisions of the UK SRT, he will only be taxable in the UK in relation to his UK earnings to the extent that he physically performs any of the duties of his employment in the UK. Any earnings of a non-UK resident individual in relation to duties physically performed in the UK are taxable under ITEPA 2003, s 27. Any earnings of a non-UK resident for duties of employment physically performed outside the UK are not within the scope of UK taxation.

If the individual is non-UK resident and is not expected to perform any of the duties of their employment in the UK, you should apply to HMRC for a NT (no tax) PAYE code. This is because there are no earnings falling within the scope of the PAYE regulations. See paragraph 4.6.4 of HMRC’s CWG2 Guidance for more information.

If the individual is required to physically perform some of their employment duties in the UK (taxable under s 27) you may wish to consider whether to make an application to HMRC for a direction under s 690, ITEPA 2003. This would enable the employer to limit PAYE withholding to the estimated percentage of earnings related to the employee’s anticipated UK duties. The employee would then need to file a self-assessment tax return at the end of the year to reconcile their final position.

Formal advice should be sought regarding any tax, social security, payroll and employment law obligations in the director’s country of residence.

3. A non-UK resident can continue to receive dividend income from a private UK limited company.

Year of full non-UK residence (subsequent years)

A non-UK resident individual is taxable on savings and investment income taxable under Part 4, ITTOIA 2005 only on income arising from a UK source (ITTOIA 2005, s 368(2)). However, in a full year of non-UK residence (but not a split year of departure), dividend income can be treated as ‘disregarded income’ (ITA 2007, s 811) meaning any UK tax is limited to the sum of:-

• tax deducted from, or treated as deducted from, or tax credits on ‘disregarded income’, and
• the tax liability leaving out the disregarded income and with no personal allowances or double taxation relief taken into account.

HMRC provide a detailed overview of this subject in their guidance at SAIM1170.

A dividend payment from a UK company to a non-UK resident comes with a non-repayable tax credit at the ordinary dividend rate (ITTOIA 2005, s 399). Please refer to HMRC’s internal guidance at SAIM5120 for further information.

If the individual receives other UK source income which is not disregarded and remains taxable in the UK (e.g., UK rental property income), then opting to disregard the dividend will leave the other income wholly subject to charge. Disclaiming personal allowances may incur a higher charge in these circumstances depending on the amount of income from each source, so a calculation for each method will be needed to determine which is best. Your self-assessment tax return software should automatically prepare this calculation and apply the optimal approach.

If the dividend income is not disregarded, and is subject to UK tax, you may need to consider whether any UK tax chargeable is limited by the dividend article of a double taxation agreement.

There are anti-avoidance rules that apply to long term UK residents (resident for 4/7 prior UK tax years) who are participators of UK companies, become non-UK resident for a period of less than 5 years and make distributions from retained profits. Any distributions paid in a period of non-UK residence (including the overseas part of a split year) and caught by these rules are taxed in the year the individual re-establishes UK tax residence. It is, therefore, important to ensure your client is aware of this. HMRC provide their guidance on this subject at RDRM12700.


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