Understanding the tax position of non-resident statutory directors
According to UK tax regulations, a statutory director is considered an office holder, effectively making them an employee of the company. This classification subjects them to UK tax and compliance rules, which His Majesty’s Revenue and Customs (HMRC) closely monitors. Directors’ names are publicly available on Companies House and are matched against company payroll submissions, which can trigger HMRC enquiries if discrepancies are found.
Taxation rules for non-resident directors
When a director is physically working in the UK but resides in another country, the tax treatment must align with the relevant tax treaty between the UK and the director’s country of residence. Generally, taxing rights for director fees rest with the company’s resident country. However, if there is no tax treaty in place, the situation becomes more complex, necessitating detailed analysis.
Income tax and payroll considerations
Non-resident directors who perform duties in the UK are subject to UK income tax on their earnings. The UK company must operate ‘Pay As You Earn’ (PAYE) to ensure tax is paid to HMRC. Calculating these earnings can be complex, especially if the director holds broader responsibilities within an overseas group connected to the UK company. In such cases, advance payroll agreements with HMRC may be needed.
Social security implications
If the individual’s home country has a social security agreement with the UK, a certificate of coverage maybe obtained to keep the individual in their home country’s social security system. If there is no agreement UK social security is not usually payable for the first 52 weeks but advice should be sought.
Travel and expense considerations
One often-overlooked area is the tax treatment of expenses incurred by non-resident directors, such as travel and accommodation costs for attending UK board meetings. Determining whether these expenses are deductible requires understanding the detailed rules around “permanent” versus “temporary” workplaces and potential reliefs available.
UK self-assessment obligations
If a payroll arrangement is based on an estimated agreement with HMRC, the director must file a UK self-assessment tax return to report actual time spent working in the UK and reconcile any tax owed. If all remuneration related to the UK director role is processed through UK payroll and there are no other UK income sources or obligations, self-assessment may not be necessary. However, self-assessment is required if other conditions apply, such as additional UK income or earnings exceeding certain thresholds.
How Moore Kingston Smith can assist
The above highlights only a few of the key issues that non-resident directors of UK companies face. Managing these complexities requires expert tax and global mobility advice to ensure compliance and optimise tax efficiency. At Moore Kingston Smith, we offer comprehensive support, including:
- Reviewing tax and social security exposure for non-resident directors;
- Advising on deductible or reimbursable expenses related to directors;
- Assessing UK and overseas contractual arrangements;
- Securing advance payroll agreements with HMRC;
- Completing annual tax returns for non-resident directors.
For tailored guidance on managing non-resident statutory directors effectively and ensuring compliance with UK tax regulations, contact our expert team today.