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Non-Resident Directors of UK companies: A review of reporting requirements

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published on 12 July 2021 | reading time approx. 3 minutes

 

It is not unusual for global firms to appoint an individual who is an overseas tax resident as a director of a UK company. This could be for various reasons, perhaps the UK company wishes to utilise the experience and talent of an individual resident overseas, or because it is part of a larger overseas-based group and a decision is made to appoint a senior employee or director from the group to the board of the UK company. These individuals are known as Non-Resident Director’s (NRD) for UK tax purposes.

 

   

Many companies are unaware of the UK’s tax compliance requirement for their NRD’s, which can be a complex issue depending on the director’s remuneration package. Care should be taken to remain compliant with HMRC’s position and ensure taxes and assessments, if due, are paid and submitted accordingly.

 
When should a NRD file a tax return?

If a NRD has no UK duties and receives no UK source income then such NRD’s would not be expected to file a UK tax return.
 
Generally, a Non-Resident Director has a requirement to file a UK tax return with HMRC if they have any of the following:

  • UK workdays (even just 1 day)
  • A Directors fee
  • Reimbursed Expenses
  • UK salary

 

HMRC will regularly do compliance checks on UK companies and would expect relevant NRD’s to have submitted a tax declaration, and in some circumstances for PAYE, to have been operated on this employment.
 

Note: Despite the above, even if there is no obligation to file for a tax return on the grounds of an NRD, HMRC does request Directors of UK companies to file a UK tax return by virtue of their directorships.

 

Why do NRD’s need to file?

  • Directors are office holders of the Company, therefore any income or expenses reimbursed is taxable on the NRD by the UK, as ordinary UK employment income.
     
  • Under the OECD model and International Double Tax Treaties, officeholders remuneration is not afforded the same protection as that of employed individuals from taxation for income earned in another jurisdiction. 

 
So, even with very limited UK duties, NRDs are still ‘caught’ by the legislation.
 

Note: The UK Personal Allowance continues to remain available for EU nationals, meaning that a NRD can earn up to £12,570 tax-free (the requirement to file a tax return will remain, even if there is no tax due).

 

Is there an Employer’s obligation to run PAYE?

If the NRD has one salary but is a Director of multiple-country entities, HMRC deems it reasonable to assume that a proportion of their salary relates to work performed for and on behalf of the UK entity, however great or little this may be.
 
A review of the NRD’s salary remuneration package would need to be carried out i.e. salary, bonus, benefits, reimbursed expenses, shares, etc.
 
The company would then need to run a proportion of their remuneration through UK payroll.
This could be processed on a monthly basis or an annual basis.
 

Obligation to report benefits

There could also be a requirement to report benefits received by the NRD via a P11D form.
 
This is the case where the employer directly provides or makes available to the NRD any accommodation, a company car or other benefits whilst working in the UK, known as Benefit In Kind.
 
P11D’s need to be declared by the 22nd  July following the tax year-end.
 

What about Social Security Taxes (NIC)?

Generally, according to Article. 11 of Regulation (EC) 883/04, the so-called territoriality principle applies, i.e. the person concerned is subject to social insurance in the country in which they physically work.
 
Therefore, the NRD would be subject to UK National Insurance Contributions on their UK income when they are present and working in the UK.
 
To mitigate this requirement, a PDA1 form or Certificate of Coverage should be applied for, so that the NRD is exempt from UK social security payments on their UK salary.
 

NRD’s Individual reporting obligation

If the above conditions are met, NRD’s would have a requirement to file a UK tax return to declare their UK source income, where the company has not reported the remuneration through the UK’s PAYE system.  UK tax returns must be submitted by  31 January following the tax year-end.

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