This subject is widely regarded as “complicated,” and if you find yourself in this position and require a detailed explanation it is advisable to speak to your accountant or tax adviser. There are key issues you need to consider when running a company from overseas, including your tax liability and registered company address. Paying the correct type and amount of tax is crucial, and you will also need to consider about the bank account/s your business will use.
What are the potential tax implications of a UK resident running a company from overseas?
Even if all the trade is conducted within the UK and UK Corporation Tax is being paid on profits, the country from which a company is managed has the right to treat the entity as based in that country for tax purposes (1).
Rules covering personal tax differ depending on where you live abroad, and your tax residency will need to be determined which may require you to pay UK tax if you spend part of your time here in the UK, in addition to any tax due in your overseas country of residence (2).
How do you know if you’re a UK tax resident?
If you’re not resident in the UK for more than 183 days in the tax year, you’re deemed to be non-resident for tax purposes. This means you’ll only be subject to taxes on your UK income. Any salary and dividends taken from your UK company will be subject to UK Income Tax (3).
It is important to seek expert tax advice to ensure you remain compliant and so you understand exactly how much tax you will be expected to pay, as it could be more than you bargained for!
Registered company address
If you’re a limited company director, you don’t have to be a resident in the UK to run your business. However, as your business will be registered in the UK, you will need to provide a registered company address in England, Wales, Scotland, or Northern Ireland.
You could use your accountant’s office address for this, especially if they incorporated the company for you. You will also need to provide your overseas address where you reside so HMRC and Companies House can contact you regarding matters relating to your business.
Company bank account
You’re not obliged to open a bank account for your business in the UK, but it can be beneficial and facilitate smoother transactions, especially if most of your business dealings will be within the UK and with UK-based businesses (2).
If you open a bank account in the overseas country you reside you will likely incur transaction fees, which would impact on your company’s profits.
Either way, it is advisable to open a company bank account so you can keep company funds and your personal finances separate.
Running your contractor limited company from overseas
If you run a UK-based contractor limited company, living abroad means you can run your business but may not be subject to the off-payroll working legislation, also known as IR35 (4).
Please note, HMRC is keen to quash tax avoidance through offshore vehicles among other avoidance means. IR35 is a complex tax legislation, therefore it is advisable to speak to the IR35 experts at Markel Tax to ensure you know exactly where you stand on this point.
Filing and reporting requirements
A company that is incorporated in the UK is considered resident for tax purposes in the UK and taxable on its worldwide income. That company may be managed and controlled from another country (1).
Your UK incorporated company must be registered with HMRC, therefore you will still need to file and submit the statutory reports to Companies House and HMRC, as you would if you were a company director resident in the UK.
How much of your contractor business is allowed to be conducted overseas?
This is a slightly different issue to the main point of this article, but a relevant question nonetheless.
Many contractors from a variety of professions, including IT, trades and building, and offshore energy, receive offers to work overseas. Prior to Brexit and the Covid pandemic, contracting abroad wasn’t unusual. If a contractor takes up such an offer (typically because of how lucrative it is), on the surface it may appear easier to continue with their UK-based limited company and to invoice for the activities in the country they are contracting in.
However, you cannot do this except for very short-term assignments. If you plan to work abroad for more than six months, your company will be taxed under the rules of the country you are working in, which can mean higher rates of tax if you’re not careful.
According to a HMRC spokesperson, it doesn’t matter where you are incorporated, you pay tax where you go to work (5).
There is a concession allowing those working outside the UK on a full-time contract that spans a full tax year to become non-UK resident for the period they spend working overseas. The rules for this are complex and involve the tax requirements of the country where the contractor is working.
The primary tax issue to consider is residency of you and your limited company. If you’re working abroad via your own UK limited company, you and your company could be liable for tax in the UK and the country in which you’re working. Therefore, you’d pay tax in both countries and need to claim ‘double tax’ relief (4).
As mentioned earlier in this article, HMRC is keen to deal with tax avoidance from overseas means, and even though contracting overseas is different, it is important to seek expert tax advice before accepting overseas contract work.
What is the tax on foreign income?
Tax is a complicated subject at the best of times, but if you’re living abroad whilst running a UK business then it can become even more complex. Even more so if you earn income from abroad. The following information from Gov.uk highlights some of the complexities surrounding the subject.
Working out what you need to pay
What tax you need to pay depends on if you’re classed as ‘resident’ in the UK for tax. According to Gov.uk, if you’re not UK resident, you will not have to pay UK tax on your foreign income (6).
If you’re a UK resident, you will typically pay tax on your foreign income, but you may not need to if your permanent home (domicile) is abroad.
You usually report your foreign income in a self assessment tax return, but there are some foreign incomes that are taxed differently such as pensions, property rent, and certain types of employment income.
UK residence and tax
According to Gov.uk, your UK residence status affects whether you need to pay tax on your foreign income. Non-residents only pay tax on their UK income, not on their foreign income.
Residents typically pay UK tax on all of their income, but there are special rules for UK residents whose permanent home (domicile) is abroad. This means it is important that you establish exactly what your residence status is so you can pay the correct amount of tax.
Working out your residence status for tax
Your UK residence status depends on how many days you spend in the UK in the tax year.
You are classed as resident in the UK if:
- you do not meet any of the automatic overseas tests
- you meet one of the automatic UK tests or the sufficient ties test
Overseas tests
You’re automatically non-resident if either:
- you spent fewer than 16 days in the UK (or 46 days if you have not been classed as UK resident for the 3 previous tax years)
- you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working (6).
UK tests
You may be resident under the automatic UK tests if:
- you spent 183 or more days in the UK in the tax year
- your only home was in the UK and it was available to use for at least 91 days in total – and you spent time there for at least 30 days in the tax year
- you worked full-time in the UK for any period of 365 days and at least one of these days fell into the specific tax year (6).
You may also be resident under the sufficient ties test if you spent a number of days in the UK and you have additional links, like work or family.
Non-domiciled residents
UK residents who have their permanent home (domicile) outside of the UK may not have to pay tax on foreign income.
According to Gov.uk, your domicile is the country your father considered his permanent home when you were born. However, this may change if you have moved abroad and do not intend to return.
Further information can be found in Chapter 5 of the HMRC guidance on ‘Residence, Domicile and the Remittance Basis’. Chapter 9 explains the rules for bringing income or gains into the UK (6)
Gov.uk have a detailed resource page where you can find out more at https://www.gov.uk/tax-foreign-income/print
How can I protect my contractor business?
It is important to insure your business regardless of where you are working. You should not assume that an ‘off the peg’ insurance policy will automatically cover you for working overseas. As such, it is important to speak to your insurer to ensure you are comprehensively covered with the correct type and level of insurance.
If you are looking to work overseas, contact us for a quote for your contractor insurance please call 0333 321 1403
Disclaimer
Please note, Caunce O’Hara are not taxation experts. This article has been written to provide a flavour of how complex it can be to engage in contracts abroad and run a UK company from overseas. For expert advice regarding taxation you should speak to your accountant or financial adviser.
Sources:
- https://www.accountingweb.co.uk/any-answers/what-are-the-implications-for-a-uk-company-controlled-from-abroad
- https://www.realbusinessrescue.co.uk/advice-hub/can-i-run-my-uk-limited-company-from-abroad
- https://www.crunch.co.uk/knowledge-running-a-business/non-uk-residents-running-uk-businesses
- https://www.contractoruk.com/overseas_guides/can_i_use_my_uk_ltd_overseas.html
- https://www.contractorcalculator.co.uk/company_tax_resident_contracting_abroad.aspx
- https://www.gov.uk/tax-foreign-income/print
https://www.crunch.co.uk/knowledge-running-a-business/non-uk-residents-running-uk-businesses
https://www.gov.uk/corporation-tax-rates
https://www.gov.uk/tax-foreign-income/non-domiciled-residents
https://www.gov.uk/tax-foreign-income/residence
https://www.gov.uk/tax-foreign-income/paying-tax
https://www.gov.uk/tax-foreign-income/foreign-income-thats-taxed-differently
https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm11500
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