UK Tax Guidance for Non-Resident Directors: What Overseas Companies Need to Know

As international travel has normalised post-pandemic, UK-bound visits from overseas companies have increased. At the same time, the UK tax authority is under pressure to collect as much tax as possible to help with the UK financial recovery.

Many employees of internationally headquartered companies will visit the UK for short periods and will not establish tax residence here. However, if the visitor is a non-resident director of the UK subsidiary then different rules apply – with UK tax liabilities arising regardless of UK residency.

The rules around visits from non-resident directors of UK companies have not changed recently; however, what is clear is a change in the attitude of the UK tax authorities (HM Revenue & Customs – HMRC) to non-compliance.

There are some harsh penalty rules and anyone with a UK subsidiary should be aware of the implications and be ready to make some changes.

What is a director in this instance?

These rules are mostly concerned with visits to the UK from a ‘Group’ employee who is a registered director at Companies House. If you are not sure whether that applies to your employee, then you can check online.

We have an STBV Agreement with HMRC – does that protect us?

Non-resident directors of UK companies are different (in terms of tax law) from other short term business visitors to the UK and explicitly cannot be reported under the UK’s Short Term Business Visitor (STBV) arrangements.

What are the rules for non-resident directors of UK Companies then?

Any income the director receives in relation to their UK role should be put through a UK payroll and Pay As You Earn (PAYE) applied accordingly.

Clearly, very few companies will have agreed additional or specific compensation with the director for the UK appointment – it would be considered part of their overall role at HQ to represent the UK subsidiary.

In these cases, HMRC are now expected to argue that an element of the individual’s existing overall compensation package should be allocated to the UK and taxed in the UK. Whether social security is also due depends on a few factors and advice needs to be taken in each case.

Additionally, any UK travel and hotel expenses incurred for or reimbursed to the non-resident director when performing a UK director role are taxable in the UK. This is generally the case even if the costs are met by the overseas headquarters rather than the UK subsidiary – it doesn’t matter who pays if the costs are considered to relate to UK duties.

What should we do?

You cannot do a great deal about historic filings, but we recommend to our clients that they take action to limit any exposure as soon as possible, particularly where the director’s overall compensation package is significant.

Implementing a regular deduction process

The bigger the compensation, the greater the interest from HMRC. Since the spring of 2021, we have been busy helping clients determine an appropriate level of pay to allocate to the UK and then implementing a regular PAYE – and if needed National Insurance Contribution – deduction process.

We have been working with many of our legal contacts assisting clients to draft an agreement between the director and the UK company for the UK services.

Expenses tracking

Implementing an expense tracking policy for visits should also be considered, so correct reporting to HMRC can be made.

How ZEDRA can help

We cannot emphasise enough how each situation is different and advice should be sought as soon as possible. There can be annual filing requirements under the UK self assessment regime for directors and it might be necessary for the company to make a special application to HMRC as part of the payroll set up process.

As challenging as this might seem for company directors, running an international business and visiting the UK office should be an exciting time and one where you are able to focus on what you do best, while your advisers manage the associated compliance. It is therefore important to allow enough time initially to explore all options in order to create a future proof, scalable, international process. If you would like to discuss this please contact Peter Gallagher.