TAX IN THE UK – GUIDANCE FOR NON-UK NATIONALS
Work that is carried out in the UK should be taxable in the UK regardless of tax-residence or domicile status.
There may be exemptions from UK income tax for work carried out at a non-UK base depending on your circumstances, as follows
You will be liable to UK tax on overseas work if you live (are domiciled) in the UK and are UK tax-resident.
You may not be liable to UK tax on overseas work if you are UK tax-resident but do not live (domiciled) in the UK. Tax may only be charged on income from this work remitted to the UK (paid into a UK bank account and/or spent in the UK). This is called Overseas Workday Relief
You will not be liable to UK tax on overseas work if you are not UK tax-resident regardless of domicile.
It is possible to be tax resident in two countries. Relief on or credits against UK income tax in your home country will depend on the terms of the relevant double taxation agreement in place between your country of residence and the UK. This can be looked at on a case by case basis.
If you are not tax-resident in the UK, you may be entitled to a refund or credit on tax paid In the UK, through your tax return in your home country. A residence self-assessment return should also be made in the UK.
Most contractors who spend most or all of the tax year in a permanent UK base are UK tax-resident.
It is quite easy to be UK tax-resident even when you spend less than 183 days in the UK, as follows:
Please note accommodation in the UK can be rented or staying with family/friends.
TAX RATES IN THE UK
INCOME TAX (PAYE)
Income tax rates 2017-2018:
20% Basic Rate: Up to taxable income of £33,500
40% Higher Rate: Taxable income between £33.501 - £150,000
45% Additional Rate: Taxable income over £150,000
Personal allowances may vary depending on circumstances but are approximately £11,500 for a single person. However, please note that tax residency in another country may affect your UK personal allowance. This means that you will only pay tax at 40% on any income over £45,000 if you have the full personal allowance.
Income over £100,000 will result in a reduction in your personal allowance of £1 of every additional £2 earned..
The UK tax year runs from 6th April to 5th April. Rates of National Insurance and personal tax allowances change annually from the 6th April each year.
SOCIAL INSURANCE (NI)
Under EU Regulation 883/2004 Article 11.5, air crew pay social insurance in the country of their home base i.e. in the UK. Exceptions to this rule may apply if you have substantial economic activity (25%) in your country of residence or are posted to the UK temporarily for a period up to 12 months.. If this applies to you, you must inform us so that we can deal with your case individually as you will need a decision from the social insurance authority in your home country..
Social Insurance in the UK is called National Insurance (NI). Contract work in the UK has employment status so both employer and employee national insurance is payable.
To calculate National Insurance, the deemed employment method is used so your gross salary is reduced by the Employer National Insurance amount (see example on next page). Employee National insurance is based on the reduced gross salary.
This method also reduces your taxable salary so you are not taxed on the employer national insurance paid.
NATIONAL INSURANCE RATES:
Employer NI is 13.8% of all gross monthly salary over £680.
Employee NI is 12% of gross monthly salary over £680 up to £ 3750.00, then 2% on the balance.
|(Agency pay = Gross salary + ((Gross salary - 680) x 13.8%)
Employer National Insurance
|=(Gross Salary - 680) x 13.8%
|Income tax (PAYE)
||Employee National Insurance (NI)
|Less personal allowance (11500/12)
|Less NI allowance
Tax at 20%
Employee NI at 12%
This example does not include allowable tax-free expenses which are deducted from your agency pay before calculating tax and NI.
The UK expenses system is different from Ireland so we recommend you carefully read the UK expenses pages in our knowledge base.
GENERAL NOTES CONCERNING TAX RESIDENCY AND DOMICILE
Domicile is generally the main place you live (your main home). UK law states that:
You cannot be without a domicile
You can only have one domicile at a time
You are normally domiciled in the country where you have your permanent home
You existing domicile will continue until you acquire a new one
You were born in Denmark, have lived there most of your life and have your permanent home there but commute to the UK for your working days, then you are domiciled in Denmark.
You were born in UK but moved to Ireland when you were an adult and have lived there for five years with no permanent home in the UK, you are likely to be domiciled in Ireland
Residence is different from domicile and is determined by the Statutory Residence Test. It determines your tax residence. HMRC determines ‘residence’ based on the number of days you work and spend in the UK. Days spent in the UK includes stays in hotels and temporary accommodation and in the accommodation of friends/family.
It is possible to be tax resident in more than one country, therefore UK tax residency must be checked in all cases. You can take the test based on the expected number of days worked in the UK for the current tax year.
To take the UK Tax residence test, you can do so by clicking the link HERE and scroll down to ‘Go To the Tax Indicator’.
At the end of a test, download the pdf of your results and email them to us. The information on this test is not submitted to HMRC.
Notes on tax indicator test:
If you have been working or living in the UK at any time in the three years before the current tax year, please take the tax indicator test for each tax year that you had some presence in the UK, commencing from the earliest relevant tax year.
You will be asked if you have a ‘relevant job’ as air crew – select ‘yes’. You conduct more than 6 cross-border trips in one year. This is important because it determines the residence test that applies in your case.
If you are Tax-resident in the UK but non-domiciled.
If you live outside the UK but are tax-resident due to your work/days spent in the UK. You may be entitled to Overseas Workday Relief which exempts you from tax on work conducted overseas. To qualify, you must:
Be non-domiciled in the UK during the tax period
Duties are performed partly outside of the UK during a tax year:
That follows 3 consecutive tax years for which you were not UK tax resident
Or one of the next two tax years after a) above
In this case, you are only taxable in the UK on any of these overseas earnings that are remitted to the UK. Remittance means earnings spent or received in the UK. In general, as long as overseas related earnings are not transferred to a UK bank account or spent in the UK, then such earnings are not taxable in the UK.
In general, a £10,000 exemption of foreign income is allowed in most circumstances which do need to be proven for remittance, as long as this income remains within the 20% tax band.
Mr. X works in UK for 60% of working days and overseas for 35% of working days.
Mr. X lives abroad and is based in the UK. He was not tax resident in the previous three years and is tax-resident in the current year. He earns £40,000.
Of this income, £30,000 is spent in the UK. Earnings are paid to a bank account in A’s country of domicile.
His UK taxable earnings are £40,000 * 60% = £24,000 and non-taxable earnings = £16,000.
A is eligible for Overseas Workday Relief, therefore should only be taxable on the remitted income - £30,000. As the overseas income is above £10,000, then remittance basis applies. Mr X is taxable in the UK on £30,000 of his income.
Please note that Overseas Workday Relief can only be applied for in the Uk tax return at the end of a tax year and not payrolled.
You may qualify for relief against or credit from UK tax payable depending on your circumstances and the conditions set out in the relevant double taxation agreement. If this is the case then we can look at the terms of the double taxation agreement in place.
SPLIT YEAR TREATMENT
If you commence work in the UK or move from a UK base overseas during a tax year, you might be eligible for split year treatment.
This means that the UK Income Tax the individual should pay because they are resident here is calculated on the basis of the period they are living here rather than the whole of that tax year. This has the effect of splitting the tax year into resident and not resident periods for the purposes of calculating the tax due.
This split-year treatment will apply to individuals who:
come to the UK to take up permanent residence or to stay for at least two years, or
leave the UK to become permanently resident abroad, or
leave the UK for full-time service under a contract of employment for at least a complete UK tax year and any interim visits to the UK in the period do not amount to 183 days or more in any tax year or an average of 91 days or more in a tax year.
PAYROLL – HOW IT OPERATES IN THE UK
Notification of Agency income is received from your agency
The agency income and allowable expenses are calculated in Sterling (GBP) using the monthly HMRC exchange rate
Gross salary is calculated and payroll is processed
Take home pay is re-calculated into Euro at the same HMRC exchange rate
Payslip is sent out. The payslip is in Sterling (GBP) and the HMRC exchange rate appears as a note. The Euro payment is made from your company account = £Payment x exchange rate
Payment is made in Euros to your nominated account