Tax information: going to the UK

Before/once you arrive

Q. Do I need permission to work in the UK?

A. Before you travel to the UK for the purposes of employment/work, you should first consider whether you need to obtain prior immigration approval to enable you to work.

Individuals who hold British Citizenship, nationals of the European Economic Area (EEA) and Swiss nationals and other individuals holding an immigration status with no conditions attached to their leave may be able to come to the UK for the purposes of undertaking work/employment without first seeking prior immigration permission.

Individuals who do not fit into the above categories may need to obtain either a Certificate of Sponsorship from a UK based employer sponsoring their employment in the UK before travelling to the UK or obtain an alternative immigration status for example a Tier 1 (General - Highly Skilled) visa.

Individuals travelling to the UK to work should either seek independent immigration advice or contact their employer to identify the most appropriate options available to them before travelling.

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Tax – Basics

Q. What is the UK tax authority?

 A. The UK tax authority is Her Majesty’s Revenue & Customs (HMRC). The HMRC website is www.hmrc.gov.uk

Q.  What is the tax year?

A.   The tax year runs from 6 April to 5 April.   

Q.  Should I complete any HMRC forms upon arrival in the UK?

A.  You should complete a form P86 (“Arrival in the United Kingdom”). The forms contain questions about residence and domicile. You should also complete form P46 (Expat) with your employer if you remain employed overseas whilst working in the UK. You should speak with your employer about this.

Your spouse and children do not need to register unless they are working in the UK.
 
When you leave the UK you should submit a form P85 (“Leaving the United Kingdom”) or P85 (S) (“Leaving the United Kingdom at the end of my assignment”). 

Your employer should issue you with form P45 showing details of your pay and tax to date of departure.  This may be submitted with form P85 or P85 (S) if you would like HMRC to calculate any payroll tax over/underpayment. If you are filing a UK tax return you may find it more convenient to calculate all taxes at that point once all relevant claims and positions can be finalised.

Q. Is it beneficial to open an offshore bank (situated outside the UK) account in comparison to an account on the UK mainland?

A. In order to claim tax relief for non UK workdays (see section Tax – Income from employment) the income relating to any non-UK workdays must be paid into a non-UK bank account and not brought into the UK, and therefore an offshore bank account is critical. You should seek professional advice upon arrival in the UK to see if you will qualify for this relief and how it may be structured correctly with your domicile position
 
A non-UK domiciled individual may choose by election to be exempt from UK tax in respect of non-UK savings income to the extent that it is not remitted into the UK and therefore any interest paid in respect of an offshore account will not be taxable in the UK unless a remittance takes place. However, such a claim will have implications on the availability of tax free allowances in the UK and you should therefore seek professional advice to plan this position upon arrival in the UK.

If you are not domiciled in the UK and have been resident in the UK in the last 10 years, you should seek professional advice on arrival as your tax position could differ substantially.

Find out more about our offshore bank accounts    

Q. How is tax residence determined?

A. Whether you are resident in the UK is a question of facts and circumstances and will normally be decided under the following non statutory guidelines issued by HMRC. Please note that the guidance is HMRC’s interpretation of legislation and case law and is not binding in itself. Residence is not defined in legislation and is an area of tax that is ever evolving with ongoing case law. You are strongly advised to seek professional advice on arrival or departure.
 
If you come to the UK and intend to remain here for less than two years (and you occupy accommodation that does not imply a longer stay) you will be resident for the tax year concerned if you spend 183 days or more in the UK during that tax year.

Usually, you will be not resident in the UK if you spend less than a total of 183 days in the UK. Days of departure are normally ignored so that a midnight spent in the UK will count as a day spent for this purpose.

You will be considered resident if you have spent 91 days or more on average over the previous four UK tax years and visit the UK in the tax year concerned. You would be considered to be resident from the beginning if on average you intended to spend more than 91 days per tax year in the UK over four years.
 
If you come to the UK to take up residence for a period that is expected to be two years or more, you will be regarded as becoming resident from the date you arrive.
 
Ordinary residence status is based on intention over the length of stay and the type of accommodation you occupy. If you come to the UK and plan to stay here for three years or more, you will be treated as resident and ordinarily resident in the UK from the date you arrive. This will also be the case if you occupy accommodation which implies you will be resident here for three years or more, for example if you buy a property in the UK that is available for your use, or rent a property on a lease of three years or more.
 
You are generally treated as resident and not ordinarily resident from the date you arrive if your home has been outside the UK and you intend to come to the UK and remain here for at least two years but less than three years.

Q. What is ‘Domicile' for tax purposes?

A. A key factor in deciding how your investment income will be taxed in the UK is domicile. Individuals who are resident and domiciled in the UK are generally taxed on their worldwide investment income and capital gains. If you are domiciled outside the UK you will be taxable on your UK source investment income and capital gains but may elect to remain taxable on non-UK sources of investment income and capital gains to the extent that the income or capital gains are “remitted” into the UK. Please see below section. Tax- Other Income.
 
Domicile is decided by reference to UK law and is essentially where a person has their long-term permanent home. It is distinct from nationality, citizenship and residence.
 
Your domicile of origin is acquired at birth, which will normally be your father’s domicile at the time of your birth. Any changes to the domicile of the parent, whilst the children are still dependent on him, will mean a change in the domicile of the dependant child. Otherwise, the children retain their domicile of origin. It is possible to acquire a domicile of choice. To do so, it is necessary to break your links with your former domicile, reside in a new jurisdiction and intend to make your permanent home in that territory. In practice, it is difficult to acquire a domicile of choice to replace a domicile of origin. The burden of proof lies with the individual to support any contention that their domicile has changed.
 
It is usually the case that foreign nationals coming to the UK for a short period will be considered to be non-UK domiciled. HMRC are constantly reviewing UK residence and domicile and changed the taxation of both short term and long term resident but non UK domiciled taxpayers from April 2008, resulting in a far more complicated regime. You should therefore seek professional advice if you believe you will be resident but not domiciled in the UK.

Q. Are there any regional or state taxes?

A. No

Q. Can I file a joint tax return with my spouse?

A. No. The UK assesses each individual's tax liability separately.

Q.  What rate of income tax will I pay in the UK?

A.  For 2009/2010 the income tax rates are as follows:

Personal Allowance £6,475 (i.e. the first £6,475 of income is not subject to tax)

A new 50% tax rate if proposed for taxable income over GBP 150,000 from 6 April 2010. The personal allowances will be tapered down to nil for income over £100,000. For more details you should seek further advice.

* If your non-savings income is above the 10 per cent starting rate for savings income, it will not apply.

Q. Can I claim a tax deduction for charitable contributions?

A.   You can claim a tax deduction through the Gift Aid scheme for contributions to charities established in the UK if you are a UK taxpayer. You should complete the Gift aid form with the charity to ensure they are able to claim the basic rate tax credit on your behalf. You can claim additional relief of 20% on your tax return if you are a 40% income taxpayer. This is done by extending the 20% tax band by the gross contribution (net paid / 80%).

Alternatively you may give to charity through the Payroll Giving scheme. You will not be allowed to claim a UK tax deduction for contributions made to a charity registered only in your home country.

Q. Are any other tax deductions available?

A. UK residents, and certain non-residents are eligible to claim tax allowances in the UK, but other deductions are very limited. If you are seconded to the UK for less than 24 months and remain employed by your home country company, you may be able to deductions for certain living costs. You should seek professional tax advice if you believe you may qualify or contact your employer.

Q. I will also be paying tax in my home country. Am I being taxed twice?

A. If you are from a country with which the UK has a double taxation agreement, you may be able to claim exemption or partial relief from UK tax on certain types of income from UK sources. The precise conditions of exemption or relief can be found in the relevant agreement or by taking professional tax advice.

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Tax – Administration

Q.      Do I need to file an UK tax return?

A.  If all your UK taxable income is subject to UK withholding tax and you are not a higher rate (40%) taxpayer you may not have to file a tax return if you have no further tax claims or deductions to file.

Specifically for expatriates, you will need to file a tax return to claim relief for non UK workdays, deductions for temporary workplace costs or if you wish to make an election to exempt non UK personal investment income

If HMRC issue you with a tax return you are obliged to complete and file the tax return. Most higher rate taxpayers will need to file a tax return.  If HMRC does not send you a tax return and you need to file a return you must notify HMRC that you should be issued with a return by 6 October following the end of the relevant tax year.

Q.    When does it need to be filed?

A.   A UK return must be filed by 30 September following the end of the tax year if you ask HMRC to calculate your taxes, 30 October if filing a paper return or 31 January following the end of the tax year if you calculate the tax liability.

Q. Can the filing deadline be extended?

A. There are no extensions to file your return or pay any outstanding liability. Penalties and interest are payable in respect of late filed returns and unpaid tax.

Q. What is the procedure for paying tax?

A. All employees working in the UK for a period in excess of 30 days performing UK taxable duties are subject to income tax withholding (PAYE) through their employer’s payroll from the date their employment in the UK begins. If you have taxable income which is not subject to withholding (e.g. savings income) or which is subject to insufficient withholding, payments on account may be payable. Payments on account are calculated based on the balance of liability shown on the prior year’s tax return ignoring payments on account in the prior year. The first payment on account is due on 31 January during the tax year and the second is due on 31 July after the end of the tax year.

 Any balance of tax that is due on your tax return must be settled by the return-filing deadline, except where the balance is being taken into account through the wages withholding tax system (known as PAYE). Where the return is filed before 30 September following the tax year end and the balance of tax is less than £2,000 it can be collected through the withholding system.

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Tax – Income from employment

Q. Will non-cash compensation be taxable (e.g. housing)?

A. If you are resident in the UK all earnings from employment will be taxable in the UK. This includes all salary, bonuses and benefits (e.g. housing, car, medical) provided by your employer regardless of where this is paid or provided. Your employer will provide you with a year-end summary of your taxable cash payments on Form P60, and a year-end summary of your taxable benefits on Form P11D.
 
You may take certain deductions in respect of Qualified Travel Expenses (QTE) such as rent, utilities, council tax and reasonable subsistence amounts. To qualify for this relief you must be in the UK working temporarily away from your permanent workplace for a period expected to be 24 months or less.  The relief will cease immediately if circumstances change and you are no longer away from your permanent workplace or you intend to remain in the UK for longer than 24 months. If you are working in the UK under a local contract of employment, rather than a temporary secondment from an overseas employer, it is likely to be more difficult to argue that the UK is a temporary workplace.

Q.  I will be working in different countries while living in the UK. Will all of my employment income be taxable in the UK?

A.  If you are regarded as resident but not ordinarily resident in the UK, you may be eligible to claim UK tax relief in respect of non-UK workdays. To satisfy the conditions for overseas workday relief the remuneration attributable to duties performed outside the UK must be paid and kept outside the UK.  Relief ceases (with effect from the preceding April 6) in any UK tax year during which you form the intention to remain in the UK for 3 years or beyond or occupy accommodation implying that you will stay here for 3 years or more.
 
Form P86 should reflect your true intention upon arrival in the UK and this, together with other circumstances, is appropriate to claiming any relief you may make on your tax return at the end of the tax year.
 
You should seek professional tax advice on this subject and also with regard to the foreign tax implications of working in the other countries.

Q.  I was granted share awards prior to arriving in the UK and will be granted further share awards during my stay here. Will I be taxable in the UK on this income?

A.   The UK share award legislation is complex and HMRC’s interpretation of pre-UK resident awards has also been recently re-stated. You should seek professional tax advice with regard to your specific situation.

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Tax – Other income

Q. Will I pay UK tax on investments and rental income generated in my home country?

A. If you are resident in the UK, you will normally pay UK tax on all your investment income (e.g. interest, dividends, rental income), wherever it arises.

If you are resident but not domiciled in the UK, you can use the remittance basis for both foreign income and foreign capital gains. If you are resident and domiciled in the UK but are not ordinarily resident, you can only use the remittance basis for foreign income. The remittance basis does not apply to your foreign capital gains which will be taxed on the arising basis.

Where the remittance basis election is made, you elect to be liable to UK tax on the amount of your overseas investment income that is remitted to the UK. Income is remitted if it is paid here or transmitted or brought to the UK in any way. Careful structuring of overseas bank accounts is required for non-UK domiciled individuals and you should therefore contact a tax advisor to discuss this.

You should seek professional tax advice before making this election as if the foreign income and gains to be exempt exceed £2,000 for the tax year, you will forgo personal income tax and capital gains tax free allowances for the tax year. The election will be irrevocable and is made each tax year when filing your tax return. Please note the election will be required to claim tax relief for income attributable to non UK workdays as explained above. The overseas workday income is also counted towards the £2,000 limit.

Further rules apply if you are not UK domiciled and have been resident in the UK at any point during the 7 of the previous 9 tax years from the year in question, then in order to elect the remittance basis of taxation, there will be a £30,000 lump sum tax to pay. If you believe this is applicable to you, you should obtain professional tax advice.

Q. Is there a Capital Gains Tax regime in the UK?

A. Yes. Capital gains tax (CGT) is a tax on profits arising from the sale of certain assets. Shareholdings, property, businesses, and works of art are all examples of assets that can result in a capital gain. Some assets are exempt from CGT. These include gains on:

• selling your only or main residence
• life assurance policies
• UK government securities
• certain corporate bonds
• private motor cars
• gifts of assets to charity
• gains within an ISA shares account

If you are resident or ordinarily resident, and domiciled in the UK you will be subject to capital gains tax on al chargeable assets, regardless of where they are situated.

If you are resident or ordinarily resident but not UK domiciled, you will be subject to capital gains tax on all UK chargeable gains and on the remittance basis for overseas gains.

If you are not UK resident you are not chargeable to UK capital gains tax.

There is an annual exemption for capital gains tax (currently £ 9,600 for the 2008/09 UK tax year). The net capital gain, after deducting eligible capital losses and the annual exemption, is treated as income and taxed at a flat rate of 18%.

The gain is calculated in sterling using the exchange rate at acquisition and disposal. Losses from the sale of assets can be offset against capital profits for the same year or in later years. They cannot normally be set against income subject to income tax. Losses arising on foreign assets owned by non-UK domiciled individuals are not allowed against other gains.

Q. Is there favorable relief for certain assets?

Entrepreneurs’ Relief was introduced on 6 April 2008 in place of taper relief.

Entrepreneurs’ Relief allows you to claim relief on the first £1 million of gains made on the disposal of all or part of a business, or a disposal of a business's assets after a business has ceased.

Entrepreneurs’ Relief reduces the amount of gains liable to Capital Gains Tax by four ninths, resulting in an effective 10 per cent rate on all qualifying gains up to £1 million.

You can make several claims over your lifetime as long as the total of your claims doesn’t exceed £1 million. Entrepreneurs’ Relief can only be claimed when you sell or dispose of all or part of your business after 6 April 2008.

You should seek professional tax advice if you believe this will be relevant to you. For more information please see below link to HMRC website.

http://www.hmrc.gov.uk/cgt/businesses/reliefs.htm#1

Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?

A. Generally, if you are domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to your assets wherever they are situated. You are deemed to be domiciled for inheritance tax purposes if you have been resident in the UK for at least 17 of the last 20 years (please note that if you are resident for any part of one UK tax year this is counted as a full year in determining when you meet the 17-year test).

If you domiciled abroad, inheritance tax applies only to your assets in the UK.

There is no wealth tax regime in the UK.

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Social security

Q. Am I required to pay UK Social Security?

A. If you arrive here from abroad and take up employment with a UK employer, or take up self-employment, you will generally be required to pay UK National Insurance Contributions. There are some exceptions as follows:

• If an employer in another European Economic Area country has sent you to work in the UK, you may be able to continue paying foreign social security contributions instead of UK National Insurance. Certificate E101 must obtained by application to the social security authorities in your home country.
• If you have been sent to work temporarily in the UK by an employer in a country with which the UK has a bilateral Social Security Agreement covering National Insurance Contributions, you may be able to continue paying foreign social security contributions instead of UK National Insurance.
• If you have been sent to work temporarily in the UK by an employer in a country which is outside the EEA and not covered by a bilateral Social Security Agreement, the general rule is that you do not have to pay UK NICs for the first 52 weeks of your employment in the UK.

As an example, from April 2009, Class 1 monthly not contracted out rates for employee are as below.

1- 476 @ 0%

477- 3,656 @ 11%

3,656+ @ 1%

For full details on all NIC rates please refer to the HMRC website- http://www.hmrc.gov.uk/rates/nic.htm

Q. How do I register with the UK Social Security authorities?

A. Whether or not you are liable to pay UK NICs you should obtain a UK National Insurance Number from the Department of Work and Pensions (DWP). You must take the following items to your local Job CentrePlus:

• Contract of employment outlining your personal details, job description, contact details, assignment commencement date, likely end of assignment.
• Your passport and UK work permit
• Any other evidence of ID which bears your photograph such as driver's license
• Utility bill which bears your UK address details
• Any other documents you may have which can be used as proof of ID.

It is better to take original copies (and a photo copy) of documents.

Q. Are social security contributions deductible for tax purposes?

A. Social Security contributions are not allowed as a deduction for tax purposes.

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