UK taxation

A happy landing?        (Photo: SXC)

A happy landing? (Photo: SXC)

For British people working abroad, tax is actually quite a big issue.  There’s a lot of confusion about what rights and obligations we have, and how we go about making sure we don’t pay tax we don’t need to.  It’s a complex subject, and each situation is different, based on your own personal circumstances, where you’re working, and which sending agency you work with, if any.  Don’t base any case you have with Her Majesty’s Revenue and Customs (HMRC) on the information you find here, which is for guidance only.  If you can’t find the information you need online, contact HMRC direct or seek guidance from a professional advisor.

The standard position on UK income tax is that the British government taxes its residents on their global income, but nonresidents on their UK income only.  So residency is a key but complex issue and you can read more about it here.  Generally, it is worth working out what your residency status is, as it affects the way in which you pay tax.

Residency regulations changed with effect from 6th April 2013 and this will have a significant impact on UK mission workers, particularly when they come to the UK on home assignment.  Residency is now worked out using the Statutory Residency Test (SRT).  This is important as you may find yourself hit with a large income tax bill which you didn’t expect.

The SRT has three parts:

  1. whether you are automatically non-resident;
  2. whether you are automatically resident;
  3. if neither of the above, whether you are resident or non-resident according to whether you have sufficient ties to the UK

The details of these are complicated, as you would expect.  We’ve tried to simplify them for you, but make sure you read the provisions for yourself to check your situation.  There are complicated definitions, and special provisions where a stay in the UK straddles two tax years.

Examples:

You are automatically non-resident if:

  • you have lived and worked abroad for 2 years, and return to the UK every year for no more than 16 days; or
  • you have lived and worked abroad for 4 years, and return to the UK every year for not more than 46 days; or
  • you work full-time abroad and return to the UK for less than 91 days and the number of days on which you do more than 3 hours’ work in the UK is less than 31.

You are automatically resident if:

  • you spend 183 days or more in the UK.  This test is of vital significance for mission workers on home assignment for more than six months; or
  • you have a home in the UK for a period of more than 90 days, and you are present in that home for at least 30 days, and you have no overseas home or an overseas home in which you spend more than 30 days.

To help you through this process, we have produced two flow charts helping you through the tests.  Click on the links below to see a pdf:

Automatic overseas test                     Automatic UK test

These are not definitive and you should consult the HMRC website for yourself.  We recommend that you take advice from your agency, or if you don’t have one, an accountant.

Our recommendations are that you investigate this situation thoroughly before you spend more than two weeks in the UK, keep records of when you travel to the UK and how many days you spend here, and a log of the amount of working hours you do each day and where you stay.  Craziness!

You can read a guidance note on the SRT here:

Becoming officially non-resident doesn’t happen automatically: you have to inform HMRC that you are non-resident by completing form P85, which you can find on the HMRC website.    Completing this form is good house-keeping and as a general rule it is always worth keeping HMRC aware of changes in your address or forwarding address.  Non-residence does not exempt you from UK tax, as many people wrongly believe; it simply means that you don’t pay tax on any income you receive abroad.  If you receive income from a house in the UK you rent out, for example, this may still be liable to UK tax.  However, you might not end up paying over any tax as you will still be eligible for the personal tax-exempt earnings allowance (£10,000 in 2014/15.  You should still, however, file a tax return.

 Whether your income is UK income or overseas income may also be a cause of confusion.  In reality, whether you are subject to income tax on your earnings depends on where you do your job, and how much of it (if any) you do in the UK.  It doesn’t really matter where your earnings are paid and there is nothing to fear from having salary paid into the UK if that makes life easier for you.

It should also be mentioned that UK mission workers are usually liable to tax on the income they receive for the purpose of carrying out their vocation, whether it is a donation or not.  However gifts that are specifically donated for a project (e.g. for building work), personal gifts for medical treatment or wedding gifts, and personal gifts from family or friends for birthdays etc are not taxable as they are not considered personal income. For more information see the HMRC pages on missionaries and evangelists see the HMRC website.

Another mistake British citizens abroad often make is to assume that they’re exempt from local tax.  Other countries tax their residents in the same way as UK does – if you live there, you pay for the services the government provides, whether you’re a national or not.  This can leave mission workers vulnerable to quite high tax bills, as their income is frequently higher than that of the nationals they work with.  While some countries may waive tax on people they see as bringing foreign money into the country, like development workers, when times are tough they may change their minds and claim several years’ back tax from you at a higher percentage than you would have paid in the UK, so make sure you know what the local tax arrangements are.  One way of avoiding this is to work in a country which has a Double Taxation Agreement with the UK, which means that income taxed in one country is not taxed in the other.  Click here for more details.

And don’t forget, you will probably need to complete a UK tax return, which you can now do online.  For more information about doing this, click here.  However you cannot do this from abroad.  There are increasingly harsh penalties for failing to file this on time and for paying your tax late, so make sure you do it well ahead of the deadlines, as the HMRC website can occasionally crash under the weight of traffic caused by people doing it at the eleventh hour!

Syzygy would like to acknowledge the help of our resident tax expert, Martin Rimmer, in creating this briefing.