Non-resident directors of UK insurance business: take care with tax

A director of a UK company who is non-resident in the UK still has UK tax obligations. Directors and employers need to understand their tax position and compliance requirements. Failure to do so is likely to result in costly penalties, especially when HMRC is stepping up its reviews of international employee taxation. This applies to businesses operating in all sectors, including the Insurance sector.

How is directors’ remuneration taxed in the UK?

Any income received by a non-resident director of a UK company as a result of their role is treated as UK earnings – regardless of whether the income is paid by the UK company or by an overseas entity. It is therefore subject to PAYE (Pay As You Earn) rules which means that employment tax should be deducted from income paid. Even where double tax treaties are in place, no protection from PAYE is usually given.

It is important to document the pay arrangements for any non-resident directors clearly. This should reduce the risk of HMRC seeking to allocate a proportion of a director’s total pay to their UK directorship.

UK accommodation and travel expenses

UK accommodation and travel expenses need to be considered when assessing the non-resident director’s tax position. The UK is treated as the regular place of work for the director role and so, in HMRC’s view, UK accommodation and travel expenses are taxable in the UK. It makes no difference whether the costs are borne in the UK or elsewhere.

However, it is possible that some accommodation and travel expenses may not be subject to UK tax where the director is performing a task for a limited duration. Strict conditions must be met.

Employers should be aware of their reporting obligations that arise in relation to UK accommodation and travel expenses. These will depend on the way in which the benefits are provided i.e. whether the company is providing accommodation and travel directly, or reimbursing the director for those costs.

It is also worth noting that it may be possible to include taxable expenses in a PAYE settlement agreement if the employer wishes to meet the tax costs of any travel and accommodation provided.

Social security

Social security taxes also need to be considered as they are equally important in terms of costs and compliance. The UK position on National Insurance contributions (NICs) is potentially complex. It can depend on:

• how the other relevant jurisdiction treats company directors, i.e. as employed or self-employed;
• whether the director is from the European Economic Area (EEA);
• whether the director is from a country with which the UK has a social security agreement;
• whether the director is from a country with whom the UK has not entered into a social security agreement.

Broadly speaking, a non-resident director coming to the UK from a country in the EEA with a valid A1 certificate issued by his home country’s authorities will be exempt from NICs. Under certain conditions it may also be possible for non-resident directors from countries who have entered into social security
agreements with the UK to obtain a home country issued certificate of coverage and be exempt from NIC in the UK.

There could also be some concessions for directors from countries where there is no social security agreement in place, but this is subject to certain conditions being met.

Filing tax returns

Non-resident directors will need to file UK tax returns. HMRC will impose penalties for failure to do so by the deadline. Even where HMRC has not issued the individual with a tax return but UK tax is due, a penalty for failing to notify HMRC will be imposed unless the tax is paid by the filing deadline and a return submitted on a timely basis.

How Moore Stephens can help

Moore Stephens can offer advice to employers and directors in relation to all their tax compliance obligations. Contact our Employers’ Support team for further information and assistance.

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