Income Tax Regulations for Non-UK Residents and Overseas Employment under the Tax Laws Formation of United Kingdom


15 Jan

You might have wondered to start a process of business registration UK or estimating how much does it cost to register a business UK but have you ever thought about the tax implications? There are some specific regulations for the individuals with respect to income tax if they are not the residents of UK. These regulations will be included in the blog in a brief manner. The second part of the blog will focus on the rules applicable to the individuals after establishing England formation company or if they are working in a foreign company, and the vice versa case will also be considered, i.e. rules for the non-UK resident having an employment in a company formation of United Kingdom.

Non-UK Residents

Are there Any Personal Allowances for the Non-UK Residents?

Normally, the individuals who are not the residents of UK do not hold an entitlement of a personal allowance. But this is not always the case. There are some individuals who may be granted personal allowances which include the citizens of the European economic area (EEA) and the individuals residing in the Isle of Man and Channel Islands.

Limit on the Liability of Income Tax for Non-UK Residents

There exists a limit on the income tax liability for the individual who is not residing in the UK, although this is not the case when the splitting of tax year is done. The tax cannot be more than the sum of:

  • The tax year liability if the taxation of the individual was done on all income, except the disregarded income, without a personal allowance; and
  • The subtraction of tax done at source from the disregarded income (tax credits on dividends inclusive).

The UK savings and income from dividend is included in the disregarded income but the non-savings income such as employment, trading or property income is not included in the disregarded income.

If an individual who does not reside in the UK receives the income or interest that occurs on the ‘Free of Tax to Residents Abroad’ FOTRA securities (UK Treasury Stock in a broad manner) is not liable to tax.

The acquisition of the bank and building society interest can be done gross and hence, there will not be any UK tax liability on this income if the receiving person does not reside in the UK and a declaration is made by him on form R105.

Foreign Employment and Employment of Non-Residents in the UK

Charging the Employment Income

The tax treatment of the earnings of an employee is determined by the residence and domicile status of an employee, and also the determination that whether their duties inside or outside the UK are being carried by them.

Individuals having a UK-Based Residence and Domicile

Irrespective of the fact that where the employment duties are being carried out (inside or outside the UK), the taxation of an individual who is both a resident and domiciled will be done on a receipts basis on their general earnings.

However, as mentioned earlier, if an individual is able to split the tax year, then any earnings that are related to the overseas part of that particular year, as determined on a just and reasonable basis, are not liable to tax unless they have some relation with the duties of work performed in the UK such as working in a England formation company etc.

Individual who Resides in the UK but does not have a Domicile

As a general rule, an individual who is a UK resident but does not have a UK-based domicile, his taxation of the general earnings is done on the receipts basis and it does not matter where the employment duties are being carried out.

The two special rules for the taxation of the income of individual acquired from non-UK duties to be on remittance basis are mentioned as follows:

  • Out of the preceding 5 tax years, for any of the continuous three years, the individual has not been a resident of the UK.
  • The earnings are deemed to be the ‘chargeable overseas earnings’. Such earnings include the ones where the employer is a foreigner and the performance of employment duties is done entirely outside the UK.

In case if a split year treatment becomes applicable, then the amount attributable to the year’s UK part is actually the amount of earnings that are related to non-UK duties whose taxation is being done on the remittance basis, and whose determination is done in fair means. It should be kept in mind that the taxation of the amount attributable to overseas part is not done in the UK.

If the remittance basis is automatic or if a claim is made for it, only the earnings related to the non-UK duties which are brought back into the UK are liable to charge in the UK. The usual receipts basis is applicable to earnings that are in relation to the UK duties.

Individual having Non-UK Residence

An individual who is not a resident of the UK is taxed on their general earnings in relation to the UK duties by making use of the receipts basis. In case of non-UK duties, there is no charge of UK income tax on the earnings.

Summary Table for Employment Income Taxation

Employee’s Residence Status

Performing Duties Wholly or Partly in UK

Performing Duties Wholly or Partly Outside UK

Performing Duties Wholly Outside the UK

Resident and Domiciled in the UK

Taxable on Receipts Basis

Taxable on Receipts Basis

Taxable on Receipts Basis

UK resident but not UK domiciled

Taxable on receipts basis

Liable to tax on the receipts basis excluding the non-UK resident for continuous three years out of the preceding five tax years, when the claim of taxable remittance basis is made

Liable to tax on the receipts basis excluding the non-UK resident for continuous three years out of the preceding five tax years or the employer who does not work inside the UK when liable to tax on remittance basis if a claim is made or automatically

Not a resident of the UK

Taxable on receipts basis

Not liable to tax in the UK

Not liable to tax in the UK


Foreign Employment and Travel Expenses

If a person is working outside of the UK, then it is possible that he makes a claim for specific deductions for the expenses of travel and subsistence.

There are some scenarios in which the subtractions of the traveling expenses related to the foreign duties overseas may be done from the earnings. This is irrespective of the fact that whether its reimbursement is done by the employer or not.

The permission for a deduction is given for the initial and final travel expenses. The initial or starting expenses are defined as the ones that are needed by the employee to fly overseas for the employment purposes while the final or finishing expenses are defined as the ones that are required by the employee to return back to UK once the employment tenure has been completed. In order to get this permission, there are some certain conditions that need to be fulfilled as mentioned below:

  • The employee is a UK resident.
  • The performance of the employment duties is done entirely outside the UK, excluding the incidental UK duties.
  • In case if the employer is not based inside the UK, then at least he should have a UK-based domicile.

The deduction is applicable only on the expenses initiation and termination of the employment if the travel is limited to the events of starting and ending of employment only.

When an employee has more than two employments and for at least the duties of one employment, he has to travel abroad, then there is also a subtraction from an employment for expenses of travel. The conditions mentioned below should be satisfied:

  • An employee is traveling in order to perform the duties of employment at the destination.
  • At the departing place, the employee was involved in the performance of duties of another employment.
  • Both or each of the place of departure and destination are based outside the UK.
  • One or both of the employments demand the performance of duties abroad.
  • The employee is a UK resident.
  • In case if the employer is not based inside the UK, then at least he should have a UK-based domicile.

Employer Bearing the Travel Expenses

When the expenses are provided by an employer having business registration UK for the employee to work abroad, there is a possibility that a number of subtractions are made in the earnings of an individual. In general, the allowable deduction equals the amount that in included in the earnings. It should be noted here that the deductions are not applicable in case where an employee does not acquire reimbursement even if he incurs such costs.

The first kind of deduction includes the facilities that are provided to the employee for a journey that he makes. Such a deduction is applicable in two circumstances as mentioned below:

  • The employee is not present inside the UK and the absence is exclusively and entirely in order to perform the duties of one or more employments, the performance of duties can only be done outside the UK and the journey involves traveling from outside the UK or a return journey following such a journey.
  • The performance of the employment duties is done partly outside the UK, the journey involves traveling from the UK to place of performance of non-UK duties, the performance of non-UK duties can only be done at the destination and the journey is made exclusively and entirely in order to perform the duties or returning after their performance.

The subtraction is only applicable from earnings that are chargeable as the individual is a resident of the UK but not from chargeable overseas earnings (duties that are employer based outside UK/non-domiciled employee/non-UK). This is due to the fact that the taxation of the overseas earnings is done under the remittance basis.

If a journey is made by a family member of the employee, then a deduction is also available to provide such travel facilities. A deduction is also available on the expenses repayment being suffered by employee on this type of journey. Some conditions that need to be fulfilled include:

  • In order to perform the employment duties, the employee is not present in the UK for a continuous duration of minimum 60 days.
  • The journey involves travelling from the UK to the place of performance of duties outside the UK.
  • The partner or the child of the employee is either on-board with the employee at the start of the period when the employee first starts being absent or visiting the employee during that duration or is coming back to the UK after visiting or accompanying the employee.

An individual who makes more than 2 outward and inward journeys each in a tax year does not have the permission of a deduction.

Again, the deduction is only applicable from the earnings that are chargeable as the individual resides in the UK, but not from the chargeable overseas earnings whose taxation is done on the remittance basis.

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