A fundamental principle of directors’ duties, such as the attendance at board meetings, cannot be treated as ‘incidental’, meaning that the income attributed to UK duties is taxable in the UK regardless of the director’s residence status. In this scenario the UK must operate PAYE on payments made to the director, creating withholding obligations and reporting requirements.
Concessions are available to remove overseas directors of UK companies from NIC obligations. The conditions for the concession cannot be varied however, meaning that if one condition is exceeded then the entire concession fails for that tax year. Furthermore, as this is a ‘concession’ this can be withdrawn at any time. If the director becomes resident in a reciprocal agreement country, then social security certificates may remove UK NIC liabilities entirely without relying on the precarious administrative concession. It is important therefore to understand the best approach that should be taken and what the limitations are.
Consider therefore whether certain director duties can be performed remotely, or in the director’s home (overseas) jurisdiction. Whilst UK board meetings would create UK source income, strategic activities performed abroad may fall outside UK taxation.
The risks associated with undertaking duties in the overseas jurisdiction need to be considered in detail as well, however. These include:
- the risk of the company becoming resident in the overseas jurisdiction as a result of the company’s place of effective management and control being in the overseas jurisdiction.
- the risk of the company creating a permanent establishment in the overseas jurisdiction if the director is seen as habitually making or concluding contracts in the overseas jurisdiction, and the management decisions are regularly taken there.
Moving overseas may not remove directors from the net of UK tax and NIC and may have the unintended consequence of giving rise to a taxable establishment in the overseas jurisdiction that could have unforeseen and costly consequences. Always take advice to ensure you have up to date advice and you understand the interplay of taxes if you’re a director looking to leave the UK.
Please contact Diane Nettleton at diane.nettleton@kilsbywilliams.com to discuss tax residence further, or your usual advisor on 01633 810081. You may prefer to email info@kilsbywilliams.com for more general enquiries and advice.
