Between finding somewhere to live, finding schools, deciding what to ship and what to store, finishing work and saying goodbye to friends and family, it is not surprising that tax takes a back seat when going on an international assignment, particularly where there are no taxes to consider in the host country. But there are many situations where UK tax legislation can provide some unexpected and unwanted outcomes. This article looks at some of the UK tax implications for individuals leaving the UK to work and explains why tax should not be neglected.
The UK tax system is complex, especially for individuals with a mixture of UK and non-UK connections. For individuals who are UK resident and UK domiciled, their worldwide income and capital gains will be subject to UK taxation (non-UK domiciled individuals can make an election to be taxed on the remittance basis but this is outside of the scope of this article). For non-UK resident individuals, only their UK source income is subject to UK taxation.
Compliance obligations
If, prior to your departure, you were filing tax returns in the UK, you will need to report your departure on your tax return for the year you left the UK. However, it is important to consider if you need to inform HMRC separately of your departure. This is done by completing form P85.
Without a P85, HMRC cannot instruct employers to cease to withhold tax on employment income paid to non-UK residents – potentially causing withholding in both home and host countries.
Considerations under the Statutory Residence Test (SRT)
The SRT is designed to provide a definitive answer as to your residence status in the UK. That being said, the SRT tests are not straightforward and each test should be considered in detail. For most international assignees the main test to consider is whether you meet the “sufficient hours overseas” test to be considered as non-UK resident. Unfortunately, this is not just a matter of just looking at your contractual hours.
Mr. Tea has been UK resident all his life. On 5 April 2013 he left the UK to work in Dubai on a 2-year assignment. He is contracted to work for 35 hours per week. He has to come back to the UK for a one-week training course each year. Mr. Tea’s wife and children are staying in the UK so he also plans to visit the UK for 4 one-week holidays plus 6 four-day weekends each tax year. The family will take a two-week holiday in Spain.
During the 2013/14 tax year, Mr. Tea assumes that as he works his contractual 35 hours a week in the UAE, he must be non-UK resident. However, based on these particular circumstances, he does not meet the test. He would then need to consider if he meets any of other SRT tests for the year. Based on these facts, Mr Tea could well be determined to be UK resident.
How will your tax residence status affect your UK tax bill?
