It can be difficult to correctly manage the UK income tax and National Insurance Contributions (NIC) withholding and reporting obligations for internationally mobile employees, but the complexity and risk increases when it comes to non-UK resident directors (NRDs).
HMRC can easily see whether there is potential non-compliance by comparing information held at Companies House (which includes the nationality and country of residence of directors), to Real Time Information (RTI) submissions. Failure to operate PAYE or NIC where required will lead to interest and penalties, potentially scrutiny into wider compliance (including other taxes) and will have reporting implications for companies within the Senior Accounting Officer regime, as well as personal implications for the NRD.
Business or personal demands
Often within international groups, directors are employed and paid by one company but hold directorships in several of the group’s businesses across a range of countries. Costs relating to remuneration or travel and subsistence costs may be borne in (or cross-charged to) the UK, but even where they are not, UK reporting obligations will arise, which are likely to include operation of PAYE and NIC, and filing of forms P11D.
In some cases, non-resident individuals will be appointed as non-executive directors because of the particular skills they can offer the company, but because they are non-resident and may be considered self-employed in their local jurisdiction (not uncommon for statutory directors), the UK reporting and payroll requirements can be overlooked (as well as any overseas obligations).
Complexity of reporting compliance
The complexity, particularly in a group situation, is understanding the purpose of business visits to the UK, and whether each UK trip is in the capacity as director, or solely for some other purpose relating to their overseas employment. In the absence of clear information to the contrary, HMRC will presume the visit was in capacity as a UK director.
Frequently used tax reporting relaxations for other Short Term Business Visitors such as Appendix 4 (STBVA) and Appendix 8 (PAYE Special Arrangement for STBV)) do not apply to board directors. If an NRD is a statutory director of a UK group company, they are an ‘office holder’ in that company and any UK duties (board meeting or wider director responsibilities) will trigger a PAYE liability and an RTI reporting obligation.
HMRC disregards the fact that the individual may be paid for all group directorships from an overseas parent company; the PAYE obligations for those duties fall on the UK company. Details of overseas remuneration will be required to determine the amount on which PAYE needs to be operated, strictly 100% in the absence of agreeing otherwise with HMRC, and it will also need to be agreed how the PAYE will be withheld from their overseas pay.
The issue of expenses paid while travelling to the UK to carry out director duties is also complicated: travel costs to and from the UK may be exempt for non-UK domiciled directors, but hotel, subsistence and other costs will usually be taxable: the facts and circumstances need to be reviewed to conclude.
The social security position
The social security position is different to income tax, and both the company and NRD can be liable to pay social security in both the UK and their home country in full, without any relief available for the double charge.
Whether or not the UK duties of an NRD trigger UK NIC depends on the director’s country of residence and whether there is a social security agreement between the UK and that country which will enable a ‘certificate of coverage’ to be obtained to provide exemption from UK NIC. Even where a ‘certificate of coverage’ could be arranged, unless one has been obtained, NIC needs to be operated.
For countries with which the UK does not have a social security agreement, and this includes Australia and South Africa, there is a limited administrative concession which may relieve the obligation to operate NIC: broadly, if the individual makes visits to the UK of two nights or less to attend board meetings only, and attends no more than 10 board meetings a year. All the individual’s UK directorships need to be taken into account for this purpose, and unless the terms of the concession are met in full, then NIC remains due.
Getting it right
HMRC knows that compliance issues can easily arise with NRDs so it makes sense to ensure that you identify and track their activity in the UK and pay arrangements to guarantee good compliance.
Claire Murray is a director in BDO’s global employer services team
