WellTax Blog

Overseas Directors of UK Companies: Tax and National Insurance Implications

September 19, 2023
  1. PAYE Considerations

It’s not uncommon for foreign nationals to be appointed as statutory directors of UK companies, especially when the UK entity is a subsidiary of an overseas corporation or part of a global group of companies.

It’s crucial to understand that, in such cases, the directorship is associated with a UK-based company. Even if the director does not reside in the UK, any earnings from this directorship cannot be classified as foreign emoluments.

When UK-resident directors perform their directorial duties within the UK, they are subject to tax on their fees for those UK-based duties. Similarly, if non-resident directors of a UK company carry out any directorial responsibilities on UK soil, the fees earned from this directorship are taxable in the UK.

In most cases, the role of a director in a UK company necessitates attending board meetings within the UK and fulfilling statutory responsibilities that demand a physical presence in the country. HMRC (Her Majesty’s Revenue and Customs) typically views these duties as non-incidental to the non-resident director’s overseas responsibilities. Attendance by a non-resident director at UK board meetings is almost always regarded as a UK-based duty. Therefore, it’s relatively uncommon for non-resident directors of UK companies to be exempt from assessment on their director’s fees.

However, there is a potential exemption for director’s fees related to UK duties if the director is a resident of a country with which the UK has a Double Taxation Agreement. Specific conditions outlined in the treaty’s Article for directorships must be met for this relief to apply.

  1. National Insurance Contributions (NICs)

Different rules apply to directors based on their place of residence and work:

· Outside of the EEA and Reciprocal Agreement Countries: Directors residing and/or working in a country outside of the European Economic Area (EEA) with no Reciprocal Agreement may not have a Class 1 National Insurance Contributions (NICs) liability, unless they are either resident or present in the UK or are ordinarily resident in the UK.

· Inside the EEA or Reciprocal Agreement Countries: Directors residing and/or working in EEA countries or countries with a Reciprocal Agreement with the UK may have varying NICs obligations.

For directors who reside abroad but occasionally work in the UK, or for those based in the UK but occasionally work abroad, Class 1 NICs are payable for the initial 52 weeks of work abroad.

There’s an important NICs concession that applies to directors who neither reside nor are ordinarily resident in the UK and whose only UK-based work involves attending board meetings. In this scenario, no NICs liability arises if:

· They attend no more than 10 board meetings in a tax year, none of which last for more than two days.

· There is only one board meeting in a tax year, and it does not extend beyond two weeks.

In cases where:

· The director is a UK national working in the EEA.

· The director is an EEA national working in the UK.

· The director resides in a country with a Reciprocal Agreement with the UK and works in the UK.

· The director both resides and works in the UK but also works in another EEA or Reciprocal Agreement country,

the CA44 National Insurance for Company Directors booklet advises employers to contact HMRC’s Centre for Non-Residents Helpline.

In practice, HMRC often applies the aforementioned concession to all non-resident directors, regardless of treaties or EEA regulations. If the tests result in the overseas director’s presence in the UK being disregarded, no UK NICs liability is incurred. However, if the director’s UK work cannot be disregarded (e.g., spending three months in the UK annually), the EEA regulations or relevant treaty provisions are applied to determine whether UK NICs liability applies to earnings from the UK directorship.

Understanding the tax and NICs implications for overseas directors of UK companies is essential for both the directors themselves and the companies they serve, ensuring compliance with UK tax laws and regulations. It is advisable to seek professional guidance on specific cases to navigate these complexities effectively.

Michele Ammirati

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