Non-UK Resident Directors on the Boards of UK companies will be considered as employed by or office-holders of the UK companies. Therefore, there is a requirement to withhold UK PAYE on a proportion of their remuneration received on any Director duties carried out in the UK. This article provides an overview of some of the key considerations for you as an employer from both an income tax and social security perspective. If you have not previously considered your Non-Resident Director population from a UK income tax and social security perspective, we would recommend that you conduct a full review of this population.
An individual who is not resident in the UK for tax purposes is still subject to UK tax on any UK-sourced income. Fees received for attendance at Board meetings in the UK are UK-sourced because the duties are performed in the UK. UK tax will therefore be due under UK domestic legislation. This will remain the case even in situations where the NRD is not separately remunerated for the directorship e.g. an individual might be paid a single fee or salary for worldwide duties, so if that person attends board meetings in the UK, HMRC would expect a portion of their total income to be allocated in respect of the UK directorship and taxed accordingly. The responsibility for withholding tax in this case under PAYE rests with the UK company.
There may therefore be instances where part the Director’s income is subject to double taxation in the UK and in their country of residence. In such situations, the double tax treaty between the 2 countries should provide a credit for any double taxation suffered (capped at the tax due in the home country).
The position regarding UK NICs is determined according to where the NRD comes from and the frequency and length of visits to the UK. For example, for a NRD who comes from a country within the EEA or Switzerland, the general rule is that the NRD will be liable to pay UK NICs unless he/ she holds a Certificate of Coverage (A1/E101) which confirms exemption from UK NIC for the NRD and the UK company. Alternatively, there is a special concession in the UK under which a NRD would not have to pay UK NI. For example, if the NRD attends no more than 10 Board Meetings in the year and each visit lasts no more than 2 nights.
Companies will typically reimburse expenses for NRDs that relate to their attendance at a UK board meeting, including flights to the UK, overnight accommodation and subsistence.
The UK tax treatment of these expenses will depend on whether the UK is considered a permanent workplace. HMRC has provided clarification in relation to the assessment of temporary workplace for a non-executive director. The updated guidance includes an example of a non-executive director who travels to board meetings at locations that can be considered temporary if they do not have a regular geographic location. The same principle can therefore apply for NRDs.
The issue of tax compliance for board directors is complex from a tax and social security perspective. Companies will need to review their Board director arrangements to ensure they are compliant and can mitigate the risks from a cost and reputational perspective.
If you have not previously considered your Non-Resident Director population from a UK income tax and social security perspective, we would recommend that you conduct a full compliance review. It is becoming increasingly common for companies to approach HMRC on the basis of a voluntary disclosure where Non-Resident Directors are named in the accounts but are not included on the payroll. Additionally, HMRC are focussing on this area as a natural extension to the recent change in approach to Short Term Business Visitors. We would be pleased to conduct a review, discuss the appropriate actions and provide further guidance and support as required.