Before reading this article, there are a few questions you need to ask yourself and if the answers to all these questions is "Yes" then carry on reading as you could qualify for this tax relief. If you are unsure if any of these apply then get in touch with us and we would be happy to work through this with you.
1) Have I been UK tax resident for < 3 years and currently UK tax resident?
2) Am I non-UK domiciled?
3) Am I employed under a UK employment contract?
4) As part of my employment, am I spending time working overseas on an ad hoc basis e.g. on business trips or to visit overseas offices?
Overseas Workday Relief (OWR) is a UK tax incentive designed to benefit employees working in the UK as well as benefit employers by encouraging employees to relocate to the UK e.g. as part of an assignment or transfer to the UK. It offers significant tax advantages to qualifying employees which helps to reduce your overall UK tax liability by being able to reduce your taxable income by the proportion of time you spend working overseas.
In order to meet these conditions, it is therefore important to plan in advance prior to your move to the UK and your employer will need to agree to assist in the implementation of this arrangement in 2 ways.
- Part of your income/earnings relating to your overseas workdays will need to be paid into an overseas/offshore bank account; This income will then only be taxable if remitted to the UK; This is a key requirement and if your employer for whatever reason does not wish to pay part of your earnings overseas, then you will not qualify for this relief; Therefore engaging with your employer at an early stage is advised; and
- It is possible for your employer to operate/provide the tax relief via the payroll. In order to do this, your employer will need to apply for what is known as a s690 application. This will need to be submitted to HMRC for their approval. Once approved, HMRC will then confirm the % of income which can be paid free of tax with the balance being taxable in the UK; In some cases, employers may not be willing to enter into this arrangement e.g. because their payroll software/provider is not able to correctly operate this. However, this is not a deal breaker as the tax relief can then be claimed from HMRC by filing a UK tax return. The only downside with this approach is that you would have to wait until after the end of the tax year before claiming the tax relief.
As an example, the table below provides an indication of your likely tax savings based on your UK earnings and the % of time that you spend working overseas. As you will note, the greater your earnings and the time spent working overseas the more beneficial this regime will be.