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How should non-residents in the UK pay tax?

How do non-residents pay tax in the UK?
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    An individual’s UK residence status affects whether they need to pay tax in the UK on foreign income.

    Non-residents are required to pay tax only on their UK income and not on their foreign income.

    Tax should be paid on your UK income even if you’re not a UK resident.

    What is domicile?

    Domicile can be defined as your permanent home, which sometimes won’t be the one you are residing in.

    Your domicile status is decided on your family background and sometimes based on the choices you have made in your life to make a country your own home.

    What is tax residence?

    Tax residence can be defined as the country where you usually spend most time or have the most connections.

    Your UK residence usually affects whether you should be paying tax on your UK and foreign income.

    Each country has its own rules and regulations, and the Statutory Residence Test usually determines UK tax residency.

    Why is tax residence and domicile Important?

    Your tax residence and domicile status impact your tax payments. They might also affect the tax reliefs and allowances that are available to you.

    • If you’re a UK resident and UK domicile, you will be taxed on your worldwide income gains.
    • If you’re a non-UK resident and a non-UK domicile, you will be taxed on UK income and certain UK gains but not on foreign income gains.
    • If you’re a UK resident but non-UK domicile, you will be taxed on UK income and gains but have the choice to claim and remove tax on foreign income and gains.
    • If you’re a non-UK resident but UK domicile, you will be taxed on UK income and certain UK gains but not on foreign income gains.

    If identifying your residence status is complicated, you can seek guidance through the Statutory Residence Test designed by Her Majesty’s Revenue and Customs (HMRC) to help you find your residence status.

    You have to inform HMRC if you are a non-resident as the tax office is expecting you to declare your non-resident status.

    HMRC is a department of the UK government in charge of collecting taxes, payment of some forms of state support, the administration of other regulatory regimes, including the National Minimum Wage, and the issuance of National Insurance numbers.

    Non-residents don’t usually pay tax on the State Pension and interest from government securities.

    Determining your domicile status

    Sometimes being a non-resident, you could be paying too much. A person’s liability for Income Tax mainly depends on their domicile status.

    Working out your status can be complicated because it primarily depends on your own personal circumstances.

    How do you identify if you’re a resident of the UK?

    Whether you’re a UK resident or not usually depends on how many days you spend in the UK during the tax year.

    A tax year is a period of 12 months that any government uses as a basis for calculating taxes. The tax year starts on 6 April and ends on 5 April the following year in the UK.

    A person becomes a resident if:

    • They have spent 183 or more days in the UK during the tax year.
    • They have resided in their only home, either owned or rented in the UK, for at least 91 days in total.

    How do you identify if you’re a non-resident of the UK?

    A person can be identified as a non-resident if:

    • They have spent less than 16 days in the UK.
    • They work abroad full time and spent fewer than 91 days in the UK, of which no more than 30 days were spent working.

    When should you report your income to HMRC?

    An individual’s income can include:

    • Pensions
    • Rental income
    • Savings interest
    • Wages

    You should report your income if any of these apply to you:

    • If you rent out any property in the UK
    • If you work for yourself in the UK
    • If you have a pension outside the UK
    • If you have few other untaxed income

    On some occasions, non-residents tend to get confused as to what they should do regarding tax payments.

    A few instances are stated below:

    • If you’re a non-UK resident and you’re stuck in the UK due to some unavoidable circumstances, e.g.: the COVID 19 global pandemic, you will not have to pay UK Income Tax if you earned between the dates you had to leave and when you actually left or if you paid tax in your home country.
    • You may have to pay tax in the UK if you can’t prove to HMRC that you could not leave the UK when you intended.

    They might ask for proof regarding why you could not leave the UK, if you did pay tax in another country, etc.

    They might also ask you to ensure that you can leave the country as soon as you can.

    You will have to fill out the Self Assessment tax return form and an SA109 form.

    You have to provide information, including the dates you were stuck in the UK because of the pandemic or any other justifiable unavoidable reason, what you earned during that period and confirmation that you paid tax on your earnings during that period.

    • For instance, if you have overpaid your tax, you may apply for a refund. Fill out the form R43 and send it to HMRC, or you can even claim the refund through the Self Assessment tax return if you’re already filing one. HMRC will refund you by cheque, or if you wish to have the refund sent straight to your bank account, you can include your bank account number in your Self Assessment tax return form.

    If you require further help or guidance to understand these taxes better, please contact WIS Accountancy at 0203 0111 898 or email us.

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