UK Ltd, director's salary threshold of 12k GBP

[Samman Kaseeb Sleiman]

I have a UK Ltd, and I myself am not from a UK, not a resident, and don't live there.

In the UK there's the threshold of 12k GBP that's not taxed, as for 2021-2022. Does this non taxed threshold apply to the director's salary as well? And if a director isn't a resident of UK?


Namely, a sum of up to 12k GBP, in total, that I'm paying myself as a salary in the current year -- won't be taxed. Correct?

 

[Untangle]

In principal you pay taxes on wages where your tax residence is. So say you are in France but run a UK company from France, you would pay taxes on wages in France and the company will pay corporate tax in the UK. It usually depends of the tax treaties your country of residence has with the UK.

 

[Martin Everson]

n the UK there's the threshold of 12k GBP that's not taxed, as for 2021-2022. Does this non taxed threshold apply to the director's salary as well? And if a director isn't a resident of UK?

Unless the director is subject to tax in UK i.e he carries out director duties in the UK, then no. The £12,570 tax free personal allowance you are not entitled to.

 

[fshore]

Unless the director is subject to tax in UK i.e he carries out director duties in the UK, then no. The £12,570 tax free personal allowance you are not entitled to.

That sounded a bit unclear.
To clarify, you don't have to pay tax in the UK if you're not physically in the UK.

 

[avalanche]

Unless the director is subject to tax in UK i.e he carries out director duties in the UK, then no. The £12,570 tax free personal allowance you are not entitled to.

Strange, my accountants actually filed for payroll account and told me I can get this allowance. Even though I never lived in the UK.

However they told me I'm still liable for tax in my country of residence.

In principal you pay taxes on wages where your tax residence is. So say you are in France but run a UK company from France, you would pay taxes on wages in France and the company will pay corporate tax in the UK. It usually depends of the tax treaties your country of residence has with the UK.

Do you have to pay corporate tax on your *salary*? I thought salary is a deductible expense

 

[Larin]

Your accountant is most likely not familiar with international taxation and is treating you like a UK director because that is what he has been doing his whole life. Unfortunately, unless you find an accountant who is also a tax adviser (they are usually separate people, and to be found at larger firms) they will have a hard time properly handling your case.

As others have stated, you appear to not be a tax resident, therefore no tax is due in the UK on your director salary and therefore 13k exemption does not apply. Your whole salary is not taxable in the UK, unless you perform some of the work in the UK, and then only the portion of the work in the UK is taxable in the UK. However as you are not a tax resident in the UK you are not entitled to personal allowance. United Kingdom – Taxation of international executives.

 

[avalanche]

Your accountant is most likely not familiar with international taxation and is treating you like a UK director because that is what he has been doing his whole life. Unfortunately, unless you find an accountant who is also a tax adviser (they are usually separate people, and to be found at larger firms) they will have a hard time properly handling your case.

As others have stated, you appear to not be a tax resident, therefore no tax is due in the UK on your director salary and therefore 13k exemption does not apply. Your whole salary is not taxable in the UK, unless you perform some of the work in the UK, and then only the portion of the work in the UK is taxable in the UK. However as you are not a tax resident in the UK you are not entitled to personal allowance. United Kingdom – Taxation of international executives.

In Armenia where I'm residing natural persons don't pay taxes on their salary, only employers pay taxes for their employees. That becomes difficult, how do you even pay taxes or do accounting when your company is not registered in Armenia.

 

[Larin]

In Armenia where I'm residing natural persons don't pay taxes on their salary, only employers pay taxes for their employees. That becomes difficult, how do you even pay taxes or do accounting when your company is not registered in Armenia.

I know next to nothing about Armenia and it's tax system. My trusty source in these matters PwC tells me that one can file a tax return in Armenia: Armenia - Individual - Tax administration

If I had to guess how things work in practice is that no one ever does it and if you tried to they would look funny at you. That being said, I a1m sure if you wish to be tax compliant you could find a way. However, none of this has impact on your affairs in the UK.

 

[avalanche]

I know next to nothing about Armenia and it's tax system. My trusty source in these matters PwC tells me that one can file a tax return in Armenia: Armenia - Individual - Tax administration

If I had to guess how things work in practice is that no one ever does it and if you tried to they would look funny at you. That being said, I a1m sure if you wish to be tax compliant you could find a way. However, none of this has impact on your affairs in the UK.

Is there a chance that UK HMRC may require me to provide them my tax filing in Armenia?

 

[Larin]

Is there a chance that UK HMRC may require me to provide them my tax filing in Armenia?

I don't know what your accountant files in the UK, so I have no idea what HMRC might ask in your circumstances. I can only speak in general terms.

In general, your situation is pretty straightforward. If I understand correctly, you are a non-resident in the UK for tax purposes. As such, you are only liable to pay tax on income that is generated in the UK. Generally, income is generated in the country where you are physically present. So if you do not spend any time in the UK, there is no income generated in the UK and no tax is due in the UK. Your tax affairs outside of the UK are irrelevant as far as HMRC is concerned.

 

[avalanche]

I don't know what your accountant files in the UK, so I have no idea what HMRC might ask in your circumstances. I can only speak in general terms.

In general, your situation is pretty straightforward. If I understand correctly, you are a non-resident in the UK for tax purposes. As such, you are only liable to pay tax on income that is generated in the UK. Generally, income is generated in the country where you are physically present. So if you do not spend any time in the UK, there is no income generated in the UK and no tax is due in the UK. Your tax affairs outside of the UK are irrelevant as far as HMRC is concerned.

I was wondering about that because salary is a tax deductible expense. So I end up reducing my corporate tax in UK by paying myself salary.

That's why I was thinking that HMRC may request for papers

 

[Larin]

So, I did a bit more research and I stand corrected. Company directors fall under a different set of rules as HMRC assumes that your duties directly relate to the UK, which I suppose makes sense: Non-Resident Directors of UK companies – a review of reporting... You can safely ignore some of the info in my previous post.

In regards to your question, it would seem that you probably have to file in the UK and pay tax, so I'm not sure what would be more tax advantageous to do.

But again, whether you file taxes elsewhere shouldn't have any impact on your UK tax liability and affairs.

 

[fshore]

So, I did a bit more research and I stand corrected. Company directors fall under a different set of rules as HMRC assumes that your duties directly relate to the UK, which I suppose makes sense: Non-Resident Directors of UK companies – a review of reporting... You can safely ignore some of the info in my previous post.

In regards to your question, it would seem that you probably have to file in the UK and pay tax, so I'm not sure what would be more tax advantageous to do.

But again, whether you file taxes elsewhere shouldn't have any impact on your UK tax liability and affairs.

That link don't have correct info, according to many other sources and accountants.
You only pay tax to the UK on the work performed in the UK.

 

[Larin]

That link don't have correct info, according to many other sources and accountants.
You only pay tax to the UK on the work performed in the UK.

I tend to agree with you. Here is another link: The perils and pitfalls of non-UK resident directors | Tax Adviser

I think the key paragraph is here: "If a non-resident director is working wholly outside the UK, has not been resident in the UK before, and does not intend to perform any duties in the UK, it is unlikely that there will be any significant UK PAYE obligations associated with the appointment of the non-resident director. But when the non-resident director starts to work in the UK, the UK company will quickly acquire such a PAYE obligation."

 

[Samman Kaseeb Sleiman]

@Larin

I've become confused.

Let's say I'm a tax resident of ... Paraguay, or Costa Rica. That is, a country UK has a tax treaty with. Not a tax heaven, and not a high-tax country.

Question: where then will I have to pay taxes for a) my UK Ltd, and b) for myself as a director? That is, corporate taxes and taxes on my salary.

Is it in Paraguay/Costa Rica?
And which of the 2: corporate or personal (for my salary), one? Or both?
And how much: 20-25% (UK corporate tax)? Or 5-10% (Paraguay/Costa Rica)?


P.S. simply speaking

 

[Larin]

I've become confused.

Let's say I'm a tax resident of ... Paraguay, or Costa Rica. That is, a country UK has a tax treaty with. Not a tax heaven, and not a high-tax country.

Question: where then will I have to pay taxes for a) my UK Ltd, and b) for myself as a director? That is, corporate taxes and taxes on my salary.

Is it in Paraguay/Costa Rica?
And which of the 2: corporate or personal (for my salary), one? Or both?
And how much: 20-25% (UK corporate tax)? Or 5-10% (Paraguay/Costa Rica)?


P.S. simply speaking

Simply speaking, if you as a director do not carry out any work in the UK (not a single day a year you are physically present in the UK) you are only subject to the income tax in Paraguay. If however, you fly to over to the UK to attend board meetings, or to carry out any other director duties you may be subject to some, or full UK income tax, in which case you would pay the tax in the UK and due to the double treaty you would claim credits in Paraguay and as long as the tax rate is less in Paraguay you would not pay any more tax there (this is subject to the double taxation agreement between UK and Paraguay, which I haven't reviewed, but his is how it works in general).

Corporate tax would work in a similar way. If you do not have a permanent establishment in the UK (Setting up a UK company as a non-UK resident) your UK company would be a non-resident in the UK for tax purposes and would most likely be a tax resident in the country you (as the sole director/decision-maker) reside. You would then pay Paraguay's CIT (this is subject to Paraguay's CFC rules, which I am not familiar with, but in general this is how it works).

It is hard to be precise in these matters as things can vary greatly depending on the countries involved. Therefore, it is probably easier to treat the example above as Country A and Country B, rather than UK/Paraguay specifically.

 

[Samman Kaseeb Sleiman]

Alright.

But are you certain that a UK Ltd won't pay corporate tax in the UK, even if the director never visits UK?

The pass-through entity for UK is LLP, not LTD. Therefore, LTD pays taxes in the UK, to the UK government, with the UK's corporate rate, regardless of where the director is tax resident. Not?

 

[Sols]

UK companies are tax resident in UK and pay tax in UK unless they are treaty non-resident (typically requires the company to be tax resident and pay tax somewhere else, but there are other conditions). So either read the relevant tax treaty, or just ask a UK tax adviser for guidance.

 

[Samman Kaseeb Sleiman]

I see.

Let's say I've drawn all the *revenue* as my salary. There was a little of it because I mostly work directly rather then via my company.

Therefore, if it's all been payed as salary, then LTD has had no profits. No profit = no UK corporate tax. Right?

 

[Sols]

Yes, but be careful. If you take out too much as salary (significantly greater than market rate for the same position), there is a risk that HRMC will spot it and decide that it's dividends instead.