Working Abroad Tax Implications

Do I have to pay tax if I work overseas?

If you are employed in the UK and are thinking about moving abroad, you may believe that HMRC will continue to tax your employment income, given that you will remain under the control and direction of a UK entity and continue to be paid into a UK bank account.

As a starting point, simply moving abroad will not automatically enable you to escape UK taxation on your employment income, however, providing that you can exit the UK tax system by achieving a non-resident status, you will be able to minimise or completely exempt HMRC from taxing your employment income, while you’re overseas.

How can you achieve a non-resident status?

Broadly, you can achieve a non-resident status through working full time and minimising your return trips to the UK. To be clear and an extremely relevant point for digital nomads, you do not need to prove that you have settled overseas or that you have acquired tax residency overseas to change your UK resident status.

How is your employment income taxed if you are a non-resident working abroad?

Non-residents continue to be liable to UK taxation on UK sourced incomes. In the context of employment income, the source is where you are physically working.

For UK tax purposes, it is irrelevant that you are employed by a UK entity or are paid into a UK bank account. What matters, is where you are exercising your work duties.

Therefore, providing that you are non-resident, employment income generated through workdays exercised overseas, will not be taxable in the UK.

Note that if your employment package consists of a bonus and/or employer shares, you may have trailing liabilities in the UK. This is because you may have ‘earned’ the income while you were living and working in the UK and thus, a portion of the income will be taxable in the UK.

How can you reclaim tax?

There are two options with respect to receiving your employment income free of UK taxation, as follows:

1) You can receive your employment income gross of taxation. To do this, you must complete and submit P85 form to HMRC. Providing that your application is approved, HMRC will issue a ‘No Tax’ PAYE code to your employer who will be able to pay you tax free.
2) You can receive a refund of tax through self-assessment tax return. To do this, you’ll need to complete SA109 pages to notify HMRC that you are non-resident.

How can GTC help?

For historic cases, GTC can assess your resident status and assist with UK tax return preparation should you be due a refund of taxation in respect of your employment income.

For future cases, GTC can detail the steps that you are required to take to exit the UK tax system and assist with Form P85 completion so that you can receive your income gross of taxation.

Become a GTC client

Book a free discovery call with our team. We will collect background information to develop a greater understanding of the necessary steps to take to optimise your UK tax affairs.

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