Digital Nomad Tax Advice
Has your UK employer given you the greenlight to become a digital nomad?
If you are planning a move overseas or if you are already working remotely, you may be confused as to where your employment income is taxable, given that you are working for and being paid by a UK company while exercising work duties overseas.
One critical point to note, that underpins tax advice in respect of employment income, is that the source of employment income is where you physically exercise work duties. By way of example, if you wholly exercise work duties overseas for a UK company, you will be considered in full time work abroad and if you wholly exercise work duties for an overseas company in the UK, you will be considered in full time work in the UK.
To keep your affairs in the UK ‘simple’, Global Tax Consulting recommend that you align your personal circumstances, travel pattern and work pattern to achieve one of the following positions:
a) You want the UK to tax your employment income. To do this, you must remain within the UK tax system and avoid triggering tax obligations overseas.
b) You do not want the UK to tax your employment income. To do this, you must exit the UK tax system and minimise workdays in the UK.
We will explore the steps you need to take to achieve your desired tax position.
You are a digital nomad and you want to pay tax in the UK
To ensure the UK taxes your employment income, you must satisfy three steps, as follows:
1. Maintain a UK resident status;
2. Maintain a non-resident status elsewhere;
3. Manage physical presence on a rolling basis elsewhere.
To maintain a resident status in the UK, in each tax year period (6 April to 5 April), you must either a) spend more than 6 months in the UK, or b) maintain access to a home in the UK that you spend time in while not having access to a home overseas, or c) work full time in the UK.
Providing that you can maintain a resident status in the UK, as a starting point, the UK will have rights to tax 100% of your employment income. Note that it may be possible to exempt a portion of employment income that relates to work duties exercised overseas through claiming non-dom status to the 2024/25 tax year or claiming new arrival status from the 2025/26 tax year.
To maintain a non-resident status elsewhere, you should consult with a local tax advisor / accountant for specific guidance however, more often than not, if you can a) spend less than 6 months in the country, and b) reside in temporary accommodations during your visits, and c) exercise no more than 50% of your work duties in that country, you should be able to achieve a non-resident status.
Providing that you can maintain a non-resident status elsewhere, as a starting point, the countries elsewhere taxing rights will be limited to the portion of employment income that relates to work duties physically exercised in countries elsewhere.
The UK’s network of double taxation agreements can completely exempt countries elsewhere from taxing your employment income through reliance on international tax law, providing that your days of presence in each respective overseas country do not exceed 180 days in any rolling 365 day period.
By following these three simple steps, you will ensure that your employment income is taxed by HMRC only.
You are a digital nomad and you do not want to pay UK tax
To limit or remove the UK’s right to tax your employment income, you must satisfy three steps, as follows:
1. Achieve a UK non-resident status;
2. Manage working presence in the UK;
3. Re-claim tax suffered via PAYE.
To achieve a non-resident status in the UK, in each tax year period (6 April to 5 April), you must either a) spend no more than 15 days in the UK or b) work full time overseas. If you are leaving the UK within a tax year period, it is possible to achieve a non-resident status within the tax year i.e. become non-resident upon departing the UK. To do this, you must a) work full time overseas or b) give up your UK home.
Providing that you can achieve a non-resident status, the UKs taxing rights over your employment income will be limited to the portion of income that relates to work duties physically exercised in the UK.
As such, providing that you 1) you are non-resident and 2) do not exercise any work duties in the UK, the UK will not tax your employment income.
If you are a UK or EEA citizen, you will continue to be entitled to the personal allowance (0% tax band), irrespective of your resident status and thus, this will provide an element of flexibility with respect to exercising some work in the UK. As long as the portion of employment income that relates to work physically exercised in the UK is no more than the personal allowance, no UK tax will be payable.
Reclaiming UK tax as a digital nomad
As you are employed by a UK company, as starting point, you will suffer tax at source via PAYE, even if you are non-resident. There are two options with respect to limiting or re-claiming tax suffered on employment income, as follows:
a) you can continue to suffer tax at source via PAYE and re-claim tax suffered through a UK tax return on an annual basis; or
b) you can complete a P85 form to request that HMRC issue a ‘NT’ tax code to your employer so that you can receive your salary gross of tax. This will increase monthly cash flow while you are living/working overseas however, if you do not wish to disclose to your employer that you have relocated overseas and become non-resident, this option should not be explored as the NT tax code will be sent directly to your employer.
By following these three simple steps, you will ensure that UK tax on your employment income is limited or completely tax free.
About the author
Emma McDermott is the owner of Global Tax Consulting, a UK tax firm that specialises in tax planning and tax compliance services for digital nomads.
Global Tax Consulting work with clients that have cross border affairs to ensure that UK taxes are optimised, and compliance is achieved with HMRC.
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