Understanding tax on foreign income

Working overseas can be beneficial for you to expand your career opportunities.

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However, it makes the process of working out how much tax you owe HM Revenue & Customs (HMRC) more complicated if you don’t work within the UK.

How do I know if I need to pay tax?

There are many complicated exceptions when paying tax on international income, but there are some standard baselines which apply to most people.

The main way to know if you need to pay tax on your foreign income is whether you are classed as a UK resident.

This means that you meet the automatic UK tests and that you do not meet any of the automatic overseas tests.

Am I a UK resident?

 You will be classed as a UK resident if the following is true:

  • You spent 183 or more days in the UK in the tax year
  • Your only home was in the UK for 91 days or more in a row which you visited or stayed in for 30 days or more of the tax year
  • You worked full-time in the UK for any period of the 365 days and at least one day of that period was in the tax year you are checking

The overseas tests mean that you are a non-UK resident if the following applies:

  • You spent fewer than 16 days in the UK (or 46 days if you have not been a UK resident for the past three tax years)
  • You worked abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which less than 30 days of that were working

If you need more help working out if you’re classed as a UK resident, you can use this Government status check here.

If you are non-domiciled, then different rules will be applied to whether you pay tax or not, and how much you need to pay.

Paying tax

When it comes to paying tax, you will only need to pay if you are classed as a UK resident who has income and/or capital gains from your overseas activity.

You will not need to complete a tax return if your only foreign income is dividends, your total dividends (including UK ones) total less than the £2,000 allowance, and you have no other income to report.  

Otherwise, you will need to fill in a Self-Assessment tax return by the final annual deadline on 31 January following the tax year in which the income was generated.

What happens if I pay tax twice?

If you are taxed by both the UK and the country where you work, then you may be entitled to a tax relief from HMRC where you can get some or all this money back.

However, how you claim and how much is refunded will depend on whether the foreign income has already been taxed.

If it has already been taxed, then you will need to claim Foreign Tax Credit Relief, which will rely on the UK’s double-taxation agreement with the country from where your income comes from.

If you have not already paid tax to the other country, then you must apply for tax relief in the country where your income comes from if it is exempt from foreign tax but is taxed in the UK, or if it is required by that country’s double-taxation agreement.

Here, you can ask that authority for the correct forms which you can fill in. Then, you must prove that you are eligible for tax relief by completing the form and sending it to HMRC to confirm whether you’re a resident or not.

Once you have proof back from HMRC, you can then send this to the foreign tax authority.

If you need advice on organising your foreign income tax, please get in touch today. 

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