Ensure any clients who are non-residents pay the right amount of tax next month.
January, here we are again! It is one of the busiest times of the year for the majority of practitioners due to tax return deadlines looming, and it means constantly scratching our heads over lots of unexpected client questions.
Normally, our tax software prompts and calculates available tax allowances but it may not be as simple as it sounds. One of the simplest yet most tricky questions can be whether a non-resident can claim personal allowance.
Non-resident tax position
All non-residents have to pay tax on their UK income. Normally your income includes things like:
If you’re eligible for a personal allowance you pay income tax on your income above that amount. Otherwise, you pay tax on all of your income.
The country where you live might tax you on your UK income. If it has a ‘double-taxation agreement’ with the UK, you can claim tax relief in the UK to avoid being taxed twice.
You do not normally pay tax when you sell an asset apart from on UK property or land. Non-residents who have sold UK land or property must tell HM Revenue and Customs (HMRC) within 30 days, even if there is no tax to pay.
Who is eligible?
You’ll get a personal allowance of tax-free UK income each year if either:
you’re a citizen of a European Economic Area (EEA) country - including British passport-holders
you’ve worked for the UK government at any time during that tax year.
You might also get it if it’s included in the double-taxation agreement between the UK and the country you live in.
HMRC international manual INTM334580 clarifies it further as below:
An individual may claim UK tax allowances if they are any one of the following:
a national of a state within the European Economic Area (EEA), including UK citizens, that is Austria, Belgium, Bulgaria, Croatia*,Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom (*Croatia joined EEA 2013, but entitled to PA if National and Resident prior to new treaty)
is or has been employed in the service of the British Crown
is employed in the service of any UK missionary society
is employed in the service of any state under the protection of Her Majesty
is resident in the Isle of Man or the Channel Islands
has previously resided in the UK and is resident abroad for the sake of his/her health or the health of a member of his/her family living with him/her
is a widow, widower or surviving civil partner whose late spouse or civil partner was employed in the service of the British Crown
is a national of Israel and Jamaica
is a national who is also a resident of Argentina, (no relief for 2002-03 and later years), Australia, Azerbaijan, Bangladesh, Belarus, Bolivia, Bosnia and Herzegovina, Botswana, Canada, Côte d’Ivoire (Ivory Coast), Egypt, Gambia, India, Indonesia, Japan, Jordan, Kazakhstan, Korea (no relief for 2002-03 and later years), Lesotho, Malaysia, Montenegro, Morocco, New Zealand, Nigeria, Oman, Pakistan, Papua New Guinea, Philippines, Russian Federation, Serbia, South Africa, Sri Lanka, Sudan, Switzerland, Taiwan, Thailand, Trinidad & Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uzbekistan, Venezuela, Vietnam, Federal Republic of Yugoslavia, Zimbabwe or
is a resident of Austria, Barbados, Belgium, Fiji, Greece, Ireland, Kenya, Luxembourg, Mauritius, Myanmar (Burma), Namibia, Netherlands, Portugal, Swaziland, Switzerland, Sweden (up to April 2016 only) and Zambia.
If the individual is a resident but not a national of Austria, Belgium, Kenya, Luxembourg, Mauritius, Netherlands, Portugal, Sweden (up to April 2016 only), or Zambia they are not entitled to allowances if his/her income consists solely of dividends, interest and royalties (or any combination of them).
Claim the personal allowance
Non-residents have to claim the personal allowance at the end of each tax year in which they have UK income. Send form R43 to HMRC.