Whether you’re a non-resident UK citizen or a citizen of another country living in the UK, you’ll need to get clued up about UK taxes. UK non-resident tax rules are just slightly different from its rules for residents, and the same is true for foreign citizens in the UK. Here’s a guide to what you need to know when the time comes to think about taxes.
Income tax is money you pay the government, based on your ‘income’ - money you earn or gain. You pay income tax on money you gain from employment or self-employment, and on some other forms of income including some pensions and benefits.
In the UK, income tax applies to individuals. For businesses, corporation tax is the equivalent.
Income tax is collected in the UK by Her Majesty’s Revenue and Customs, known as HMRC.
Remember that income tax isn’t the only tax you have to pay in the UK that comes out of your income. National Insurance, which is what entitles you to state benefits such as a pension, is also a form of tax. Various different types of tax can be assessed at the same time, via a Self Assessment tax return - more on this later.
The UK tax year runs from 6 April to 5 April. If you have to fill out a tax return, these are the dates you’ll need to know when you’re doing your accounts.
For the 2016-2017 tax year, you had until midnight on 31 October 2017 to submit your tax return - if you did a paper return.
If you file your return online, you have until 31 January 2018. That’s also the deadline by which you need to pay the tax.
For the 6 April 2017 - 5 April 2018 tax year, the deadlines are the same: 31 October 2018 for paper returns; 31 January 2019 for online.
The dates are more or less the same each year.
That applies to everyone who has to submit a return and lives in the UK. Unfortunately, if you live abroad, HMRC doesn’t let you use its online service. Instead, you have to do it by post, use professional software, or hire a professional. There’s more information on the government’s website. So watch out for the earlier deadline at the end of October.
If you’re late, you’ll often have to pay a penalty.
For the 2017-2018 tax year - the one currently underway - a few changes have come in:
- The ‘personal allowance’ has risen from £11,000 to £11,500. That means that you don’t have to pay any tax on the first £11,500 you earn in the year.
- You now don’t have to pay the higher rate of tax, 40%, unless you earn more than £45,000 in the year - the figure used to be £43,000. Unless you’re in Scotland, that is, where the figure has stayed the same.
Just because you pay taxes in the UK doesn’t mean you have to do a tax return. In fact, if you’re employed, you may well not have to, as your taxes will be taken off your monthly salary via Pay As You Earn (PAYE).
However, many people do have to submit one. Here are some of the most common cases when you need to file a tax return:
- You’re self-employed.
- You had an income from savings, investments or shares of at least £10,000 (before tax).
- You made a big sale on which you need to pay Capital Gains Tax (for example if you sold a second home).
- You were a company director who didn’t receive pay or benefits.
- Your taxable income was more than £100,000.
There are other cases as well - take a look at the official government site for a more definitive list.
If there’s a second country involved, however, things can get more complicated - read on to see how the situation changes if you’re a British citizen living abroad, or a foreign citizen in the UK.
As just mentioned, UK residents have to pay UK income tax on all their income, with the exception of ‘non-doms’ (more on that in the following section on expats living in the UK). But whether or not you count as a UK resident is another matter.
You count as a UK resident if you spent at least 183 days in the UK during the tax year (6 April - 5 April), or if your only home was in the UK, and you spent at least 30 days there.
If that’s you, you’re eligible for UK taxes including income tax. However, while you should always check, if you’re employed you may well still not have to file a tax return. Tax is likely taken off your salary automatically.
As explained below, there are rules to ensure that you shouldn’t have to pay tax twice on the same income, something called double taxation.
You’re not a UK resident for tax purposes:
- If you were in the country for fewer than 16 days during the tax year;
- If you haven’t been a UK resident for the past 3 tax years, and you were in the country for fewer than 46 days during the tax year;
- Or if you work abroad for more than around 35 hours per week and were in the UK for fewer than 91 days and worked in the UK for no more than 30 of those.
(Sources as above)
If you’re a UK citizen who had income from abroad during the tax year, you may need to fill out a tax return. That doesn’t necessarily mean you’ll need to pay UK income tax, though - you might just need to fill out a non-resident tax return anyway.
As a general rule, if you’re a non-resident, you don’t pay UK income tax on foreign income. You may still have to pay it on UK income, though.
Foreign nationals living in the UK do have to pay UK tax - they use the same system as British nationals, either contributing via Pay as you Earn or submitting a tax return with Self Assessment.
The general rule is that if you’re a UK resident you have to pay UK tax on all your income, regardless of where it’s from. But, as mentioned above, double taxation agreements are in place to save you from overpaying on tax.
There’s one additional category of expat. ‘Non-domiciled’ residents are UK residents who have a permanent home abroad. If you count as a ‘non-dom’, you might not have to pay UK tax on foreign income if you don’t bring that income to the UK. You’ll still have to report it, though, if it’s £2,000 or more.
It can be difficult to determine non-domicile resident status - seeking professional advice might be the best option.
Foreign students in the UK don’t have to worry about paying UK tax on their foreign income if this income is used for the standard things like study fees and materials, food, rent and bills.
Students may well be covered in your country’s double taxation agreement with the UK - you should check the precise details as they may determine whether or not you have to pay tax on income if you get a job while you’re studying.
If you’re self-employed, you’ll need to file a tax return via HMRC’s ‘Self Assessment’ system. This isn’t just for income tax, but also for National Insurance and potentially other things including student loan repayments.
Again, it doesn’t matter whether you’re a UK citizen or a UK resident - if you’re earning money in the UK, you’ll probably have to pay the taxes.
Before you file your return, you’ll have to register with HMRC, so be sure to allow plenty of extra time for this - you should actually do it as soon as you become self-employed.
The government has a helpful online guide to getting started.
Tax can get complicated when multiple countries are involved. Double taxation agreements are put in place to stop people having to pay tax twice on the same income. Many countries have such an agreement with the UK. The UK government has further details here, including the very long full list of the 149 countries and what sorts of agreements they have in place as it does differ from country to country.
If you live in the UK and also receive foreign income, you must declare this income on your tax return. If you’ve already paid tax on it in that country, you’ll get Foreign Tax Credit Relief. The amount you get back depends on the agreement the UK has with the country in question.
If you haven’t paid tax on the income yet, then you might need to pay the tax in the UK and claim tax relief in the other country.
You should also watch out for this if you’re a UK citizen in another country. Find out if the country has an agreement with the UK, and you’ll also see how much relief you’re entitled to.
The precise way to do this will depend on the country in question.
If you’re a UK resident, the easiest way by far to pay tax is online via HMRC’s Self Assessment system. This covers not just income tax but also various other taxes that you may need to pay, such as National Insurance and capital gains tax.
- First you’ll need to register with HMRC, and then register for a ‘Government Gateway’ account.
- Next, log in and follow the instructions in the portal.
- You will, of course, need your accounts from the tax year in question, to enable you to fill the form out.
- Once you’ve filled in all the details, you can send in your tax return. Before you send it off, you’ll be shown the precise figure that you need to pay.
- You then have to make the payment. There are many different methods for this. If you want, it’s possible to pay regularly throughout the year rather than all at once.
For people residing abroad, you’re stuck with filing a paper tax return or using commercial software. The main Self Assessment paper form is available to download on the government website, and the government also hosts an unfathomably huge list of software suppliers if you want to do it that way.
If you’re managing your money from abroad, you might well be reluctant to let an international bank handle this tax payment for you. International transfers through banks tend to be time-consuming and not cost-effective, frequently marking up the exchange rate by up to 4-5%. The same is often true for traditional money transfer services.
TransferWise might well be able to help you save on your international bank transfer. TransferWise only ever charges the mid-market rate - the one you’ll find on Google, and the only fair exchange rate - as well as one low fee, stated upfront.
If you set up a borderless multi-currency account with TransferWise, it’s even easier to hold money in multiple currencies at once without worrying about the exchange rates or fees. You get local virtual account details in pounds, euros and US and Australian dollars so you can get paid like a local. You can also hold your money in dozens of currencies, and can send and receive money to dozens of countries around the world.
To pay your UK tax return, you should receive HMRC’s bank details on your bill, and to make the transfer you’ll need to use a payment reference of your 10-digit Unique Taxpayer Reference plus the letter ‘K’.
Take a look now to see how much you could save by using TransferWise rather than a bank for your international transfers.
Taxes can be a headache, and filling in tax returns even more so, so it pays to get the details straight. Good luck sorting out your tax situation with the UK.
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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