For many individuals in the UK, the allure of working abroad is stronger than ever. However, the tax implications of such a move can be daunting.
Fortunately, the Government has mechanisms in place to alleviate potential tax burdens for individuals working overseas. One such mechanism is the Appendix 5 arrangement.
The Appendix 5 arrangement
The Appendix 5 arrangement is a part of the PAYE system. This arrangement is designed for employers with employees working overseas who are subject to foreign tax.
The mechanics of the Appendix 5 arrangement
This arrangement allows employers to calculate the UK tax due on an employee’s earnings after foreign tax has been deducted.
The employer calculates the UK tax due on the employee’s earnings and then deducts the amount of foreign tax paid.
The result is the net UK tax due, ensuring that the employee is not taxed twice on the same income – once in the UK and once in the foreign country where they are working.
The primary advantage of the Appendix 5 arrangement is its role in preventing double taxation for employees working abroad. This can make the prospect of working overseas more financially appealing for UK residents.
Tax implications
While the Appendix 5 arrangement can offer significant tax relief, there are significant implications of remaining a UK tax resident while working abroad.
For instance, UK tax residents are typically subject to UK tax on their worldwide income, not just their UK income.
Therefore, even with the relief provided by the Appendix 5 arrangement, there may still be UK tax liabilities to consider.
The Appendix 5 arrangement is a valuable tool for UK residents who aspire to work abroad.
However, it’s essential to fully understand the tax implications of such a move. Consulting with a tax professional can provide further guidance and help individuals make informed decisions about working overseas.
It is important to understand that this arrangement is not automatic. Employers must apply to HM Revenue & Customs (HMRC) to use it and must meet certain conditions, including having a good compliance record and being able to demonstrate that the employee is liable to foreign tax.
For further information about how the Appendix 5 arrangement can help you, please contact our team today for professional advice.
