Many UK businesses now employ non-domiciled UK tax residents who are attracted to the many lucrative and engaging jobs that they have to offer.
While this arrangement offers flexibility and unique opportunities, it also presents a set of challenges for overseas workers, especially when it comes to taxation.
Challenges faced by overseas workers of UK businesses
Tax residency issues and local tax laws
One of the main concerns for overseas workers is determining their tax residency. Being a tax resident in two countries can lead to double taxation, where income is taxed in both the UK and their country of residence.
Also, every country has its unique tax regulations. Navigating and understanding these, in addition to UK tax laws, can be daunting.
Exchange rates
Earnings for an overseas worker may well be in GBP, but expenses will come in the form of their local currency. This can lead to financial instability due to the ever-changing exchange rates.
This can particularly impact an individual if the UK exchange rate takes a dramatic downturn, something that has occurred all too frequently in recent years due to the political and economic climate in the UK.
Additionally, regularly transferring money between countries with such fluctuation in the global markets can incur significant fees and charges.
Overcoming these challenges
Determine your tax residency
Anyone working overseas for a UK company should first establish their tax residency status both in the UK and their country of residence.
This can be based on factors like the number of days spent in each country, location of their permanent home, and where their economic interests lie.
UK tax laws should also be regularly reviewed, and it is recommended to consult with a UK tax advisor to ensure the maximum of reliefs and allowances are being claimed.
Use currency hedging
To improve being caught out by the risks of fluctuating exchange rates, overseas workers should consider strategies like currency hedging or maintaining accounts in both GBP and the local currency.
They should also look at low-fee money transfer services, researching the best companies that offer competitive rates and minimal fees.
Claiming Overseas Workday Relief (OWR)
Overseas Workday Relief (OWR) is valuable tool for foreign domiciled UK tax residents which treats part of their earnings from a UK employer as if it were a foreign source of income.
This relief can mean individuals who have performed work abroad can potentially avoid being hit with UK tax and claim a refund on any PAYE tax deducted from their salary.
To qualify for OWR an individual must be a UK resident in the tax year they have claimed OWR, have been a non-UK resident in at least one of the three preceding tax years, and have foreign workdays with foreign earnings.
UK tax will only be assigned to the portion of earnings brought to the UK. The remainder, corresponding to overseas workdays, can be exempt.
To claim OWR, use the ‘Foreign’ pages of the Self Assessment tax return. Detailed records of all overseas workdays and foreign earnings must be kept.
It is essential to claim OWR in the correct tax year. If missed, a retrospective claim in later years cannot be made.
Working overseas for a UK business offers a blend of opportunities and challenges. With proper planning, the benefits of this unique work arrangement can be plentiful.
