The COVID-19 pandemic has affected how everyone in the UK does business. Remote working is the new normal, and many small business owners have decided to work away from their normal location, to other parts of the UK or even abroad.
Whether you’re the director of a UK limited company currently residing in another country, or you’re thinking of relocating abroad, there are some rules you’ll need to be aware of.
We strongly advise you to take specialist advice before deciding to relocate and run a UK limited company when you’re not a UK resident.
If you run your business as a sole trader, you’ll have some similar issues to deal with, but the most important question will be whether you’re ‘resident’ in the UK for tax.
Here’s some of some basic information you will need.
Limited company registered office address
Companies House doesn’t require directors of limited companies to be resident in the UK, but you will need to provide a UK service address for your company which is published for anyone to view on the Companies House register. Most companies use the services of an agent to provide the necessary UK address for a limited company, which Crunch can provide for our accountancy package clients.
You’ll also need to provide your overseas address to allow Companies House to contact you. For more on the types of addresses required by Companies House, please read our Knowledge article.
Business bank accounts
At Crunch, we always recommend you have a bank account in the name of your limited company to ensure your company’s funds are completely separate to your personal finances. You don’t need to have a UK bank account to run your company from overseas. In fact, it may be difficult to open a UK bank account if you don’t have a personal address in the UK. Again, you should take specialist advice to ensure you understand the additional costs involved in operating bank accounts when you are not resident in the UK.
For sole traders, the situation is similar: while it’s not a legal requirement, we always recommend you have a separate business bank account for your business finances.
Personal and business taxes
We strongly recommend you take specialist advice if you’re looking to work through a UK limited company while living abroad. Different countries have different rules about your personal tax status and any earnings you have from your UK-based company.
Even if you spend only part of the tax year in the UK, you may need to pay personal taxes on any earnings you have while visiting in addition to the personal tax you need to pay in your country of residence.
As a director of a UK limited company, you may need to attend meetings in the UK or be paid a salary while spending part of the tax year in the UK. The rules surrounding PAYE and National Insurance for employers and employees are complex, and you’ll need to take specialist advice to ensure you pay the correct tax on any earnings while working in the UK.
If you‘re a director and shareholder of your own limited company, the company will need to pay UK Corporation Tax on its profit.
As an individual, the personal tax implications are complex. First and foremost, there’s the issue of your tax residency. Your tax residency determines which income you pay taxes on in the UK. If you’re a UK tax resident, you’re subject to Income Tax on your worldwide income. If you’re not a UK tax resident, you pay UK Income Tax on your UK income only.
So how do you know whether you’re a UK tax resident or not? If you aren’t resident in the United Kingdom for more than 183 days in the tax year, you’re deemed to be non-resident in the United Kingdom for tax purposes and as such, you’re only subject to taxes on your UK income. So salary and dividends taken from your UK company will be subject to UK Income Tax.
As you’ll be resident abroad, your country of residence may also want to tax your income from the UK and you may be entitled to double taxation relief in your home country. You’ll need to seek advice from a specialist tax adviser who knows the rules in your country of residence.
If you’re a sole trader, there’s no difference between you personally and your business. You’ll be expected to file a Self Assessment tax return (which you may have been doing already) and, just like a limited company director shareholder, your residency also determines if you’ll be subject to tax on your UK income only or your worldwide income. Our article, “Am I a UK tax resident?” explains more about the subject.
If you operate through a limited company but you aren’t a UK tax resident, the good news is that IR35 doesn’t apply to you. HMRC states in ESM9037 that: “The worker is not chargeable to tax in respect of the DDP (Deemed Direct Payment) if, or to the extent that, by reason of any combination of the factors mentioned below the worker would not be chargeable to tax”.
Two factors of interest to you state: “The worker being resident or domiciled outside the UK, or meeting the requirement of section 26A ITEPA 2003” and “The services being provided outside the UK”.
If you’re a UK tax resident working through a limited company, you’ll need to ensure that you’re aware of how IR35 may impact your business.
How can Crunch support you?
Crunch provides online accounting software and services to freelancers, contractors, and small businesses. If you can run your business from abroad, but your limited company is based in the UK, our service can support you with your UK earnings. Where specialist advice is needed, we can refer you to one of our partners to provide the additional support you need.
Get in touch and speak to one of our friendly advisers today!