The 31st January self-assessment filing deadline remains the same every year. Still, millions of taxpayers continue to pay late filing penalties and interest charges, often due to misunderstanding their obligations as a non-resident.
A week ahead of the 2022 cut-off, HMRC revealed that four million returns were still pending.
While there are some short-term reprieves this year that we’ll run through shortly, it remains important to understand when you need to declare income as a British citizen living abroad and the key factors that determine your taxpayer status.
Why Might I Have to File UK Tax Returns as a Non-Resident?
Tax rules for residents and non-residents are not identical.
If you are unsure whether assets or income are taxable in the UK, the first step is to look at your residency status – which isn’t purely based on where you currently live. You can be an official resident in another country with a permanent residency permit and still be classified as a British tax resident.
The Statutory Residence Test
The Statutory Residence Test is a series of questions you run through to establish whether you are a resident for tax purposes.
A common and potentially very expensive mistake is to rely on online advice since the process isn’t always obvious. If you get it wrong and assume you do not need to declare your income, you could be fined heavy penalties or even be prosecuted in the most extreme scenarios.
HMRC assesses factors such as how many days you spend in the UK, your financial and familial ties, and the primary source of your income to interpret the legislation.
What Types of Income Indicate That I Have to Submit a Non-National UK Tax Return?
While not an exhaustive list, the below income sources may mean that you need to declare your earnings and pay income or capital gains tax:
- Earnings made as a director of a British company.
- Profits generated from a UK partnership.
- Self-employed income arising from work in the UK.
- Working some or all of the time in Britain – even if you live abroad.
- Receiving rental income from a UK investment property.
- Making capital gains through selling or disposing of a UK asset.
Earnings from investments, such as interest accrued or dividend payouts may also be declarable to HMRC. This area of tax advice is complex and dependent on several variables, so we recommend contacting your local Chase Buchanan office for further guidance.
Unless you work in employment and tax has already been deducted from your payslip, most types of UK work will mean you must file a tax return. Note that you may also be liable for tax on the same earnings in your country of residence, in which case double tax treaties may apply.
How Do Double Tax Treaties Impact UK Non-Resident Expats?
Double taxation agreements exist between Britain and many other countries to prevent UK nationals from paying tax twice.
Also known as double tax treaties, these agreements determine where you need to declare your income and pay the charge arising. For example, if you have savings assets and are a permanent resident of an overseas country, you will normally need to declare the interest earned as part of your income tax declaration. If that income arises from a UK savings account, you should also declare the income to HMRC as a type of income subject to tax.
Rather than pay income tax twice in two countries on the same earnings, you apply the double tax treaty to determine which income tax charge is payable. Usually, that means you still need to submit a return in both jurisdictions but apply for an exemption in one.
Another outcome may be that you pay one income tax charge but receive a credit that you apply against your second return to reduce the overall amount paid.
The exact method of claiming double taxation relief varies depending on the type of income, where it originated, your residency status and other circumstances, so professional advice is highly recommended. If you decide to relocate, things may become more complicated, so please read our Checklist for UK Expats Returning to Britain for further guidance.
What Are the Filing Allowances for 2020/21 Tax Returns?
The self-assessment tax return deadlines are static, so you need to submit a return to HMRC by 31st January after the end of the tax year. Returns for 2020/21, which ended in April 2021, are due by 31st January 2022.
This year, HMRC has confirmed that it will waive some of the usual penalties regarding the 2020/21-tax year, primarily due to Coronavirus support scheme payments and the additional reporting burden.
- Returns will not attract a late filing penalty, provided they are submitted by 28th February 2022.
- Overdue tax liabilities will not be subject to late payment charges, as long as the full amount is paid by 1st April 2022, or there is a Time to Pay arrangement in place.
Time to Pay is a system whereby you can apply for staggered tax payments for a tax liability of £30,000 or less and have no other outstanding tax debts.
What Are the Penalties for Late Tax Return Submissions?
As we’ve mentioned above, the penalties are a little different this year – but note that interest charges remain payable as normal from 1st February onwards.
Normally, the penalties work as below:
- £100 fixed-penalty for payments or returns one day late.
- An automatic charge of £10 per day up to three months, to a maximum of £900.
- Further penalties of £300 or 5% of the tax bill up to six months.
- Returns 12 months late are fined another £300 or 5% of the tax payable.
If you are unsure whether you need to file a tax return as a non-resident, it is worth seeking independent advice to clarify your residency status and avoid paying unnecessary fines.
Expat Investment Advice for Overseas Residents Liable for UK Income Tax
Residency can be a complex topic that makes a difference to your taxpayer status both in the UK and abroad.
Please contact your nearest Chase Buchanan office for further assistance in evaluating the income or activities that may be subject to UK income tax and assessing the approaches available. Our wealth management advisers have years of experience supporting expats worldwide and provide confidential advice to help you file your returns and manage your tax liabilities confidently.