How to complete a UK non-resident tax return

As an expat originating from the UK, the chances are that you emigrated to another country for better weather, career prospects, and perhaps even to lower your overall tax bill if you’re self-employed.

However, it’s important to note that you may still be required to file an annual tax return with HMRC, even if you’re no longer a UK resident.

Indeed, even if you’re officially a resident in another country, you’re still a tax resident in the UK if you make a living or earn a side income in the UK, whether from employment, investments, interest, or rental income.

Determining whether you’re a UK tax resident

Before we move any further forward, it’s important to work out whether you’re actually a UK tax resident - if you’re not, you probably won’t have to pay tax in the UK.

Today, HMRC uses something called its Statutory Residence Test to determine whether or not you should be paying tax in the UK, taking into account how much time you spend in the UK, overseas and UK tests, and sufficient ties tests, so read through their website to determine your status.

It’s common for expats to incorrectly establish their tax residence status - so speak with an accountant if you’re confused.

Remember: if you get it wrong, you could suffer penalties and face unexpected tax bills that you cannot afford, so it pays to do your research beforehand.

Telling HMRC before you move

Before you emigrate from the UK, you must tell HMRC if you’re leaving the UK to live abroad permanently or going to work abroad for at least one full-time tax year.

However, you don’t need to tell them if you’re going on an extended holiday or business trip.

Remember that the tax year runs from 6 April to 5 April the next year in the UK - if HMRC doesn’t know you’ve moved to another country, they’ll assume that you’re due to pay tax and may investigate.

If you’re an expat who had previously been employed or unemployed, you should fill in a form P85 and send HMRC parts of your P45 form.

For those who are self-employed, you should submit a final Self Assessment tax return.

If you’ve already left the UK and cannot access HMRC online, you can send your tax return by post, use software like Quickbooks, or rely on an accountant who can submit your returns or form P85 on your behalf.

If you leave between a tax year, you might receive “split-year treatment” where you’re taxed on your income for the part of the year you’re in the UK.

For those who are self-employed, you may overpay, and HMRC will automatically issue a refund to your UK bank account.

Filing tax returns as an expat

If you’ve earned some UK income as an expat, you are legally required to file an income tax return to HMRC every year - even if you owe no tax on that income.

For example, if your income is under the personal tax allowance of £12,500, you’re still required to submit a return for accounting purposes - and tax may be deducted for things such as a student loan.

If you’re the director of a UK company, receive profits from a UK company or partnership, earn an income from self-employed in the UK, receive rental income from UK properties, do some or all of your work from the UK or make capital gains from the sale or disposal of assets in the UK, you’ll be required to declare and pay the necessary taxes on your UK earnings.

Therefore, it is essential that you keep a record of all UK earnings (we recommend working with a UK-based bookkeeper or using online accounting software to assist you).

However, income received from investments (for example, interest on your savings accounts or dividends from investments) do not have to be declared if they’re your only UK income and are less than £12,500 - but they must be declared and added to your total taxable income if you’re earning money elsewhere in the UK, for example, if renting out a property.

If you work in the UK - either temporarily, on a self-employed or freelance basis, or as part of a paid employment contract - you must declare that work and your income in a tax return unless the tax is automatically deducted by an employer as part of Pay As You Earn (PAYE).

Penalties for expats

Tax returns for the previous year are due on the 31st of January every year - but you can submit them from the end of the tax year in April.

You’ll be able to declare an income for the 2019/2020 tax year from 6th April 2020, for example, and won’t need to pay tax on that income until 31st January 2021, allowing you to hold onto your cash and receive interest.

However, if you file your Self Assessment later than 31st January, you’ll be penalised:

If you’re one day late, you’ll pay a £100 penalty outright
If you’re three months late, you’ll pay £10 per day up to £900
If you’re six months late, you’ll be fined 5% of the total tax that would have been due, or £300 - whichever of the two is greater - on top of paying your tax bill
If you’re twelve months late, you’ll be charged another 5% of the total tax that would have been due, or £300 - whichever of the two is greater - so get your returns in fast!

It’s also important to note that you’ll be required to pay penalties and interest on outstanding tax payments (the current interest rate is 3.25%).

If you were faced with an unexpected tax bill, you might be able to ask for a ‘time to pay agreement’ where you’re given more time to pay tax in instalments, though you’re more likely to get this if you apply before the deadline on 31st January than if you’re already late.

Double taxation

When preparing a UK tax return, you should remember that the UK has double taxation treaties and agreements with other countries, and you may be eligible for an exemption if you’ve already declared your UK income internationally.

However, living in a country with a double tax agreement does not mean you can avoid submitting a UK tax return - you must still declare any income generated in the tax year, even if you’re not going to be taxed.

Wrapping up

It’s easy to assume that leaving the UK means leaving behind all of your UK tax obligations, too, but unfortunately, that’s not the case.

Follow the law to the letter and seek professional support if you’re concerned you’re paying too much tax, and check back to Money Saving Expat soon for more free and impartial money-saving advice written by expats, for expats.