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United Kingdom (UK) - Income Tax
The British tax year runs from April 6th to April 5th. Instead of keeping records for January 1st to December 31st, records are kept from April 6th of the year to April 5th of the next year. The return has to be mailed by October 31st or by January 31st depending on whether it is being submitted online or on paper.
Some Rules for Expats
If applicable, an expat may need to file for a National Insurance number. This is a number that is usually given to workers as it is used for employment. The NI is a lot like the social security number or employee identification number. For expats there is an income level one has to attain in order to qualify to pay taxes in the UK. Country of origin also has an effect on tax levels, as there are certain countries that require double taxation, in which the resident pays UK taxes and also pays home country taxes. Specific regulations can be found through the HMRC. Typically, double taxation requirements will depend on the amount of time a person spends in each country throughout the year and how much of the income was earned locally versus in the expat country.
Expats can enter a PAYE or ‘pay-as-you-earn’ situation, like with USA income taxes. Tax will then be taken out of the pay cheque before the funds are deposited into the employee’s account. If taxes are paid in this way throughout the year, a person may be entitled to a tax refund.
Taxable Income for Expats
Income tax forms require an expat to state any income they have made during the year beyond wages or salary such as company benefits, self-employed income, pensions, interest from savings, stock or dividends, rental property income, state benefits, or government benefits. Company benefits include cash bonuses, severance, company cars, medical insurance, company housing, and inducement payments. Child tax and working tax credits can also apply to income tax payments.
Expats have fewer special tax breaks or allowances than UK born citizens. There are breaks for moving expenses above a certain income and for specific tier work permits. Most expats find they are subject to being taxed for all the same things as UK residents, with fewer breaks or deductions. Two of the tax breaks that apply specifically to expats are the foreign tax credit and foreign earned income and housing exclusions. These are for US citizens only.
Short Term versus Long Term Expats
Short term expats may qualify for the PAYE system, meaning they pay based on the number of days spent in the UK versus their income. Specifically, US citizens in the UK for under 183 days per tax year or under 91 days for 4 years will not be subject to paying UK taxes. If paid through their local office instead of a UK payroll office, then a US citizen in the UK is not subject to taxes. The only exception to this rule is if the income is over £37,000. If a person’s income exceeds this amount then a 40% tax rate is applied. Like the US, tax rates are specific to income earned. Visitors or expats in the UK for more than 183 days must file UK tax returns. They will file under the R/NOR meaning Resident but Not Ordinarily Resident. Income that has been paid by a UK company is subject to UK duties in these instances.
HMRC is the tax agency in the UK that oversees all tax questions and filings. To understand whether an expat needs to pay taxes, they need to contact the expatriate team through the website.
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