Living and working abroad can be an exciting opportunity. It’s a chance to experience different food, culture, and perhaps most crucially, better weather. But regardless of where you live, you may still need to file a tax return to HMRC. For some people, that’s where things can start to feel complicated. Should you be paying tax to the UK or the country where you’re working? If you’re unsure, don’t worry. This guide will clear up the confusion.
Why UK Tax Doesn’t Always End When You Move Abroad
Unfortunately, the fact that you’re no longer a full-time UK resident isn’t enough to exclude you from paying UK taxes. Whether you continue to pay after moving abroad depends on various factors.
Common misconceptions often leave expats feeling confused. A popular example is the ‘183-day rule’ – some people believe that if you spend less than half the year in the UK, you’ll no longer be classed as a resident.
In reality, this is just one of the tests to determine whether you should pay UK taxes. It’s possible to be classed as a resident when you have spent as few as 16 days in the UK, if other tests do not work in your favour. We’ll look at these in more detail later.
You may also be required to pay tax on any income earned inside the UK, such as rental income. It’s always important to have a full picture of your tax liabilities before working abroad.
Understanding Your UK Tax Position as an Expat
As we’ve explored, your UK tax position depends on your residency status and any income you earn in the UK or abroad. Let’s explore this.
UK tax residency and domicile in simple terms
Residency and domicile are separate legal concepts, and both can affect how you are taxed in the UK.
Residency is assessed each tax year under the Statutory Residence Test (SRT). This determines whether you are classed as a UK tax resident for that tax year.
The SRT works in three stages:
1. Automatic Overseas Tests
You may be automatically non-resident if, for example, you spend fewer than 16 days in the UK during the tax year (or fewer than 46 days if you were not resident in any of the previous three tax years). You may also qualify if you work full-time abroad and meet specific limits on UK days and UK workdays.
2. Automatic UK Tests
You are automatically resident if you spend 183 days or more in the UK in the tax year, have your only home in the UK for a qualifying period, or work full-time in the UK.
3. Sufficient Ties Test
If neither automatic test applies, your residency status depends on how many “ties” you have to the UK — such as family, accommodation, work, or time spent in the UK in previous years — combined with the number of days you spend in the UK during the tax year.
Because the rules are detailed and fact-specific, small changes in travel patterns or living arrangements can affect your status. Many expats choose to seek professional advice to confirm their position.
Domicile, on the other hand, is a longer-term concept. You usually acquire a domicile of origin at birth (typically your father’s domicile at that time). You may later acquire a domicile of choice if you move to another country and intend to live there permanently or indefinitely.
Changing your domicile requires clear evidence of long-term intention and can be difficult to establish in practice. Domicile status can affect eligibility for certain tax treatments and may also influence inheritance tax exposure, so it is an area where specialist advice is often recommended.
How overseas income is treated
If you’re a UK resident, you must declare all your foreign income to HMRC. In addition to income from employment, this includes bank interest, rental properties, and other income earned abroad.
It’s important to note that declaring the same income in two countries doesn’t mean you’ll be paying double tax. Generally, UK residents can claim tax credits that offset their liability. Again, you’ll still pay tax on any income generated within the UK.
To avoid legal hiccups, keep clear records of income. Ensure these are updated regularly and broken down by income type.
Common UK Tax Responsibilities for Expats and Overseas Workers
When working or living abroad, you need to be aware of UK tax responsibilities. We’ll explore some key aspects of this:
Self Assessment for expats
Even if you aren’t classed as a resident, you may still need to complete a Self Assessment tax return if any of the following apply to you:
- You’ve worked within the UK or for a UK-based business.
- You own rental properties in the UK.
- You’ve made capital gains from selling a UK property.
- You’ve earned untaxed income such as interest or dividends.
VAT considerations for UK-based businesses and sole traders
Even while living abroad, if you run a UK-based business or are a sole trader, VAT rules still apply. If your annual UK turnover exceeds £90,000, you must register for VAT and charge it on relevant sales. Falling below this threshold doesn’t remove the option — registering can allow you to reclaim VAT on business expenses, such as materials or software subscriptions.
For expats, this can present practical challenges: you’ll need to track UK sales and invoices carefully from overseas, convert foreign currency payments when applicable, and ensure timely submission of VAT returns.
Using cloud-based accounting tools can simplify this process, letting you calculate VAT, store digital records, and submit returns without being physically in the UK. This keeps you compliant, reduces the risk of fines, and saves time compared with managing VAT manually across borders.
Deadlines and penalties to watch out for
When working in the UK, your employer usually handles your tax. When working abroad, you may be responsible for completing Self Assessment returns, depending on your circumstances.
Don’t slip up and miss key deadlines:
- 31 October – for paper tax returns.
- 31 January – for digital tax returns and for paying tax.
Missing deadlines results in a penalty. These become more severe the longer it takes you to pay, ranging from an initial £100 fine to 5% of your total tax due. Interest may also be charged on late payments.
The Challenge of Managing UK Tax From Overseas
Managing tax from overseas inevitably introduces some obstacles. Let’s consider some factors that may make tax compliance more challenging.
Time zones, paperwork, and communication gaps
Navigating time zones can add an element of confusion when filing taxes. Remember, tax deadlines are based on the UK time zone, regardless of where you operate.
Time zones also make contacting UK tax authorities or advisors trickier, especially if you’re in an area that is several hours ahead or behind. You can use a time zone converter to easily track time zones.
Dealing with paperwork can be challenging. Non-UK residents cannot use HMRC’s standard online Self Assessment service to report their UK income. Instead, you’ll need to file a paper SA109 form, use HMRC-recognised software that supports SA109, or work with a tax professional.
Manual systems increase risk and stress
Without the right software, tax obligations become challenging. You’ll be reliant on manual data entry. A simple mistake could lead to errors and fines. Important documents might be stored in different physical and digital locations, making it harder to find key information.
How Digital Tools Simplify UK Tax Compliance for Expats
Let’s explore how tools can take the hassle out of tax compliance.
Centralising financial records from anywhere
Digital tools bring all your financial data together. Instead of looking across disparate locations for financial information, you can get all the information you need in one space. The best solutions feature customisable dashboards, so you can get key insights at a glance.
Digital tools also run in the cloud, so you can access them from your tablet or mobile device. This makes handling tax quicker and more streamlined.
Staying compliant with UK digital tax requirements
As we’ve explored, UK tax requirements can be complex. Accessible, cloud-based systems are essential for understanding and staying on top of tax obligations.
One solution that helps UK expats manage tax responsibilities remotely while staying aligned with HMRC requirements is MTD software for sole traders. This tool creates easy-to-access records of your income and expenditure, categorising income, expenses, and receipts as they come in. It can send updates directly to HMRC and provide up-to-date estimates. This means no more surprises when your tax bill comes in.
Practical Tips for Managing UK Tax While Living Abroad
Here are some methods to help you manage UK tax abroad.
Keep UK and overseas finances clearly separated
To claim tax credits and offset your liability, overseas income should be recorded separately from UK income. This means maintaining separate bank accounts for each income source.
It’s equally important to keep records of income separate.The right digital tools should handle this process for you, enabling you to classify different sources of income. If you’re reliant on manual methods, create separate spreadsheets for each source.
Work with UK-based accountants and advisors
Tax is a complex business. It’s always better to use expert advice rather than ‘going it alone’ and risking mistakes. Look for accredited, reputable advisors. Accounting platforms often link you with experts who can assess your accounts and give advice.
Build a repeatable admin routine
Filing taxes isn’t a ‘one-and-done’ task. While most individuals submit one annual Self Assessment tax return, some businesses and sole traders are required to provide quarterly updates under Making Tax Digital (MTD) rules.
Even if quarterly reporting does not apply to you, maintaining regular bookkeeping throughout the year makes filing significantly easier.
Always be aware of deadlines ahead of time – deadline tracking software can help you keep track so you don’t miss key dates.
Planning Ahead to Avoid Unexpected Tax Issues
Planning is key to managing your taxes. That means tracking your current residency status and considering how trips to the UK might impact it.
Remember, in some circumstances, UK residency could be triggered by as few as 16 days. If your status changes, you’ll need to start filing taxes to HMRC again. If you return to live in the UK, you’ll also need to pay national insurance.
Using the right accounting tools makes tax planning much simpler. While these solutions require investment, they’ll save money and hassle in the long-term.
Staying in Control of UK Tax From Anywhere
Don’t let the stress of filing taxes undermine your experience of working abroad. You can avoid the stress of spreadsheets and multiple documents. Life becomes much easier with a smart software solution that puts everything you need in one place.
