Caution is the watchword for expats visiting the UK, and contractors working far from it with family

‘Caution’ was what I advised, to an expat working for a British company overseas but who travels back frequently from its global branches to the UK.

And that same caution; for that same reason – HMRC – is advisable if you’re a UK tax resident contractor who almost feels like you’re not UK tax resident due to working so much of your time overseas, writes Laurence Hodgens, founder of Hodgens Global, a tax reporting and accounting firm serving expats.

Incidental duties?

But first those expats, notably those working with international organisations but who often need to attend to job-related matters while in the UK.

As I had to emphasise the other day, caution must kick in when identifying whether one is performing merely incidental duties or undertaking something more substantive.

When visiting only for a short period of time, usually no more than a few days or weeks, there may be no ‘tax via PAYE’ issues to address in the UK -- for either the worker or the employer.

The seven-hour flight threshold set by HMRC...

But if the number of days is excessive, and still does not exceed 60 days, then HMRC's ‘Short Term Business Visitor’ rules apply.  

On the matter of working days in the UK, this can be affected by arrival times and flight duration. HMRC's rule of thumb is as follows: 

• Less than 7-hour flight -- considered to be a UK ‘workday,’ if arriving in the morning or departing in the afternoon.
• More than 7-hour flight -- considered to be a ‘half’ UK workday only, if arriving in the morning or departing in the afternoon.

There are many issues to unpack here, not least looking long and hard at your airline of choice regarding how long transporting you from ‘A’ to ‘Blighty’ is going to take, before you book your flight. More unmoveable is likely to be your role within the organisation, and whether it allows for the instance of merely ‘incidental’ duties. 

What's the tax position on a 12-months contract overseas?

As I said at the top, contractors who are UK tax residents need to be HMRC-cautious too. And that’s the case even though there is probably more scope for tax deductions than many might think when contracting overseas for long stints and joined by family.

Not a million miles from my expat client in terms of location, a British contractor freelancing overseas as a research medic on a 12-month contract had the complication of straddling two tax years.

While the work was performed wholly overseas, there was no intention to relocate overseas and there was no possibility of claiming non-UK residence status.

In this scenario, the income generated from the work performed overseas will therefore be subject to UK tax -- and will need to be declared to HMRC in the usual annual reporting process.

Tax deductable

However, where such income is generated from time spent overseas on business, the costs of living abroad personal to the contractor can be deducted from taxable income, if they are “wholly and exclusively” related to the work performed.

That said, any private expenditure, such as personal trips or holiday vacations during the period overseas will not be allowed.

Furthermore, and as I had to point out, where the contractor is overseas purely for work reasons, all living costs can be considered such as travel, accommodation, and sustenance costs, including food and drink (albeit specifically attributable to the contractor).

Two offsetable return trips for loved ones, and no more

Disallowed, are any costs incurred by any family members or dependants that choose to accompany the contractor. Yet, if the contractor’s absence extends to a significant period of time, there is scope to offset the travel costs of the spouse and children, by a maximum of two return trips.

The purpose of the expense must be for the sole objective of completing the contract.

Next, and as I was asked by the research medic, where there is duality of purpose, legislation may allow for some apportionment of those expenses. For example, on car hire costs, fuel, insurance, and toll fees.

Get help

For guidance on how to determine a suitable proportion of such costs as tax-deductible, there are a number of reference points on HMRC’s website. There, specific application of legislation can be read, alongside various disputes that ended in court, where such matters have been reviewed and accepted -- or not. So, in the case of both expats visiting the UK for work and UK contractors freelancing abroad with family, while HMRC might feel far away, ‘caution’ really is the watchword.