Contractors' Questions: How taxing is a UK contract for a non-resident?

Contractor’s Question: As a New Zealand resident set to enter and work in the UK for a 6-month-only contract, would I be able to claim any form of living expenses through an England-registered limited company, once I begin working in the UK?   

I'm thinking of staying in a hotel rather than renting. I’d probably lease a car too; would that be subject to tax relief? For background purposes it may help to know that my mortgage and family are still going to be in New Zealand. Also – would the gross yearly wage for tax purposes be considered the 6-month salary divided by 12 months? Or would I be taxed from day one as if I am there for 12 months?

Expert’s Answer: While these seem like simple questions, the answers are not straightforward as they depend on a number of factors.

From the information given, you will be considered tax resident in New Zealand and not the UK, even if you spend more than 183 days in the UK in a tax year. That means you would need to consider both UK tax and NZ tax on the UK contract income. I cannot comment on the NZ tax, but you will effectively obtain a tax credit against the NZ tax on the UK income of an amount up to the UK tax on the UK income.

You should be aware though, that the treatment of expenses (and other items) may be different under the two tax regimes.

In order to obtain UK tax relief on accommodation costs, you would need to have been working in New Zealand and now your employer there requires you to work in the UK, rather than you are going to the UK to take up an employment. Forming a company specifically for the UK contract, therefore, doesn’t help in that regard.

There are special rules regarding cars provided by the company. While the company would obtain tax relief on the costs, you will be taxable on the benefit. Leasing a car in the name of the company for your personal use is probably not as tax effective as leasing it personally.

As regards the gross yearly wage, you are taxable on your income for the tax year (from 6 April one year to 5 April the next year). The fact that you only earned the income in 6 months doesn’t affect the tax payable overall. How much you pay each month will depend on when in the tax year the contract starts, as the PAYE system attempts to spread the tax across the year, but doesn’t achieve this when you only earn for part of a year.  

The expert was Graham Jenner, director of Jenner & Co, a chartered accountancy firm and business advisory.

Editor’s Note: Related Reading –

Contractors’ Questions: Can I be a UK contractor even if non-resident?

Contractors’ Questions: Does the 183-day rule let me avoid tax?

Contractors’ Questions: Can I claim set-up or relocation costs?