A Complete Guide to UK Income Tax for Foreigners

The A to Z Guide of UK Income Tax for Foreigners

The United Kingdom is a land of opportunities. Though its tax regime may be sky-high for some, it is complemented with excellent public amenities. Nevertheless, foreigners approaching the UK income tax may have plenty of questions lingering on their minds. Fret not; this article will serve as a comprehensive guide to UK income tax for foreigners.

In this article, we will ensure UK income tax for foreigners covers extensive topics of tax residency, mandatory contributions, income brackets, tax codes, double tax agreements, and available tax incentives for foreigners in the UK.

First, the UK tax income runs from 6th April 2023 to 5th April 2024. Respectively, the UK tax year is from 6th April of the previous year to 5th April of the following year. The governing body collecting tax in the UK is Her Majesty’s Revenue and Customs (HMRC).

You pay tax through contributions from your payroll if you are an employee, or if you are self-employed, you pay tax via the self-assessment tax form based on your yearly profits. Once we know these basics, let’s move on to the critical sections.

 

UK Tax Residency

As a foreigner in the UK, you pay tax on your income for your earnings in the UK. The only difference is when you become a UK resident, you will be paying tax on all incomes earned in the UK and abroad.

You become a UK resident when:

1. You stay in the UK for more than 183 days or more in the tax year or
2. You spent more than three months (91 days) in the UK and lived in the same accommodation for at least a month or
3. You worked for a year (365 days) in the UK, and at least one working day falls within the tax year period or
4. You have connections in the UK that entitle you to be a UK resident for tax purposes.

However, you could be a non-UK domicile individual if you prefer your home country as your permanent place to stay after a specific period beyond 183 days in a tax year.

You become a non-resident for tax purposes when you do not qualify for the above. And you only have to pay for the income earned in the UK.

 

UK Tax Rates

Here’s something interesting. The tax rates in the United Kingdom provide a tax-free amount. The first £12,570 per annum of your income or profit is considered a personal allowance and tax-free.

Other than this amount, there are three income brackets where the tax rates may apply.

Income Bracket (per annum)	Rate Type	Tax Rate
£12,571 – £50,270	Basic	20%
£50,271 – £125,140	Higher	40%
More than £125,141	Additional	45%

 

The HMRC has made it easier for everyone paying tax in the UK to access their personal tax account online. You will need to set up an account using your National Insurance number and either two of the following:

• valid UK passport
• UK driving licence issued by the DVLA
• a payslip from the last three months or a P60 from your employer (previous tax year)
• details of a tax credit claim
• details from a Self Assessment tax return
• your credit record information if you have one (such as loans, credit cards or mortgages)

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National Insurance Contributions

The tax system in the UK requires all workers to contribute to the National Insurance Contribution. It is similar to your home country’s Social Security programme. If you are looking for a job in the UK, have been offered employment or will be conducting some work to earn profits, you must register for the National Insurance number.

It is the identification number for NIC and remains the same for life. HMRC uses it to identify your contributions and the applicable benefits of NIC when you need it. Requirements when to pay for National Insurance are:

• Aged 16 years old and more, earning more than £242 per week from one job or,
• Self-employed with annual profits of more than £12,570

The National Insurance funds for social programmes such as pensions, allowances and support for specific individuals according to classes. There is class 1 for the employees, class 2 for the self-employed and class 3 for voluntary contribution. The benefits vary according to classes, and you may seek professional tax advice on claiming these benefits when you need them.

 

Tax Codes

A tax code is a set of numbers that ensures you are paying the correct amount of tax via your salary or self-assessment tax return. Where would you get these codes? Here are reliable locations to find out about your tax codes:

• Your employment payslip – weekly or monthly
• On the HMRC app
• Via the HMRC personal tax account. Just give them a call to find out your latest tax code.
• PAYE (Pay As You Earn) Notice from HMRC that sets out how much tax your employer should deduct from your salary.

 

Double Tax Agreements and Incentives

If you are still determining whether you must pay tax in the UK and your home country, the UK has up to 130 double tax treaties to ensure foreigners pay tax once on their income or profits. You can check if your home country has a double tax treaty with the UK.

For foreigners employed in the UK, the first £12,570 is tax-free in every given tax year. However, employees who own shares could look forward to the Business Asset Disposal Relief should they sell or dispose of the shares they own.

Conclusion

The UK income tax for foreigners explained in the above is partial. The tax rules in the UK may change, and your situation could also change. Get in touch with a local tax expert, such as 3E Accounting, to ensure you are managing your tax in the UK efficiently.