Non-UK directors and UK tax: what you need to know

As businesses become increasingly global, it is common for UK companies to appoint directors who live outside the UK but work in the UK. While this can bring valuable expertise, it also raises complex UK employment tax issues that are often overlooked. Failure to address these risks can result in unexpected tax liabilities for both the individual and the company.

Why does UK tax apply?

Under UK tax law, directors are treated as employees for income tax purposes. This means that any remuneration – salary, benefits, or even shares – attributable to duties performed in the UK is potentially subject to UK income tax and National Insurance Contributions (NICs), regardless of where the individual is tax resident or where their primary employer is based.

The key principle is territoriality: if duties are carried out in the UK, UK tax can apply. HMRC expects a 'just and reasonable' apportionment of remuneration between UK and non-UK duties. Importantly, HMRC takes a narrow view of what counts as 'merely incidental' UK duties (which are excluded from the scope of UK income tax). Attending board meetings, negotiating contracts, or overseeing UK operations will almost always be treated as substantive UK duties, for which any remuneration is subject to UK tax in the absence of any relief.

Company obligations under PAYE

Even if the director is paid by an overseas employer, UK Pay As You Earn (PAYE) obligations can fall on the UK company for which the work is performed. The UK entity is treated as making a 'notional payment' for UK duties and must operate PAYE on the relevant portion of the director’s earnings. This includes accounting for both income tax and NICs, and making real-time reporting to HMRC.

Where the UK company pays or reimburses directors' expenses, these may also be treated as taxable earnings unless a specific exemption applies.

Double tax treaty relief and the STBV regime

The good news is that relief may be available under the UK’s network of double tax treaties. This will depend on the terms of the double tax treaty between the UK and the jurisdiction of the director's tax residence, but typically UK tax on the director's remuneration can be relieved where:

• the director is tax resident overseas in a jurisdiction which has a double tax treaty with the UK;
• they spend fewer than 183 days in the UK in any 12-month period; and
• their remuneration is paid and borne by a non-UK employer.

However, this relief may be compromised where the UK company bears any costs linked to the director’s UK duties. Even reimbursed expenses can jeopardise eligibility.

Where treaty relief is expected to apply, HMRC offers an administrative easement – the Short-Term Business Visitor (STBV) regime. This allows UK companies to avoid operating PAYE, provided they report the visitor’s details annually. But the STBV regime is not guaranteed for directors, and HMRC may refuse its use if the UK company is seen as the individual’s employer in substance.

National Insurance Contributions: a separate challenge

Unlike income tax, NICs liability is determined by physical presence in the UK rather than tax residence. NICs are not covered by double tax treaties, although the UK has social security agreements with many jurisdictions that can reduce or eliminate NICs exposure. There are some notable exceptions, for example, the UK has no social security agreement with Australia or South Africa, meaning NICs can apply to directors from these jurisdictions, even where income tax relief is available.

Both primary NICs (employee) and secondary NICs (employer) may be due, with the UK company often treated as the 'host employer' for NIC purposes. While limited exemptions exist – such as the 52-week rule for secondees – these are unlikely to apply to directors because, for UK tax purposes, their directorship is treated as employment in the UK.

Practical steps to mitigate risk

• Assess UK duties early: understand what duties will be performed in the UK and for how long. Even short visits can trigger obligations for the UK host company.
• Apportion remuneration: agree a defensible split between the director's remuneration for their UK and overseas duties to calculate any UK tax and NIC exposure.
• Review cost sharing: avoid arrangements where the UK company bears remuneration or related costs, as this can undermine treaty relief.
• Consider STBV registration: where conditions are met, apply for an STBV agreement with HMRC to simplify compliance.

Key takeaway

Appointing a non-UK resident director to a UK company does not only have governance implications – it is a tax-sensitive decision. If you are considering such an appointment, or if your business already has overseas directors, seek specialist advice to ensure you meet your UK obligations and make full use of available reliefs.

For further information, please contact Amy Bowen or your usual contact at Farrer & Co.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2026