Freelancing
Do I Need to Pay Tax if I Work Remotely for a UK Company in 2025?
12:52 AM UTC · December 10, 2024 · 10 min read
Mia Jones
Work-life balance coach helping remote professionals thrive.
Work-life balance coach helping remote professionals thrive.
As of April 6, 2025, the UK will abolish the non-domiciled status for tax purposes, marking a significant shift in how the country taxes individuals. This change introduces the Foreign Income and Gains (FIG) regime, which will affect both short-term and long-term UK residents.
The abolition of non-domicile status means that the remittance basis of taxation, which allowed non-UK domiciled individuals to avoid tax on foreign income and gains that were not brought to the UK, will no longer apply. Instead, the FIG regime will apply to individuals who are new to the UK tax system or who have been non-resident for at least 10 consecutive years.
Under the FIG regime, individuals will be able to claim tax relief on foreign income and gains for the first four years of UK tax residency, provided they meet certain conditions. This relief will be more straightforward and easier to claim compared to the previous remittance basis, but it will also be subject to a cap.
To claim tax exemptions under the FIG regime, individuals must meet specific conditions:
Qualifying New Resident (QNR): To be eligible for FIG relief, an individual must have been non-UK tax resident for at least 10 consecutive years prior to their arrival in the UK. This ensures that the individual is considered a "new resident" and can benefit from the tax relief.
10-Year Non-UK Tax Residence Rule: Individuals who have been non-UK tax resident for 10 consecutive years can reset their tax status and be treated as new arrivals under the FIG rules. This provides a fresh start for those returning to the UK after a significant period abroad.
Claiming FIG Relief: To claim FIG relief, individuals must submit a tax return and elect to use the FIG regime. This relief will apply to foreign income and gains for the first four years of UK tax residency, with certain limitations and caps.
For remote workers employed by a UK company, understanding what constitutes taxable income is crucial. Under the new FIG regime, the following points are important:
Definition of Taxable Income: Taxable income for remote workers includes salary, bonuses, and other compensation received from the UK employer. Additionally, any foreign income and gains must be reported if the individual is a UK tax resident.
Taxation of Foreign Income and Gains: Foreign income and gains will be subject to UK tax for the first four years of residency under the FIG regime. However, there is a cap on the amount of foreign income that can be claimed for relief, which is the lower of £300,000 or 30% of qualifying employment income per tax year.
Overseas Workday Relief (OWR): For the first four years of UK tax residency, employees can claim OWR to exclude income related to workdays performed outside the UK. This relief will be easier to claim and will not require the income to be kept outside the UK, as was the case under the previous remittance basis.
Steps to Report Remote Work Income to HMRC: Remote workers must report their income and gains through HMRC's self-assessment tax return. This includes both UK and foreign income, as well as any tax relief claimed under the FIG regime.
Maintaining Accurate Records: Keeping detailed records of income, expenses, and workdays is essential for accurate tax reporting. This includes maintaining bank statements, payslips, and any other relevant financial documentation.
Use of HMRC's Self-Assessment Tax Return: Remote workers should use HMRC's self-assessment tax return to report their income and claim any applicable tax relief. This can be done online through the HMRC website.
Overview of the £6 Weekly Tax Relief: Remote workers based in the UK can claim tax relief for additional household costs incurred due to working from home. The standard rate is £6 per week, which can be claimed without the need for detailed evidence.
Conditions for Claiming Tax Relief: To claim tax relief, the additional costs must be directly related to work, such as business phone calls, gas, and electricity for the work area. Costs that are used for both private and business purposes, such as rent or broadband, cannot be claimed.
Examples of Eligible and Non-eligible Expenses: Eligible expenses include the cost of business phone calls and additional energy bills for the workspace. Non-eligible expenses include rent, broadband, and general household items.
National Insurance (NI) Contributions: Remote work does not change the requirement to pay National Insurance contributions. Employees must pay Class 1 NI contributions based on their earnings, while self-employed individuals pay Class 2 and Class 4 NI contributions.
Differences Between Employee and Self-employed NI Contributions: Employees pay a percentage of their earnings up to a certain threshold, while self-employed individuals pay a fixed amount and a percentage of their profits. The rates and thresholds for these contributions are set by HMRC.
Potential Tax Credits and Reliefs: Remote workers may be eligible for certain tax credits and reliefs, such as the Working Tax Credit or the Child Tax Credit, depending on their circumstances. These can help offset some of the costs associated with remote work.
Explanation of Double Taxation Agreements (DTAs): DTAs are agreements between the UK and other countries to prevent double taxation on income earned abroad. These agreements specify which country has the right to tax certain types of income, helping to avoid double taxation.
How DTAs Can Prevent Double Taxation: DTAs typically allow individuals to claim tax relief in one country for taxes paid in another. For example, if a UK resident pays tax on foreign income in the country where it was earned, they can claim relief on that income in their UK tax return.
Steps to Claim Tax Relief Under DTAs: To claim tax relief under a DTA, individuals must provide evidence of the tax paid abroad, such as a tax certificate or a tax return from the foreign country. This evidence should be submitted with the UK tax return.
Requirements for Reporting Foreign Income: Remote workers based abroad must report their foreign income to HMRC, even if they have already paid tax on it in the country where it was earned. This includes salary, bonuses, and other forms of compensation.
Importance of Understanding Local Tax Laws: Understanding the tax laws of both the UK and the country of residence is crucial for compliance. Remote workers should familiarize themselves with the tax obligations in both jurisdictions.
Use of the Temporary Repatriation Facility (TRF): The TRF allows individuals who previously claimed non-domicile status and used the remittance basis to bring overseas income and gains to the UK at a reduced tax rate for a three-year period starting in the 2025/26 tax year. This can be a valuable tool for managing tax liabilities.
Employer Obligations Under the New FIG Regime: Employers must ensure that they comply with the new FIG regime by identifying which employees are affected and understanding the tax implications. This includes updating payroll systems and policies to reflect the new rules.
Steps to Ensure Compliance with HMRC Regulations: Employers should review their global mobility policies and update them to address the changes in the FIG regime. This may involve providing tax equalization or protection to employees who will be affected by the new tax rules.
Importance of Updating Company Policies and Procedures: Clear and updated policies will help ensure that both the employer and the employee understand their tax obligations and can comply with the new regulations.
Best Practices for Supporting Remote Workers with Tax Compliance: Employers can support remote workers by providing resources and guidance on tax compliance. This may include training sessions, tax briefings, and access to tax professionals.
Providing Resources and Guidance for Employees: Employers should ensure that employees have access to the necessary tools and information to manage their tax affairs. This can include access to tax software, tax guides, and support from the company's HR department.
Ensuring Clear Communication and Transparency: Open and transparent communication is essential for maintaining trust and ensuring compliance. Employers should keep employees informed about any changes to tax policies and provide regular updates on their tax obligations.
In summary, the tax implications for remote workers employed by UK companies in 2025 are complex and multifaceted. The abolition of non-domicile status and the introduction of the FIG regime will significantly impact both short-term and long-term UK residents. Remote workers must understand their tax obligations, maintain accurate records, and report their income correctly to HMRC. Employers also have a crucial role in ensuring compliance and supporting their remote workforce. Staying informed about tax law changes and seeking professional advice can help navigate these complexities and ensure financial stability.
Living in Spain and working for a UK company involves understanding the tax implications in both countries. Spain offers several tax incentives for foreign residents, and the UK has its own tax regulations. To avoid double taxation, individuals can benefit from tax treaties between Spain and the UK. For more detailed information, consider reading our guide on working remotely in Spain.
Working remotely for a UK company while residing in the UK comes with its own set of tax and legal considerations. Remote workers must comply with UK employment laws and ensure that their income tax and National Insurance contributions are correctly handled. A clear employment contract outlining roles and responsibilities is essential. For more information, see our guide on working remotely in the UK.
Common risks associated with remote work for a UK company include tax compliance and legal issues. Both the employee and the employer must adhere to regulations in both the home country and the UK, which can be complex. Strategies to mitigate these risks include understanding and adhering to both UK and local laws, maintaining accurate records, and seeking professional advice. For more details, check out our guide on tax obligations for remote workers.
By staying informed and taking proactive steps, both remote workers and employers can navigate the tax landscape effectively and ensure compliance with the new FIG regime.
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