UK Expats - HM Customs & Revenue Your Responsibilities.

What are the tax liabilities and responsibilities for UK Expats in the Philippines

Are you a British expat living and working, or retired in the Philippines, I often get asked in my inbox about tax liablities, very often I receive e mails from interested ones who come through my website British-Filipino.com they tend to be worried about their tax positions and their pensions.

The good news is, unlike in the United States where U.S. residents in the Philippines must pay tax on their worldwide income, UK residents are not duty bound to pay HM Customs & Revenue any tax on income made in the Philippines, this also applies to their private pensions if they hold such a pension, since they are not resident in the UK, they escape having to pay any tax.

Naturally any expat who works in the Philippines may be subject to paying local income tax to the BIR on any monies they receive as a working person, as Bob has often said, technically those on permanent residency visa’s can work, but being a consultant or adviser may not constitute any liablity for income tax to the Bureau of Internal revenue.

But what about those who migrate back to the United Kingdom to work occasionally, some do consultancy work, others come back to work for a short period and migrate back, others have income generated in the UK, but paid in the Philippines, what are the responsibilties for those ones, and what does HM Revenue & Customs say about it.

Firstly, the rules are simple, although of late, there have been one or two test cases, where the rules have been overturned by the Commissioners to the Inland Revenue.

The Rules state that : “if a person who is not resident in the UK enters the United Kingdom and carries on in any profession, trade, business or employment must complete a self assessment tax return for that year, however if they do not remain in the UK for more than 270 days in any 3 year period, they may claim “NON RESIDENCY”.

Non residency, means that they are not liable for any UK Income tax or Class 4 national insurance contributions on their Income tax, they may still pay Class 2 national insurance contributions, and if they wish to do so, they may pay Class 3 voluntary national insurance contributions to pay for any non qualifying years they have failed to complete.

To qualify for the UK pension for a man, you need 44 qualifying years in employment, or self employment, the employed pay Class 1 National Insurance contributions, and the employer also pays employers national insurance contributions which go towards the final state pension, and 2nd state pension of the employee.

If 44 qualifying years are not met, through illness, redundancy, etc, if that person is in receipt of job seekers allowance, or income support, the contributions are met by the state for the period the person is out of work, or in receipt of the above two means tested benefits.

Those expats who are resident in the Philippines, may have their state pension and 2nd state pension (the old SERPS) paid to them in their bank account by the overseas payment unit.

Back to those residents who are commuting or spending some time back in UK working, the rule state that to claim non residency, the person must not have spent more than 270 days in 3 years, or 90 days in 1 tax year, this does not include the day the person lands in UK, and the day they leave the UK, so in effect 92 days.

If the stay excedes the 90 day rule, then the person is liable for UK income tax and Class 4 national insurance contributions on their profit, for all the time they spend in the UK, and tax is payable at the standard rates of 22p in the pound up to 29,000 and 40p over that amount.

Some residents have attempted to get around the rules by keeping and maintaining a home in the UK, they have also retained their wife and children in the UK, and attempted to get around it, by stating to HM Revnue and Customs that they are not resident in the UK.

However as I mentioned earlier, the commissioners for taxes are taking these people to task, a recent ruling by the high court brought by the commssioners for tax had a favourable ruling in that a certain businessman, travelled back and forth to UK, he stated on his tax return that he was claiming non residency because he was not in the UK for more than 90 days in 1 year, in fact the judge ruled that although this was true, he had a life in the UK, a house, his children were at school, his wife lived in the house, the judge said that “This constituted an ongoing residency relationship with the UK, and therefore as he had assets in the UK, he should contribute and pay UK Income tax.

How does this ruling effect you if you are comteplating being one of those who are resident in the Philippines, well as far as the ruling is concerned, which will set a precedent for the future, it is up to you the individual to prove that you are non-resident and that you have no assets in the UK, i.e. property, or immediate family, so for example, if your home is in the Philippines, your dependant family live there, and you only visit to do some work for 90 days or less, its likely that you will qualify and not be a resident, you would then be legitamately entitled to claim non residency, you would of course be required to keep all boarding passes, tickets are not evidence of your movements.

But interestingly, boarding card stubs are evidence of your movements, since UK passport control does not register your exit from the UK, nor does it register your arrival by way of a landing stamp, there is no way for HM Revenue & Customs to validate your non residency.

The best tip is, :Keep all your boarding cards and tickets, and retain all your financial records, the rule of keeping all of your last 5 years records still stands, but you can voluntarily keep paying class 3 voluntary contributions on your state pension, if you leave before the age of 65.

I hope this article has been interesting for UK expats, living and working from the Philippines, the recent test cases in the High Court have certainly given me food for thought.