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    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Business Owner Moving Abroad → Director's fees + close co. dividends

    Director's Fees PAYE + Close Company Dividends to Non-Resident Director-Shareholder

    UK director's fees are UK-source employment income and remain subject to UK PAYE regardless of where the director lives or performs the duties (ITEPA 2003 + Article 15/16 typical OECD Model treaty). A director of a UK Ltd Co who has moved abroad must still operate PAYE on director's remuneration; the director may then reclaim UK tax under the relevant DTA + Personal Allowance + foreign credit mechanism. Close company dividends to a non-resident director-shareholder are typically sheltered by the s.811 ITA 2007 disregarded income mechanism — non-resident individuals are not chargeable to UK tax on UK dividends in excess of UK tax actually deducted at source (which for dividends since 2016 has been zero). However, disguised-remuneration anti-avoidance (ITEPA 2003 Part 7A) and the Settlements Code (ITTOIA 2005 Part 5 Ch 5) still apply.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    In plain English

    Three separate questions for the moved-abroad director-shareholder of a UK Ltd Co: (1) Director's fees / salary: UK PAYE applies — full stop. The UK company must continue to operate PAYE on any director's remuneration. If you (now non-resident) genuinely perform director duties from abroad, the DTA may allocate taxing rights — but the PAYE-and-reclaim mechanism is the default. Article 16 OECD Model gives the company's state (UK) primary taxing rights on directors' fees; Article 15 (employment) applies to executive functions and can be split between states based on workdays. (2) Dividends: this is where the structural trap matters. UK domestic law does not withhold UK income tax on dividends (since the 2016 reform removed the notional credit). For a UK-resident shareholder, the dividend stacks on top of other income and is taxed at 8.75% / 33.75% / 39.35% (2025/26). For a non-resident shareholder, s.811 ITA 2007 'disregarded income' applies: the non-resident's UK income tax liability on UK dividends is capped at the UK tax deducted at source — which is zero. Practically: UK dividends to a non-resident director-shareholder are typically UK-tax-free at the individual level (the corporation tax has already been paid by the company). BUT — the destination country usually taxes the dividend as foreign-source income at that country's rates. In the UAE: 0% (zero personal income tax). In Spain: progressive savings income rates 19-30%. In the USA: ordinary or qualified dividend rates 0/15/20% + NIIT 3.8%. In Australia: marginal rates with franking-credit-equivalent recognition issues. (3) Close company traps: a close company (controlled by ≤5 participators) has additional anti-avoidance rules — s.455 CTA 2010 tax on outstanding director loans (33.75%), disguised remuneration under ITEPA 2003 Part 7A, settlements legislation on income-shifting to family members. These rules apply equally to non-resident director-shareholders. The trap to avoid: structuring your remuneration package after moving abroad WITHOUT realising that disguised remuneration (Part 7A) and the close company anti-avoidance regimes still apply. 'I'll just stop taking salary and route everything through dividends' works for genuine economic dividends out of post-CT profits. It does NOT work for structures that are economically remuneration but dressed as dividends, loans, or third-party payments.

    How it works

    Director's fees — UK PAYE always applies

    The office of director of a UK company is itself a UK source of employment income, regardless of where duties are performed (HMRC EIM42801). The UK Ltd Co must register for and operate PAYE on any director's remuneration. The non-resident director then files UK SA (form SA109 + SA102 + relevant pages) claiming Personal Allowance under s.56 ITA 2007 (eligible if EEA national, certain Commonwealth nationals, or specific DTA Personal Allowance article) AND DTA relief. If the DTA allocates the director's fees to the residence state (less common — most treaties follow OECD Model Article 16 giving the company's state primary rights), an NT (no tax) PAYE code can be applied for via form DT-Individual + foreign tax authority certification.

    Article 16 directors' fees vs Article 15 employment — splitting executive duties

    OECD Model Article 16 covers 'directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company' — typically taxable in the company's state without conditions or limits. Article 15 (employment) covers executive duties performed under an employment contract — typically taxable in the state where the duties are physically performed (with the 183-day + employer-not-resident exception). A working director typically has both: a directorship attracting Article 16 fees AND an executive employment contract attracting Article 15 salary. The split matters because Article 15 follows workdays; Article 16 doesn't.

    Close company definition (CTA 2010 ss.439-444)

    A UK-resident company is 'close' if it is controlled by: (a) 5 or fewer participators; OR (b) any number of participators who are also directors. 'Control' includes voting power, share ownership, rights to assets on winding up. 'Participator' is broader than shareholder — includes loan creditors with specific rights, persons with rights to acquire shares, and certain associates. Most UK owner-managed Ltd Cos are close companies. The classification triggers the s.455 loan charge, disguised remuneration interaction, transfer pricing scrutiny, and settlements legislation application.

    s.811 ITA 2007 disregarded income — the non-resident dividend shelter

    Non-residents are chargeable to UK income tax on UK source income BUT s.811 caps total UK tax at the sum of: (a) tax deducted at source on 'disregarded income'; PLUS (b) full UK tax on non-disregarded income (e.g. UK rents, UK trade profits, UK government pensions for non-DTA-relieved cases). Disregarded income is defined in s.813 ITA 2007 and includes UK dividends, UK interest, UK purchased life annuities, UK pension income (subject to DTA). Since UK dividend withholding tax is zero, UK dividends to non-residents are typically UK-tax-free at the individual level. The cap is a 'better of' calculation — the non-resident gets the more favourable of (with PA + UK rates) or (s.811 cap) approach.

    Disguised remuneration (ITEPA 2003 Part 7A) — when 'dividends not salary' fails

    Part 7A (ss.554A-554Z21) was introduced in FA 2011 to catch arrangements where employment-type rewards are routed through third parties (trusts, EFRBS, loan structures). It applies where: (a) there is an arrangement; (b) a 'relevant step' is taken by a third party (or the employer); (c) the arrangement is connected with the employee's employment. The 'relevant step' (typically a payment, loan, or transfer of an asset) is treated as employment income at the time of the step. This catches: EBT loans (the loan charge); contractor loan schemes; dividend-stripping arrangements where shares are issued to family members beneficially controlled by the director; certain alphabet-share schemes lacking commercial substance. Genuine dividends paid out of post-CT profits on substantively-held shares are not caught — but the line is fact-specific.

    s.455 loan to participator — the close-company cash-extraction trap

    If a close company makes a loan or advance to a participator (including the director-shareholder), and the loan is not repaid within 9 months and 1 day after the end of the accounting period in which it was made, the company pays a temporary tax charge of 33.75% (aligned with the dividend higher rate). The tax is repayable when the loan is repaid. For a non-resident director-shareholder taking 'loans' from the UK Ltd Co instead of dividends or salary, s.455 applies — and the disguised remuneration regime may recharacterise the loan as employment income. The 'I'll just borrow from the company' route is heavily anti-avoidance-policed.

    Who this applies to + key conditions

    Statute + manual references

    Primary: ITEPA 2003 (employment income + PAYE); ITA 2007 s.811 (disregarded income for non-residents); CTA 2010 Part 10 (close companies, ss.439-465); ITTOIA 2005 Part 5 Chapter 5 (settlements code); Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682).

    Related: ITEPA 2003 Part 7A (ss.554A-554Z21) — disguised remuneration; CTA 2010 ss.455-464 — close company loans to participators (33.75%); CTA 2010 s.1064 — close company expenses treated as distributions; s.56 ITA 2007 — Personal Allowance eligibility for non-residents; OECD Model Articles 10 (dividends), 15 (employment), 16 (directors' fees)

    HMRC manual: EIM42801 (overseas directors); CTM60000 (close companies); INTM330000 (DTA dividends); SAIM1080 (disregarded income)

    Common mistakes + traps

    Worked example

    Maya, sole director + 100% shareholder of Maya Tech Ltd (UK), moves to Lisbon 1 April 2027. Company makes £180,000 post-CT profit. Maya draws £12,570 salary + £80,000 dividend annually.

    Maya Tech Ltd has £180,000 distributable reserves. Maya is the sole working director — she does 70% client work (executive) + 30% strategy (directorship). She moves to Portugal as a tax resident from 1 April 2027 (post-NHR regime closed; standard Portuguese rates apply). She is a UK national (so eligible for UK PA under s.56 ITA 2007 even as non-resident).

    1. Step 1 — Director's fees PAYE: Maya Tech Ltd continues to operate PAYE on Maya's £12,570 salary. As non-resident with UK PA available, no UK tax due on £12,570 (within PA). PAYE code likely 1257L with NT possible after DT-Individual application + Portuguese tax authority certification.
    2. Step 2 — Article 16 vs Article 15 (UK-Portugal DTA 1968 + 2017 protocol): the 30% directorship work falls under Article 16 — UK retains primary taxing rights regardless of where performed. The 70% executive employment falls under Article 15 — Portugal (residence) has primary rights; UK (work state) has rights only if executed physically in UK. Maya performs 95% of work from Lisbon → UK Article 15 rights limited.
    3. Step 3 — Dividend mechanics: £80,000 UK dividend paid to non-resident shareholder. s.811 ITA 2007 disregarded income cap: UK individual tax limited to UK WHT (zero). Without s.811, dividend would attract UK higher-rate dividend tax minus PA — but s.811 typically wins. UK tax on £80,000 dividend = £0.
    4. Step 4 — Portuguese taxation: Portugal taxes worldwide income for residents. Dividend received from UK company: taxed at flat 28% (savings income rate) OR optionally at progressive rates with foreign tax credit. £80,000 × 28% = £22,400 Portuguese tax. No UK tax to credit (s.811 wiped UK liability).
    5. Step 5 — Close company analysis: Maya Tech Ltd is close (sole participator-director). s.455 applies to any director's loan; Part 7A applies to any third-party arrangement. Genuine economic dividend on her 100% shareholding — not caught by Part 7A. No s.455 issue if no outstanding loan.
    6. Step 6 — UK CT position: corporation tax already paid on the £180k profit at UK 25% main rate (or 19% small profits rate if profits < £50k — Maya's company is above small profits threshold so marginal relief or 25%) = ~£45,000. Dividend paid from post-CT reserves.
    7. Step 7 — Total tax stack: UK CT £45,000 + UK individual tax £0 + Portuguese individual tax £22,400 = £67,400 on £180,000 profit (effective ~37%). Compare to UK-resident scenario: UK CT £45,000 + UK dividend higher rate £80,000 × 33.75% minus £500 div allowance ≈ £26,830 = £71,830 (effective ~40%). Moving to Portugal saves ~£4,400 annually after PNHR closure (much larger saving pre-2024 NHR).

    Outcome: Maya's UK director's salary continues with UK PAYE (no UK tax due within PA). Dividend = UK tax £0 (s.811), Portuguese tax £22,400. Total saving vs UK-resident scenario ≈ £4,400 p.a. The structure works because: (a) genuine 100% shareholding (no Part 7A); (b) no director loan (no s.455); (c) UK PA preserved (s.56 nationality eligibility); (d) DTA properly applied (Article 16 for fees, Article 15 for executive work).

    How this connects to the rest of the framework

    CMC + corporate residence →

    Director's role + decision-making location are the central facts in the CMC analysis.

    PE risk + treaty mechanics →

    Director's home office abroad can create PE; director's salary may then be allocable to the PE under Article 7 attribution rules.

    8 scenarios →

    Scenarios 2 (consultant UAE), 4 (healthcare Ireland), and 7 (eCommerce UAE) all involve director's fees PAYE + dividend strategy after moving abroad.

    /moving-abroad/uk-source-income-non-resident →

    s.811 disregarded income mechanism is the same statute that shelters UK dividends + interest for non-residents generally.

    /moving-abroad/leaving-uk-procedures →

    P85 + NT code procedural framework on departure — directors need DT-Individual + foreign authority certification for any treaty-allocated NT code.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    Can I stop operating PAYE on my director's salary once I'm non-resident?+
    No. The UK Ltd Co's PAYE obligation continues for as long as you are an office-holder (director) of a UK company. You may apply for an NT (no tax) code via DT-Individual + foreign tax authority certification if the DTA allocates the income away from the UK — but PAYE administration (RTI submissions, payslips, P60) continues. Stopping PAYE unilaterally is a HMRC enforcement risk.
    If I issue ordinary shares to my non-resident spouse, can we split the dividend?+
    If the shares carry genuine economic ownership AND your spouse provides no consideration AND you retain practical control, the Settlements Code (ITTOIA 2005 Part 5 Ch 5) — Jones v Garnett [2007] UKHL 35 (Arctic Systems) — applies. Income is attributed back to the settlor (you). Gift of ordinary shares between spouses can fall within the s.626 ITTOIA spousal exemption, but the share class + ongoing economics must reflect a genuine gift, not retention of bounty. Anti-avoidance is fact-sensitive — get formal advice.
    What if I'm a director of a UK Ltd Co but receive no remuneration — just dividends?+
    If you genuinely perform no executive duties and the company has no employees, there is no PAYE on £0 salary. The dividend is post-CT and taxed per s.811 disregarded income for non-residents (typically UK tax £0). HMRC may probe the substance — a company with significant revenue and no employees + no director's salary suggests profit extraction structured for tax purposes; if the structure has commercial substance (e.g. passive investment company) it stands; if it lacks substance, Part 7A or settlements scrutiny may apply.
    Does the destination state always give foreign tax credit for UK CT paid by the company?+
    Usually no. UK CT is the company's tax, not the shareholder's. Most destination states tax the gross dividend received as the shareholder's income, with no credit for underlying CT. The classical-system double taxation (CT on the company + individual tax on the dividend) is the norm. Some countries (e.g. Australia's franking credit system) have integration mechanisms — but not for UK-source dividends without imputation. Result: the effective combined tax on UK Ltd Co profits distributed to a foreign shareholder is often ~40-50%.

    Free + regulated-body resources

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