Tax and Serving Overseas
01st September 2016
If you're in the Armed Forces, you might be spending a lot of your time overseas. It's important to get your tax situation right, so you'll need to learn the taxman's language and get comfortable with terms like "domicile" and "residence status".
HMRC has tests to work out what sort of tax you have to pay, and what income you'll be paying it on. The basic rules are actually the same as for civilians. First, you run through the Statutory Residence Test (SRT) to find out your residence status. As for your "domicile", this generally just means the place where you have your permanent home.
For the most part, this won't affect your Armed Forces pay. You count as being employed by the British Crown, so you'll pay UK tax on your income. Even if you end up posted abroad, your pay will all be treated as UK income by the taxman. Things might be a little different if you're not a UK resident and were recruited abroad. There are specific rules about that, so make sure you know where you stand. In general, though, your Armed Forces pay is treated as UK income.
The time to start looking into your residence status and domicile comes when you've got other money coming in while you're stationed abroad. For this, you'll need to take the Statutory Residence Test. The test deals with things like the amount of time you're spending in the UK. If you're overseas a lot and have foreign income, it might not be taxed in the UK. Any UK income coming in while you're abroad will still be taxed here, though. For instance, any UK pensions, savings interest or rental income will probably still count for tax purposes. There are agreements in place to make sure you don't end up being taxed in two countries on the same income. They're not universal, though, so you'll need to look at any "double taxation" rules that apply.
In some cases, you'll have to file a Self Assessment tax return to tell HMRC about the money you've got coming in. Self Assessment can be complicated, so talk to RIFT if you need help working out your income or expenses. If you're not a UK resident, you've got some extra hoops to jump through here, so don't get caught out.
You residence status can affect more than the tax and National Insurance you pay. It also matters for things like the Personal Allowance and Marriage Allowance. The Personal Allowance is the amount of money you can make without paying tax on it. As employees of the British Crown, Armed Forces personnel who are British citizens get this even when posted abroad. The Marriage Allowance is a way of transferring some of your unused Personal Allowance to your spouse. You have to have a Personal Allowance to get it, of course. Again, though, Armed Forces personnel qualify even if they're not UK residents.
So, to make a long story short, there's good news and bad news for overseas postings. The good news is that tax on your Armed Forces pay is handled automatically. You don't need to do anything and you'll always be on the right side of HMRC. The less rosy side is that things can get complicated if you've got other money coming in. Knowing your way around the residence and domicile rules will go a long way toward keeping you out of trouble.
If you are stationed overseas and are travelling on a regular basis then you could be due an Armed Forces tax refund if you've had to pay all or part of the costs out of your own pocket. Even if you receive Get You Home Allowance (GYH) or Home To Duty (HTD) there could still be some things you could claim for.
At RIFT, we've been solving people's tax troubles since 1999. We work with Armed Forces personnel every day, helping with everything from claiming refunds to filing Self Assessment returns. Whatever problems or questions you've got, give RIFT a shout to see what we can do for you.