The United Kingdom has long been a global hub for entrepreneurship, attracting founders and business leaders from across the globe. However, for an expatriate, the UK tax system for expat business owners can feel like a labyrinth of residency tests, corporate obligations, and evolving digital reporting standards.
As of 2026, several significant shifts—including the overhaul of the “non-dom” status and the introduction of stricter digital filing requirements—have fundamentally changed how international entrepreneurs manage their fiscal responsibilities. This guide provides a deep dive into what you need to know to stay compliant and tax-efficient while running a business in or from the UK.
Determining Your Status: The Statutory Residence Test (SRT)
Before you can calculate your tax bill, you must determine your residency status. This is the cornerstone of the UK tax system for expat business owners, as it dictates whether you are taxed on your worldwide income or only on your UK-sourced earnings.
The UK uses the Statutory Residence Test (SRT) to define residency. It is not as simple as counting 183 days, though that is a primary trigger. The test is divided into three parts:
-
Automatic Overseas Test: You are generally considered a non-resident if you spend fewer than 16 days in the UK (if you were resident in previous years) or fewer than 46 days (if you were not).
-
Automatic UK Test: You are a resident if you spend 183+ days in the UK, have your only home in the UK for at least 91 days, or work full-time in the UK.
-
Sufficient Ties Test: If neither of the above applies, HMRC looks at your “ties” to the UK, such as family, accommodation, and work, balanced against the number of days spent in the country.
The End of the Non-Dom Regime
Historically, many expat business owners utilized the “non-domiciled” status to avoid UK tax on foreign income not brought into the country. As of April 2025, this has been abolished. It has been replaced by a residence-based system. Under the new rules, new arrivals get a 4-year window of tax-free foreign income, but after that, worldwide income is generally subject to UK tax regardless of where it is kept.
Understanding UK Corporation Tax for 2026
If you operate through a UK Limited Company, your business is a separate legal entity. The UK’s approach to Corporation Tax remains competitive but tiered.
For the 2025/26 and 2026/27 financial years, the rates are:
-
Small Profits Rate (19%): Applies to companies with taxable profits of £50,000 or less.
-
Main Rate (25%): Applies to companies with profits over £250,000.
-
Marginal Relief: Businesses with profits between £50,000 and £250,000 pay a tapered rate, effectively creating a “marginal” tax zone.
Associated Companies Rule
Expat business owners often have interests in multiple jurisdictions. Be aware that the £50,000 and £250,000 thresholds are divided by the number of associated companies you control globally. If you own three companies, your 19% tax bracket per company drops to just over £16,666.
Personal Income Tax and Dividend Strategies
How you extract profit from your business is a critical part of the UK tax system for expat business owners. Most directors use a combination of a small salary and dividends to minimize National Insurance (NI) contributions.
Income Tax Brackets (England & NI)
For 2026, the standard Personal Allowance remains at £12,570. Earnings above this are taxed as follows:
-
Basic Rate (20%): £12,571 to £50,270.
-
Higher Rate (40%): £50,271 to £125,140.
-
Additional Rate (45%): Over £125,140.
The 2026 Dividend Tax Increase
Expat owners should note that the government has increased dividend tax rates to narrow the gap between earned income and investment income.
-
Basic Rate: 10.75% (Up from 8.75%)
-
Higher Rate: 35.75% (Up from 33.75%)
-
Additional Rate: 39.35%
-
Dividend Allowance: Only the first £500 of dividends are tax-free.
VAT Changes and the 2026 Threshold Drop
Value Added Tax (VAT) is a consumption tax that most businesses must register for once their “taxable turnover” exceeds a certain limit. For years, this limit sat at £90,000.
Important Update: As of April 2026, the VAT registration threshold is expected to be lowered significantly, likely toward the £60,000–£70,000 range. This means many smaller expat-led startups that were previously “under the radar” will now need to:
-
Register for VAT with HMRC.
-
Charge 20% VAT on most goods and services.
-
Keep digital records for “Making Tax Digital” (MTD) compliance.
Making Tax Digital (MTD) for Expats
2026 marks a turning point in how business owners report to HMRC. The Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) rules now apply to individuals with self-employed or property income over £50,000.
Under MTD, you can no longer simply file one annual tax return in January. Instead, you must:
-
Use HMRC-compatible software (like Xero, QuickBooks, or FreeAgent).
-
Send quarterly updates of your business income and expenses.
-
Submit an “End of Period Statement” to finalize your tax year.
For expat business owners living outside the UK but earning UK-based income, this requires a robust digital accounting setup to ensure data flows correctly across borders.
National Insurance and the Expat Pension
National Insurance (NI) is often overlooked by expat owners, but it is vital for securing a UK State Pension.
Voluntary Contributions (Class 3)
Previously, many expats used Class 2 voluntary contributions to maintain their pension records at a very low cost. However, starting April 2026, Class 2 voluntary contributions for those abroad have been largely phased out in favor of Class 3 contributions.
-
The Change: Class 3 contributions are more expensive than the old Class 2.
-
Requirement: To be eligible to pay voluntary NI from abroad, you generally need to have lived in the UK for at least 10 years or paid 10 years of contributions.
Reporting Foreign Business Interests
If you are a UK tax resident but own businesses in other countries (e.g., a US LLC or a French SARL), the UK tax system requires full transparency.
Controlled Foreign Company (CFC) Rules
The UK’s CFC rules are designed to prevent profits from being artificially diverted to low-tax jurisdictions. If your overseas company is controlled from the UK and lacks genuine economic substance in its home country, HMRC may “attribute” those profits to your UK tax bill.
Double Taxation Treaties
Fortunately, the UK has one of the world’s most extensive networks of Double Taxation Agreements (DTAs). These ensure you aren’t taxed twice on the same income. If you pay tax on dividends in your home country, you can usually claim Foreign Tax Credit Relief to offset your UK liability.
Key Compliance Deadlines for 2026
Staying on the right side of HMRC requires strict adherence to the calendar. Missing deadlines can result in “failure to notify” penalties or late filing fees.
| Requirement | Deadline |
| Self-Assessment Registration | 5 October following the end of the tax year |
| Paper Tax Return | 31 October |
| Online Tax Return & Final Tax Payment | 31 January |
| MTD Quarterly Updates | Every 3 months (specific dates depend on your start month) |
| Corporation Tax Payment | 9 months and 1 day after your accounting period ends |
| Company Accounts (to Companies House) | 9 months after your accounting period ends |
5 Essential Tips for Expat Business Owners in the UK
-
Review your Residency Daily: If you are hovering near the 90-day mark, keep a meticulous travel log. A single “midnight” stay can change your tax status.
-
Separate Personal and Business Finances: HMRC is increasingly scrutinizing “Directors’ Loan Accounts.” Ensure every penny taken from the business is categorized as salary, dividend, or loan.
-
Optimize Pension Contributions: Contributions to a UK pension scheme are one of the most effective ways to reduce your “Adjusted Net Income,” potentially bringing you back into a lower tax bracket.
-
Seek Specialist Expat Advice: General accountants may not understand the nuances of the “Statutory Residence Test” or the implications of the new 2025/2026 residency-based regime.
-
Digitalize Early: With MTD for ITSA rolling out, manual spreadsheets are no longer viable. Move your bookkeeping to the cloud today.
Conclusion
The UK tax system for expat business owners is undergoing its most significant transformation in decades. From the abolition of the non-dom status to the digitization of every transaction, the burden of compliance has shifted heavily toward the taxpayer.
However, with the right structure—balancing Corporation Tax, dividend strategies, and international tax treaties—the UK remains a highly profitable environment for global business leaders.
