Calling all Ukrainians now living in the UK! Here is a case study to help you understand your tax position.

Note: this article focuses on employment income from an employer based in Ukraine, but may also be useful background if you are trying to understand the tax treatment of other sources of income. We have not considered National Insurance in this article, however, we will look to develop some more guidance in due course. This is a very complicated area and as always, we recommended getting professional advice to check how the rules apply in your own situation. This article can only provide general guidance.

Before we get started, there are two important points to clarify:

• There have been very few, if any, easements introduced to the ordinary UK tax rules for those who have come to the UK due to the war in Ukraine. This means, despite the difficult situation, you should not expect any special treatment around your UK taxes.
• Income you earn from work performed while you are physically in the UK, even if it is for an employer based overseas and it is paid to you overseas, is considered UK-sourced income, not overseas income.

The questions that you need to ask yourself to work out your tax position while you are in the UK, are as follows: 

Am I tax resident in the UK? 

If you are, then you are potentially taxable in the UK on your worldwide income. There are some limited exceptions regarding foreign income, for example investment income that arises in Ukraine, if you are non-domiciled.

If you are not tax resident in the UK, then you are only taxable in the UK on your UK-sourced income.

We provide general guidance on how to work out your tax residence status in our residence and domicile pages.

⚠️Tip: If you spend 183 days or more in the UK during the tax year (6 April to 5 April), you will nearly always be tax resident in the UK for that year.

Technically, you are either resident or non-resident for the whole tax year. However, there are special rules which may apply to you if you arrive in or leave the UK in the year. These rules split the tax year into a UK part, when you are taxed as a UK resident, and an overseas part, when you are taxed as a non-UK resident. If you are resident but ineligible for split-year treatment, the double taxation agreement between the UK and Ukraine will usually limit or remove the UK’s ability to tax your pre-arrival or post-departure income. In effect, this secures the same result as split-year treatment, but just in a different way.

Do I remain tax resident in Ukraine?

Your residence status in the UK may be irrelevant in determining your tax residence status elsewhere and it is possible to be resident for tax purposes in two countries simultaneously. This means if you are tax resident in the UK, you might also be tax resident elsewhere at the same time.

As we are not Ukrainian tax experts, we are not in a position to comment in detail on what the tax rules are in Ukraine. Ukrainians who are now living in the UK may still be classed as tax resident in Ukraine. This might mean that under Ukrainian domestic rules, such individuals may be taxable on their worldwide income in Ukraine.

Is there double taxation?

Thinking about the residence rules above, a double taxation situation is most likely to arise for a Ukrainian living in the UK in the following situations:

• If you are non-resident in the UK (and therefore taxable only on UK-sourced income in the UK) and are resident in Ukraine (and therefore potentially taxable on worldwide income in Ukraine)
• If you are resident in the UK under UK rules and also resident in Ukraine under Ukrainian rules (and therefore taxable in both countries on worldwide income)

So, if you have income from working in the UK, this could be taxable in the UK and also taxable in Ukraine, under either bullet point.

There are two important points to understand when it comes to double taxation:

• Most Ukrainians who are tax resident in the UK can receive a certain amount of money each year, without paying any UK income tax. This tax-free amount is called the personal allowance. As the personal allowance is quite generous (for 2022/23 and 2023/24 it is £12,570) it is possible that your total income for the year will fall within it, meaning that there will not be any tax to pay in the UK. There may also be some other special exemptions that mean that income in the UK is not taxable – for example, certain welfare benefits are not taxable in the UK.
• Just because the UK may not tax your income or an element of your income, this does not mean that the Ukraine will apply the same treatment. You should remember that every country has its own rules.

Can the double tax treaties help with double taxation?

The UK has an extensive network of double tax treaties with other countries. One of the functions of these treaties is to provide relief for double taxation by ultimately allowing only one country to tax your earnings or by allowing a credit for the foreign tax paid when calculating the UK tax liability on the foreign income (or the other way round). Not all treaties are the same - it is important to always check the wording of each agreement carefully.

The UK/Ukrainian double tax treaty can be found on GOV.UK. For those in employment, Article 15 will be most relevant.

The first step to making sense of a double tax agreement is to determine in which of the two countries (known as ‘Contracting States’) you are resident for the purposes of the agreement. If you are only tax resident in one of the countries under the domestic law of that country, this will be the country in which you are resident for the purposes of the agreement. However, as stated above, it is possible to be resident in both countries. In this case, you must refer to the tie-breaker tests in (usually) Article 4. There is more information on these tests below in the case study. Once you have done this, you can then understand what is meant by the term ‘resident of a Contracting State’.

The main part of Article 15 in the UK-Ukrainian agreement says:

1. Subject to the provisions of Articles 16, 18, 19, and 20 of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.​

So, if an individual is resident in the UK (for the purposes of the agreement), the double tax treaty tells us that any UK source employment income shall only be taxable in the UK. This means that it should not be taxed in the other country. In the situation where duties are performed in the UK for a Ukrainian based employer (even where this is paid through the Ukrainian payroll with Ukrainian tax deducted) - this income is taxable only in the UK and you should investigate if it is possible to apply for a refund from the Ukrainian tax authorities. It is likely that you will need to contact HMRC to get a Certificate of Residence to support your claim for a refund from the Ukrainian tax authorities.

If an individual is resident in Ukraine (for the purposes of the agreement), the double tax treaty tells us that the UK usually has the main right to tax the income but that if Ukraine also wants to tax it (under its own rules), then it can. The foreign tax credit method should be used to avoid double taxation and Ukraine should allow a credit for any UK taxes paid. A foreign tax credit will be limited to the Ukrainian tax liability on the UK income, meaning that you will end up paying at the higher of the two rates. An example is set out in our guidance.

Is there an exemption from UK tax if I work in the UK for less than 183 days? 

If you remain resident in Ukraine for the purposes of the agreement and are only in the UK for a short period, it is possible that you can continue to be taxed in Ukraine, even if you are physically performing your duties in the UK. This is because under the double tax treaty (Article 15(2)), there is an exception from UK tax for employment income from a Ukrainian employer where:

1. you are only in the UK for a period or periods not exceeding in aggregate 183 days within any period of twelve months; and
2. the remuneration is paid by, or on behalf of, an employer who is not a resident in the UK; and
3. the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the UK.

Note, that because of the way the 183 days are counted for this purpose, we think it would be quite rare for anyone that has moved to the UK because of the war, to qualify.

How should I pay my taxes?

Ordinarily, people whose employment income is taxable in the UK have their taxes deducted at source by their employer under the Pay As You Earn (PAYE) system. We have guidance on how the PAYE system works here.

Ukrainian employers have the same responsibility to operate PAYE on someone’s wages if the employer has a tax presence in the UK. For there to be a tax presence, there would need to be something in the UK like a branch or agency, office or establishment. Essentially, HMRC need a UK address where they can contact the employer, send PAYE literature and, if necessary, enforce compliance. You can read more about when an employer might have a UK presence in this HMRC guidance.

If the employer has no tax presence (the employee is based at home for example), then the employee may need to pay tax to HMRC themselves under the Direct Payment scheme or via Self Assessment.

Self Assessment is the method by which certain people pay their taxes. There are various reasons as to why someone might need to complete a Self Assessment tax return, including if their affairs are complex in some way or they have income from self-employment. There is more information on our website. 

Where can I get help with tax?

This is a very complex area and from what we have seen on internet forums where people can post questions and seek advice, there is a lot of confusion and misinformation out there.  

We therefore recommend that you contact a professional tax adviser (which can include one of the tax charities if you are on a low income) for individual advice based on your specific circumstances. See our getting help page for more details.

We have written an article (available in English and Ukrainian) that summarises the guidance available in other languages if you are working in the UK. We also have developed a short video setting out ‘Where to get help with tax if you do not speak English’ in the Ukrainian language.

If you need help dealing with your taxes in Ukraine, you should contact the Ukrainian authorities.

Case study

In order to assist you further, we set out below a detailed case study of how these rules might all work for Annika, a Ukrainian living in the UK since 1 March 2022. It is important to bear in mind that each situation is unique, and you should take specific advice about your own situation. The case study below is given for illustrative purposes only.

Annika

Annika arrived in the UK under the Homes for Ukraine scheme on 1 March 2022 and started working from May 2022. Prior to this, she had not been tax resident in the UK or spent any significant time in the UK. Since she arrived, Annika has spent no time outside of the UK. 

Annika works remotely for her employer in Ukraine - she continues to be paid from the Ukrainian payroll into her Ukrainian bank account (this equates to roughly £1,000 a month). In addition, since August 2022 she has taken a part time job in a supermarket in the UK. She receives this money under PAYE, into a UK bank account. At the end of the 2022/23 tax year, she has earned £4,000 and paid £0 in tax in this job (the way PAYE works means sometimes no tax is collected).

Annika spends the following number of days in the UK during the 2021/22 and 2022/23 tax years:

Annika is not resident in 2021/22 and is taxable on her UK source income only. This means that she does not need to worry about the Ukrainian income she had before she arrived in the UK being taxable here. As she did not start performing duties in the UK for her Ukrainian employer until after she had settled and got a home office set up (May 2022), there is no UK source income to worry about in 2021/22.

Anika is UK resident in 2023/23 and is taxable on her worldwide income. As she also remains Ukrainian resident, her next step would be to look at the double tax agreement to see in which country she is considered ‘most’ resident for the purposes of the agreement.

The ‘tie breaker’ provisions of the double tax agreement will determine where Annika is ‘most’ resident. Her status will be determined as follows:

• The country where the individual has a permanent home available to them
• If the individual has a permanent home in both countries, the country (permanent home) where the individual's personal/economic ties are closer (this is known as ‘centre of vital interests’)
• If it is not possible to determine at which permanent home the centre of vital interests lies, or if the individual does not have a permanent home, the country where the individual has a habitual abode
• Where the habitual abode test is not decisive, the country where the individual is a national
• If the individual is a national of both countries (or of neither), then the countries must settle the matter by mutual agreement.

Annika reads the detailed guide available from the OECD on how to interpret double tax treaties (see page 80, para 12 and 13). She thinks she has a permanent home in the UK, as although she is in short term accommodation it is continuously available to her. She also owns a house in Ukraine which is not damaged/occupied and so is still available to her, and she hopes that she will be able to go back to it soon.

As such, Annika has a permanent home available in both the UK and Ukraine so moves on to the centre of vital interest test. She looks again at the guide on how to interpret the double tax treaty (see para 15) and thinks she has a centre of vital interest in Ukraine. She is therefore ‘treaty resident’ in Ukraine

In Annika’s case, and reading Article 15 again (see above), the double tax agreement allows the UK to tax Annika’s UK source income within the context of Ukraine’s general worldwide taxing rights.

As her employer has continued to pay her through the Ukrainian payroll and deducts Ukrainian tax, and Annika has not set up a Direct Payment scheme, Annika will need to register to file a Self Assessment tax return in order to declare the income in the UK. Her total income tax liability will be:

Annika needs to file the tax return and pay the £486 amount by 31 January 2024.

Annika now needs to file a Ukrainian tax return to declare her worldwide income. She should be entitled to a foreign tax credit – this will allow her to offset the UK tax against the Ukrainian tax (either reducing or removing the Ukrainian liability). This should result in a refund of some of the Ukrainian taxes that her employer withheld. 

If Annika hasn’t got the money to pay the UK tax liability come 31 January 2024, then she might be able to ask HMRC for a Time to Pay arrangement. If HMRC agree to allow Time to Pay, this would allow her to spread her UK tax liability over several months, meaning there is more chance of her receiving her refund of tax from the Ukraine before she has to have paid the UK tax liability in full. There is information on Time to Pay arrangements in our guidance.