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Opening a Bank Account & Managing Your Taxes in the UK

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  • Jan-Peter van Tijk

    I wish I'd found InterNations sooner: It would have made my first few month as an expat in London much less overwhelming.

A critical aspect of life as an expat will be gauging the local tax system and swiftly opening a bank account that serves your needs. You will be pleased to know that you will be able to open a bank account in the UK as soon as you arrive. In this section, you will obtain the information you need to get this done quickly, such as the details regarding documentation, and the differences between traditional and online banks. You will also discover how much income tax you will need to pay each tax year. The amount you pay will depend on how much of your income is above your personal allowance and how much of it falls within each tax band.

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How to Open a Bank Account in the UK

If you are wondering how to open a bank account in the UK for non-residents, you are probably thinking about all the complications it will entail. Until recently, opening a bank account in the UK was quite difficult and required many documents. Luckily, it is much easier nowadays.

Before you choose a bank, you should verify that:

  • it will not be difficult to access, move or manage your finances between accounts back home and in your new country;
  •  it adheres to international regulations;
  •  it has a solid capital base;
  • it provides good customer service.

Can a Foreigner Open a Bank account in the United Kingdom?

Until not long ago, opening a bank account in the UK was an especially difficult process requiring multiple forms of identification, utility bills, and proof of address. This was particularly problematic for people who were in the process of relocating. In the age of the internet opening a bank account has become much simpler and can even be done without a physical address, or even from back home if your bank has a relationship with a British bank (i.e. a correspondent bank). Which are the Required Documents to Open a Bank Account as a Non-resident?

The documents you will need to open a bank account as a non-resident are the following:

  •  Proof of identity such as a passport, driver’s license or other photo ID.
  • Proof of address such as Utility bill or Tenancy agreement (you could aim to get one before officially relocating.)

Top Banks in the UK

If your first choice is among the best traditional Banks in the UK. These banks all have a strong reputation and have branches all over the country making access to your accounts or customer service as simple as walking down the road:

  • HSBC
  • Lloyds
  •  RBS (Royal Bank of Scotland)
  • Barclays
  • Santander
  • NatWest
  •  Nationwide

As the banking world increasingly shifts to the internet, online banks are quickly growing and gaining loyal customers. Many are offering more efficient services than traditional banks, even to the point of eliminating the need for them, especially for younger generations.

Best Online Banks in the UK

The Best Internet banks in the UK are the following:

  • Monzo
  • Transferwise
  • Starlingbank
  • Revolut

These tend to be a favorite amongst Millennials as they rely heavily on tech-based customer service (24/7 in app chat). Another benefit is that they do not require a trip to a brick and mortar branch. You can have full comfort in knowing your money is safe by “freezing” a lost card instantly if you leave it on the bus, and then “unfreezing” it when you realize it is in your back pocket. They also offer transfer to overseas accounts, in many cases carrying lower fees than traditional banking.

International Banks in the UK

If you are looking for an International bank in the UK, which might make the process of setting up a bank account as a non-resident easier, Bank of America, American Express, Bank of China, State Bank of India, and ABC International Bank all operate from within the UK. However, they generally come with bank fees and require minimum deposits.

Another interesting option are online money transfer services, such as TransferWise. This type of service supports numerous currency routes with some of the lowest fees on the market. This makes moving money between home and the UK a breeze. Moreover, many of these services do not require a minimum deposit to set up.

There are multitudes of bank accounts with no fees in the UK. They will generally offer no return on your money but are easy to set up. Be sure to check out what all the banks, both online and traditional, have to offer and their corresponding costs, as they are subject to change.

Setting up a UK Bank Account

Ideally, you would want to have your new UK bank account set up before you arrive in order to ensure you have easy access to your finances. Before you leave, check with your local bank if they can assist you with setting up your new account as you might be required to pay a large initial deposit or a monthly fee depending on the type of account you choose.

Nevertheless, if you are not able to set up your account before you depart, you should check with the bank of your choice what documentation you will require and what fees you will have to pay. If you are choosing an online-based bank, you can send these documents online; otherwise, you should make an appointment to go into a branch upon your arrival.

Moreover, several banks allow you to open a bank account online as a non-resident. Monzo is easy to set up and only requires you to send a photo of your passport and give an address to send your bankcard to (this can be a friend or relative’s house and does not have to be in the form of a tenancy agreement, utility bill, etc.). Additionally, Barclays, Lloyds, HSBC, and NatWest all offer international bank accounts.

If you need help opening a bank account or are having issues with any step of your relocation process, contact our team of experts, who will assist you with any difficulties you may be facing, big or small.

What is the Tax System in the UK?

When immigrating to the UK you will need to understand more about how the tax system in the UK works. If you have only one source of income you will have your tax automatically deducted from your wages or salary with the Pay As You Earn (PAYE) system. You will not need to file a tax return unless you are working as a self-employed person. It is important to keep all records of your tax for five years. You can read more detailed information about all UK employment matters on the Working section of this guide.

Overview of the Tax System in the UK

In the UK, taxes are managed through Her Majesty’s Revenue and Customs (HMRC). The primary purpose of HMRC is to collect money on the government’s behalf that provides funding for the UK’s public services such as the National Health Service, Education, the welfare system, and public projects (roads, railways, and public housing).

You will be interested to know that the tax year is different for businesses and persons. In the UK, the financial year runs from 1 April to 31 March. The accounting period of a company can be the aforementioned financial year, or the calendar year, or any given 12-month period. Whereas the personal tax year runs from 6 April to 5 April.

What are the Types of Tax in the UK?

There are six main types of tax in the UK:

  • Income tax.
  • National insurance contributions: tax on earnings paid by employees and employers, which helps to build your entitlement to certain state benefits, such as the State Pension, healthcare and Maternity Allowance.
  • Consumption tax: VAT—17.5%.
  • Excise duties on alcohol, tobacco.
  • Corporation Tax: tax on company profit.
  •  Stamp Duty: tax on buying houses/shares.

Income Tax in the UK

Income tax rates in the UK work as follows for the financial year 2019/2020:

  • Threshold of 12,500 GBP (16,100 USD). This means that your first 12,500 GBP each financial year is tax free.
  • Basic tax rate of 20% on income between 12,501 – 50,000 GBP (16,100 – 64,440 USD).
  • Higher tax rate of 40% on income between 50,001 – 150,000 GBP (64,445 – 193,330 USD).
  • Additional tax rate of 45% on all income over 150,000 GBP (193,330 USD).

For example, if you earn an income of 60,000 GBP (77.40 USD) your tax breakdown will roughly look like:

  • Personal allowance of 12,500 GBP (16,100 USD) tax free.
  • Basic tax rate of 20% on 37,500 GBP (48,340 USD).
  • Higher tax rate of 40% on 10,000 GBP (12,900 USD).
  • Your average tax rate is 23%.

National Insurance Contributions in the UK

Upon your arrival in the UK, you will need to apply for a National Insurance number (NINO) as you cannot do it from outside the UK. Your National Insurance number is used by HMRC and your employer to establish how much to deduct from your income in the form of national insurance contributions.

National insurance tax applies to each pay period unlike income tax, which is on an annual basis. Therefore, if you earn more in one pay period you will pay a higher amount of national insurance tax and won’t be able to claim this back if you earn less in subsequent periods. You begin paying National Insurance once you earn more than 166 GBP (215 USD) a week (figure for the 2019-20 tax year).

The National Insurance rate you pay depends on how much you earn:

  • 12% of your weekly earnings between 166 GBP (215 USD) and 962 GBP (1246 USD).
  • 2% of your weekly earnings above 962 (1246 USD).

Taxes for Self-employed People in the UK

The amount of tax you will pay as a self-employed worker depends on how much money you made and the “allowable expenses” you have incurred. You can easily calculate your profits by deducting your expenses from your income. There are certain business-related expenses that you are allowed to subtract from your income when calculating your taxable profit.

The tax-free personal allowance and the tax bands are exactly the same for self-employed and employed people, meaning that you can make up to 12,500 GBP (6,100 USD) before having to pay tax (figure for the 2019-20 tax year).

You normally pay 2 types of National Insurance if you work for yourself:

  •  Class 2: If your profits are 6,365 GBP (8,200 USD) or over per year.
  •  Class 4: If your profits are 8,632 GBP (11,130 USD) or over per year

How Much National Insurance do You Pay When Self-employed?

NI Class Rate for Tax Year 2019 to 2020:

Class 2 3 GBP (3.90 USD) per week Class 4 9% on profits between 8,632 and 50,000 GBP (11,127 and 64,450 USD)

Expats should be aware that it is mandatory for self-employed sole traders, partners in business partnerships, and company directors to register for a self-assessment tax return. Once registered you will normally receive a letter in April or May from HM Revenue and Customs reminding you to send a tax return by 31 January at the latest. It is obligatory to send a self assessment tax return, even if you do not owe any tax. Online and paper tax returns have different deadlines. For paper tax returns it is on the last day of October, while for online tax returns on the last day of January. The final payment of any tax due is on the last day of January whether you filed on paper or online.

If you are not sure how much tax you will need to pay or need help registering with HMRC, contact our team of experts at InterNations who will help you tackle the complex UK tax system.

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