Can non-domiciled UK tax residents claim back all tax paid via PAYE?

Question

Suppose I worked in the UK for a couple of months, got paid via the PAYE system but then moved back overseas, to my permanent home.

I know that PAYE calculates my due tax as if I will work in the UK for the whole tax year, so if I cancel my contract earlier, all else beings equal, I am eligible for a refund thanks to the £12,500 personal allowance.

Cool. Reading Dual residents 2020 (HS302) got me thinking though:

Certificate of overseas residence

If you want to claim relief from UK tax on your UK income, and the country you live in has a double taxation agreement with the UK, you will need this certificate. To get one, contact your country’s tax authority.

Does this mean that, if I provide HMRC with this certificate, I can claim back all tax I paid and declare my UK employment income as foreign income in my home country? (except for National Insurance of course)

Answer 1

There are two issues to consider:

First, employment income from work performed in the UK is UK source income which is taxable in the UK. Your domicile doesn't matter. BTW, domicile and residence are two different matters and you probably mean residence.

Second, the question of residence. The UK has the Statutory Residence Test (SRT) to determine whether you're a UK resident. It depends on how long you stay in the UK and other factors (e.g. did you keep a home in your home country?). If you only stay for a few months, it's possible you'll stay non-resident in the UK and resident in your home country. This would mean: the money is taxable in your home country. It would also be taxable in the UK since it's UK source income (your residence status doesn't matter). Double taxation relief will apply (i.e. you can tell your home country about the tax you paid in the UK).

Finally, if you're a EU or UK citizen, then you are eligible for the full personal allowance (it's not prorated). If your UK source income is within the personal allowance, you could claim all the UK tax back (but the income would still be taxable in your home country if you remained a tax resident there, which is likely). You can either file a self-assessment at the end of the tax year or submit form P85.