Tax rules for non-resident contractors in the UK

Hi!

Whilst several topics on taxation in the UK have been covered in this forum, I couldn't find one relating to my particular situation, so here goes ...

I am a Brit, have been living in Germany for the last 6yrs and am now considering freelance opps in the London area. I no longer have property in the UK. I have been freelancing in Germany for the last year and therefore am registered as a freelancer with a steuernummer.

Whilst I'm aware that the traditional route is to set up a Ltd Co. in the UK and pay taxes in the UK, my question is:

1) do I qualify as a non-resident freelancer as my home is in Germany at the moment? My plan is to freelance for 6-9 months only. I'm hearing from fellow UK-resident freelancers contracting in Germany that they are exempt from paying taxes in Germany for the first 6 mths according to recent UK rules. I wonder if the same applies the other way round ie in my case (Germany to UK)? Can anyone shed any light on this?

2) If I set up my own Ltd Co. in the UK and pay taxes there for the short term stint, do I qualify for double housing benefit when declaring tax back in Germany for the period not worked in the UK? By the way, does the UK tax system allow tax benefit for double housing at all - don't know if this now also exists in UK law??

3) I'm reading up a lot about IR35 and how to avoid this, what should I ensure in my contract that covers me from pitfalls of IR35? And is it really important to have a lawyer look over the contract or can I do this myself by ensuring that a certain clause is included which stipulates that I will be working for more than one employer?

Any advice, tips would be highly appreciated.

Cheers :-)

Sounds like a mess.

If living in Germany you pay taxes in Germany.

If living in the UK you pay taxes in the UK.

It sounds like during your 6 month overseas contract you do not intend to deregister in Germany and make the UK your residence?

Therefore still resident for tax purposes in Germany and pay taxes here like normally.

Theoretically you must be taxable in one country or the other. There is no 6 month bed-hopping that allows you a tax free period backwards and forwards. Otherwise
we would all be at it.

If you set up a UK ltd company, and the work is undertaken in the UK then it sounds like THE COMPANY would be liable for UK corporation tax. But if you
want to take the money out as an employee or as a share dividend then you would still be liable for tax in Germany as a resident here.

p.s. This is my "official" opinion on the issue. Obviously you are welcome to fuck about and fly under the radar as much as you like, but these things can bite
you on the arse.

the bottom line is you will be screwed, I did 2 months for sky tv last year, and paid a fortune in tax, I have a UK management company who can help (pm me for details) but expect the worse
edit
@JE all the law changed last year...I was on 1k a day and after tax ,flights,hotel made just over 50 squids for the whole contract

So Scogs - I assume you just paid tax here in Germany? Like as if you worked up the road in Augsburg or wherever.

Hey JE, thanks for your contribution. In answer to your Q, no I don't plan to deregister from Germany. So, what I'm hearing clearly from you is that if I'm German resident working in UK as a contractor, I pay taxes in Germany. If that's possible, then suits me much better than having to resiter in the UK and get involved in all that mess.

I only put the the "bed-hopping" scenario forward as I'd just heard this case recently.

I think I would be content with just paying taxes in Germany as I'm established here and know rules more or less by now. I just don't to end up paying taxes in both countries - that's all!

So, Scogs, did you pay tax in the UK or in Germany?

Are you UK resident or German?

yes pay german tax as we have german company, in the uk i had to pay PAYE on emergancy rate but no german tax
lived here in Munich for about 9 years

Surely you'll be paying taxes where you become tax resident during the year. Generally if you spend more than 3 months in a year somewhere, the country considers you taxable, and if you are there for more than 6 months, you won't be able to avoid it. It is days spent in the country that matter, not where you are registered, especially as you never have to register in the UK! (Note, the UK doesn't count travel days as days towards the total).

If you end up having to pay tax in both the UK & Germany, there are double taxation agreements that mean that you will not be taxed twice - tax paid in the UK will offset tax due in Germany etc...

See HM Revenue & Custom's document Residents and non-residents. Liability to tax in the United Kingdom (especially section 9.6 for income) for further information.

Just been reading IR20 as well. Sounds like the 6 months (183 days) is indeed the crucial factor. Once over that for the tax year your are wearing UK tax. Depends on your 6-9 month contract, how it is configured and whether it staggers tax years. Also probably whether you give a toss as to where you actually pay the tax and try to co-ordinate things that way?

But any which way you cook things:

1. There is a treaty so you won't get taxed twice on the same income.

2. There is a treaty SO YOU CANNOT DODGE PAYING THE TAX EITHER HERE OR THERE!!

3. 183 days in the tax year in the UK means 100% you are tax resident in the UK (but could also be resident somewhere else at the same time!!!).

Hmmmmmmm. Has my brain thinking again.

You don't need to any of the above as far as I'm aware. You're a contractor here, so you're all setup. Take your London contract, quote your German steuernummer, pay tax in Germany as usual. No problems.

1) PERSONAL TAXES
If you spend more than 91 days in UK you will be liable for UK tax on your UK earnings, after 183 days you become liable for UK tax on your world earnings. As a German resident you are already liable for German tax on your world earnings, but you will get double taxation relief from the double taxation treaty. This is a joy. Last time I work in Germany for >91 days, it took 2 years to get the taxes in both countries resolved. It doesn't help that the tax years don't line up. It also cost €500 for a Steuerberater to file all the paperwork, and £500 for an accountant in UK to do the same.

2) WORKING AS A CONTRACTOR IN UK
If you are cleaning windows, installing a datacentre, loading up SAP or providing training - i.e. 2-3 weeks per job, fully defined, fixed price etc., then no worries you can work self employed. Anything longer such as doing code, or h/w design, or test support, or whatever then you will need some sort of Ltd. company separation. This is because the client carries the liability for tax for up to 6 years if the revenue decide that you were really (in their opinion) an employee. Consequently no client is going to consider using you as self employed. This leaves you with a Managed Service Company, which will pay you limited expenses and the rest as PAYE (rules on MSCs just got tougher) or you will need your own Ltd. Co. unless you have a GmbH in Germany which might work, but that is outside my experience. The Ltd. Co. gives you useful pension advantages, and can pay for temporary housing / hotel / B&B, flights and/or mileage + ferry, or car rental, subsistence (with receipts) as expenses.

The good news is that there's no AÜG to deal with, which is a pain for UK contractors working in Germany, where the FinAmt considers our Ltd.Co.s to be "Agencies"

3) IR35
This is another joy. Basically it is the revenues attempt to claim that people are really employees regardless of the Ltd.Co. The difference is that the contractor and his/her Ltd.Co. carry the liability. This at least means that clients are still prepared to deal with you. The best advice I can give is to join the PCG. This is a trade body for contractors, and has lots of advice and example contracts, but the way you work must be as the contract says. http://www.pcg.org.uk/cms/index.php

4) PERSONAL MOAN
All the EU countries have different tax and operational systems that make working as a freelancer across borders really bothersome. It really is a barrier to free trade and the free movement of labour, but when the EU had the chance of fixing things with the services directive, it got blocked left, right, and centre.

I wish all the best of good luck.