Thinking of contracting overseas? Some simple tax advice....

Work and travel have been severely impacted by the COVID-19 pandemic throughout 2020 and early 2021 but as things get back closer to what we’ve been used to, opportunities for contractors to work overseas will still exist.

With Brexit now ‘done’ the ease or difficulty, of working in the European Union remain to be seen at a practical level. There is no doubt, however, that there will still be an ongoing need for contractors’ skills and experience both in Europe and further afield.

There will inevitably be issues over working visas but as far as working in the EU is concerned, apart from some changes in the area of Social Security contributions, the tax situation of contractors remains largely unaffected.

Looking to move abroad to live and work permanently outside the UK?

For contractors considering making a permanent move overseas their tax situation is relatively straightforward. However there are certain tasks that need to be completed in order to ensure your financial affairs are taken care of correctly. A service such as a Residence and Domicile review service can help with this.

You will normally cease to be a UK tax resident from the day on which you permanently leave the country. By the same token you can expect to be treated as being a tax resident of your new home country from the date of your arrival there. Each country will have its own rules as to exactly when tax residency begins so it’s important to find this out before you arrive. This is particularly so if there is a tax registration time limit for new arrivals.

You are likely to have researched such matters before deciding to make your move but if you’re not planning to engage an accountant or tax adviser in your destination country, you can consult their tax authority’s website for more information. Many overseas tax authority websites (particularly EU countries) have English versions.

For general information, if you are only researching your options of moving abroad at this time, it is a common feature of taxation across the world that, with few exceptions, every country seeks to tax the income of workers in their country where that work is carried out. They also tax the worldwide income of all their tax residents. So, if a resident has income from overseas, such as property letting, that will be taxed too.

Planning to work abroad on one or a series of short-term contracts?

Contractors offered short-term work abroad should expect to receive general advice about the overseas tax regime of the country in which they’ll be working. This may come from the Agency or end-client. Advice may also be available as to whether it’s more efficient to work on a direct employment contract, through an umbrella company or perhaps a UK company where this is possible.

Determining a person’s actual tax residence is often a complex matter, particularly if the individual is working in one or a number of different countries during the course of a year and detailed guidance should be sought if clarity is needed.

Tax advisers and HMRC rely upon the UK’s Statutory Residence Test to try to unravel the more complicated cases. This will often look at matters such as days spent in and out of the UK, the detail of the working arrangements, family ties, accommodation and economic interests to help arrive at a conclusion.

Failing to understand your UK residence position may result in you having to pay up to 40% on all of your overseas earnings so it’s crucial that you have a firm grasp on your tax residency position. If you need help with this, PayStream’s Full UK Statutory Residence Test service is here to help.

Leaving the UK to work permanently overseas but still receiving income from this country?

Even though you may have left the UK and become a tax resident elsewhere you will find that you are likely to have to continue paying UK taxes on certain types of income which arises in this country.

If you continue to own UK property which you let out, you’ll still be charged UK tax on your net rental income under the UK’s non-resident landlord rules.

UK state and occupational pensions may also continue to be taxed here.

General advice concerning the tax jurisdiction of your destination country is available from PayStream if you are still considering a move overseas.

Can you avoid being taxed twice on the same income?

Arrangements exist by way of Double Taxation Treaties between the UK and most countries in the world which, by and large, prevent the same income being taxed twice. These Treaties give taxing rights to one country or another according to a specific set of rules.

It is often possible to arrange for income arising in the UK to be removed from charge to tax in this country providing it is being taxed in the country in which you are living.

If you are required to suffer tax in one country on certain types of income, the Double Tax Treaty will normally allow you to receive a credit for the foreign tax deducted against your local tax liability.

Understanding your tax residence position could help to reduce the amount of tax you may have to pay, the problem however is trying to navigate your way through the tricky subject of tax to get a good understanding of your position. The good news is, there is help available should you need it, services like UK Statutory Residence Tests have been designed especially for these kinds of situations.

Check your situation concerning the payment of Social Security Contributions

Most countries throughout the world will have a system in place to collect social security contributions based on income or earnings (here in the UK – National Insurance Contributions (NICs). Such deductions are payable by both employees and employers usually to the tax collection authority.

Anyone from the UK working for any period of time overseas is likely to be liable to pay social security contributions based on their earnings in that country. For those who have left the UK to live and work abroad permanently and become non-resident in the UK there are no continuing requirements to pay UK NICs.

The situation is different for UK workers who may have earnings from engagements in different countries as well as the UK. HMRC will expect NICs to be paid on any UK earnings.

The picture for UK workers engaged in short – term contracts carried out in the EU has become potentially a little more complicated since Brexit. However, because a trade agreement was signed, the existing protocol – that individuals should pay social security in only one country should continue.

Like taxes, the principle that contributions will generally be payable in the country where work activities are undertaken with special provisions for multi-state and detached workers, will continue to apply.

The use of the portable A1 certificates which are used by EU workers across Europe are also expected to continue. These certificates effectively ensure social security contributions are payable only in the holders’ home country and exempt them from having to pay again in the countries in which they are temporarily working.

If you are looking at temporary work in the EU in the near future, you will need to check on the up- to- date position concerning the use of the A1 certificates.

Informing the UK tax authority about living/working abroad

If you are a UK employee sent to work overseas on a temporary basis and continue to be paid by your UK employer, you don’t need to inform HMRC. Most of these ‘detached duty’ arrangements will be handled by your employers’ HR or Payroll teams and any notifications made by them.

Permanent removals abroad should be notified to HMRC. Advance notice to them will enable you to establish the extent of any residual tax liability you may have, or indeed any tax repayments to which you may be entitled.

UK contractors who may have more complicated tax residence issues, who may need to claim foreign tax credits and non-resident landlords should use the Self-Assessment Tax Return system to engage with and inform HMRC.

In conclusion, working overseas is still a viable option for contractors with marketable skills looking for new opportunities and there are plenty of jobsites out there, such as Jooble, that can help you to find those opportunities. There may be short-term difficulties but diligent research, the support of your Agency and your professional advisers like PayStream can help smooth the path to a different future.