For anyone working for themselves, taxes can prove to be quite the headache. But for those who work on the road, it’s even trickier. With so much freelance work now done remotely it’s easy to build up clients in countries across the world and much like the laptop by the pool stereotype suggests, pre-pandemic this work could be done pretty much anywhere. The UK tax system is designed on the assumption that people live and earn in the same place, making getting your finances in order a little complicated.
If you’re a digital nomad, location independent or a freelancer planning to spend time abroad, it’s always best to seek independent advice from an accountant or financial advisor about the taxes you’re liable to pay but to ensure you know what questions to ask, here’s some thoughts to bear in mind.
First things first, it’s important to establish which country, or potentially countries, you are liable to pay tax in. This boils down to where you are considered a tax resident of that country. Confusingly, not all residents are tax residents, and visa versa. “An individual or company is taxed primarily in the country where they are tax resident,” Ben Warren, a Chartered Accountant from Hilton Consulting, explained. “Every country has its own policy on determining tax residence and a person or company may be a tax resident in more than one country due to meeting the criteria in both places,” Warren clarified.
In the UK, tax residency is primarily down to how much time you spend on British soil.
“If you spend 183 days in the UK each year you’re deemed to be a UK tax paying resident,” Sherad Dewedi, Manager Partner at Shenward Chartered Accountants, highlighted. “You are liable to pay income tax on your worldwide income regardless of whether you have earned that income in the UK or not.” Other factors also play a part (for example property and family connections) so it’s best to seek advice on whether you are considered a tax resident or not (check out this HMRC page for more info). It’s important to note at this point that unlike in some countries (most notably the US), you don’t have to pay taxes in the UK to keep your citizenship.
If you plan to spend half the year or more in the UK (or are deemed a UK tax resident for other reasons), you’ll need to keep paying your taxes as normal. If you’re a sole trader, this means filing a self-assessment tax return and if you’re registered as a Limited Company this means paying your corporation tax. Choosing which of these two models is best for your business is another article in itself (and luckily there’s one here).
Whether or not you need to also pay tax in another country is dependent on how much time you spend in that country and that country’s own tax policy on whether you count as a tax resident. If you spend the majority of the time travelling between countries – say one month here and one month there – chances are you won’t qualify to pay tax in all of those countries. However, if you spend longer in one of those places then the situation might change. The best course of action is probably seeking advice from a local English speaking accountant with experience of the topic about whether you need to pay tax and if so how much.
Thanks to the rules around double taxation, you shouldn’t need to worry about being out of pocket after paying tax in multiple places. “Most countries have a double treaty, an agreement which will protect you from paying tax twice,” Dewedi explained. If you’re taxed twice you can apply for tax relief (essentially a refund) from HMRC (find the forms here). How much money you receive depends on the government’s individual agreement with the country you have been taxed by.
If you plan to leave the UK on a more permanent basis and therefore no longer qualify as a UK tax resident, you can notify HMRC via a P85 form. “The income you then earn abroad once moving is no longer liable to pay tax on,” Dewedi clarified.
With travel on the cards once again very soon and work only looking to get more flexible, the number of freelancers navigating the tricky world of international tax is only set to increase. It might be one of the biggest hassles in creating your ideal working lifestyle but by asking the right questions and seeking suitable advice it is possible.