Self Employed Income Whilst Non-resident

Foo Fighter

I have been approached by a new client who has been non-resident for the last three years (working as security in Iraq) but has been paid by a UK company into a UK bank account. He now wants to return to the UK and set up his own UK company.

What is the tax position in relation to his earnings? He declared himself non-resident on his tax returns and not paid tax on any of his income. As he is returning to the UK during the current tax year, I assume he cannot claim non-residency for the current year.

jamesm96

Foo Fighter wrote: »

I have been approached by a new client who has been non-resident for the last three years (working as security in Iraq) but has been paid by a UK company into a UK bank account. He now wants to return to the UK and set up his own UK company.

What is the tax position in relation to his earnings? He declared himself non-resident on his tax returns and not paid tax on any of his income. As he is returning to the UK during the current tax year, I assume he cannot claim non-residency for the current year.

It's slightly aside, but did he confirm with HMRC (at the time) that he was correct in declaring himself non-resident? Depending on the circumstances it might just be that HMRC would take a different view from him, and there'd be all sorts of nasty consequences.

Anyway, back on topic... he can claim a 'split-year' treatment, I believe, so that the first half of the tax year (up until his return to the UK) he is treated as a non-resident, and the second half he'll be treated as resident. I say 'I believe' because I've actually only ever dealt with it the other way round (someone leaving the UK for Europe mid-year), so I'll stand corrected!

Foo Fighter

I don't think he confirmed with HMRC but I'm pretty sure he complied with the number of days in the UK.

Monsoon

jamesm96 wrote: »

Anyway, back on topic... he can claim a 'split-year' treatment, I believe, so that the first half of the tax year (up until his return to the UK) he is treated as a non-resident, and the second half he'll be treated as resident. I say 'I believe' because I've actually only ever dealt with it the other way round (someone leaving the UK for Europe mid-year), so I'll stand corrected!

Agreed on the split year treatment, I think you're right, Mike. I did this for someone relatively recently.

Note residency isn't just the days present - the overall view needs to be taken into account (e.g. if he has a family and a home back here and comes back the maximum days allowed before being resident, HMRC may take the view he's actually resident).

Foo Fighter

Thanks for the replies.

If he is in fact non-resident from a HMRC perspective, does this mean he doesn't need to declare the income whilst abroad for UK tax even though he was paid by a UK company into a UK bank account?

Monsoon

Foo Fighter wrote: »

If he is in fact non-resident from a HMRC perspective, does this mean he doesn't need to declare the income whilst abroad for UK tax even though he was paid by a UK company into a UK bank account?

If he's being paid into a UK bank, this implies there may be other factors to consider when determining his residency, so it would need looking at carefully.

I would have thought that if he's non-resident, he's non-resident and thus not liable to UK tax. The UK company paying into a UK bank does appear to possibly muddy the waters and the simple answer is I don't know.

jamesm96

Monsoon wrote: »

If he's being paid into a UK bank, this implies there may be other factors to consider when determining his residency, so it would need looking at carefully.

I would have thought that if he's non-resident, he's non-resident and thus not liable to UK tax. The UK company paying into a UK bank does appear to possibly muddy the waters and the simple answer is I don't know.

Yeah absolutely.

The rule for non-residents is that they don't need to pay UK income tax on foreign earnings so, as long as the money was earned elsewhere (and, presumably he is registered for and paying tax in the country the work was carried out?) then you're right, there's no UK tax.

The complication is caused by the difficulty in establishing his status. Like Monsoon says, the 'days' rules aren't the be-all and end-all. They're really there more to overrule any other factors. So, for example, if you have a full time contract of employment overseas, you'll (basically) automatically become non-resident, unless you're back in the UK for more than 183 days in any one year, or more than an average of 91 days over five years.

If your client has a contract for services abroad then it'll certainly help to clarify things, and then my advice would be to call HMRC's Agent Priority line, ask to speak with a Technical Advisor re. the residency status of your client and make copious notes about what they tell you, so that if the treatment is ever contested in the future you have at least got evidence that HMRC themselves already confirmed the status.