Off shore earnings

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
Hi I am new to the forum but have been a member of the AAT since 2000. :D

I have a friend who started as a subby in June last year, and for 11 weeks worked for a company who paid him "offshore" cash. They deducted 5% handling charge, and his question is.............

Does he have to put away enough money this year to cover the 18% that wasn't deducted, and if so can he claim the 5% deduction as costs?

He does not have proof of the deduction and is going to chase up an invoice from the financial company that paid him.

I have told him that I dont know, but will try to find out. I am under the impression that the money was earned in the UK and so tax should be paid at the UK rate.

The amount of money earned was quite a large sum, and he will have a hefty tax bill next Jan if he has to pay the 18%, assuming he doesnt have a rebate due on the rest of his earnings for this tax year.

Also, as I don't do self assesments, would he have to pay an advance this June? or is that only after the first year of trading?

Thank you.
Kez

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Off shore earnings

    I always cringe when I hear clients use the word 'offshore'!

    Presuming your client is UK resident and domiciled, then he will be taxed on that income, just as he would any other income. It doesn't matter that it was paid into a foreign bank account.

    I'm not sure how your client has benefited from paying a 5% handling charge but that will almost certainly be tax deductible.

    The 18% you mention is a bit of a misnomer, he will pay tax, and National Insurance, at whatever his marginal rate is. The 18% is just a deduction at source and doesn't determine his final liability.

    As for payments on account, if he started in June 2006 then his first payment of tax won't be until 31st January 2008 and that will include a first payment on account for the 2007/08 year. He will not have to make a payment this July (2006).
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Off shore earnings

    :D Thank you.

    I will tell him to start saving for his tax bill next Jan then.

    As far as I can work out, its the company that he worked for that have the benefit from the offshore payment, he lives and works in the UK, and they have basically charged him 5% to get his wages paid! :?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Off shore earnings

    I am not sure if I have got this right but my understanding on HMRC website is, if your friend receives more than 80% of his earnings net of 18% tax deduction then I don't think he will have to pay any payments on account for the next years liability. Please correct me if I'm wrong as I don't want to pass on duff info in the future!

    thanks

    Debbie
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Off shore earnings

    Almost there Debbie.

    If 80% of the eventual tax liability is covered by tax deducted at source then payments on account do not need to be made.

    Remember that tax is paid at 10%, 22% and 40%. The 18% is only the rate for deduction at source and bears no effect on the eventual liability.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Off shore earnings

    I have done some work for subbies in the past and virtually everything they earn has been taxed at source, so they have not needed to pay POA. I have obviously not understood the HMRC guidelines regarding the 80% rule. Perhaps you should volunteer to write the guidance pages in the future, then maybe us thickies would understand them.

    So thanks alot.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Off shore earnings

    Volunteer?! :shock:

    Translating HMRCs guidance pages into english is a lifetime's work!

    I wouldn't know where to begin!

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