Prague and Tax

[BoredBloke]

A mate of mine is working in Prague and needs some advice regarding tax in the UK. He's working through a management compmay in Prague and paying all his taxes over there. However the tax rates are very low and he's been told by the UK tax office that they will want the difference between what he's paid out there and what he would have paid in the UK. Is this correct and if so, is this applicable to all countries?

My understanding of double taxation was if I earn say 50k in Switzerland (where I am now) and pay all my Swiss taxes then the UK has no claim over that money. However if I return to work in the UK during this tax year I would have to declare my 50K and this would wipe out all of my tax bands, putting me onto 40% tax from the very start. So while I still would have nothing to pay on the 50k, any subsequent earnings would be taxed on the 40% tax band.

No doubt I'm now going to find out that I have made a very expensive mistake!

[Turion]

No doubt I'm now going to find out that I have made a very expensive mistake!

There's no mistake, this is the normal tax rule for everyone. Overseas income is not taxed again, but should be declared and will be counted as earnings with which to base the tax level of subsequent earnings in the UK that year. Seems perfectly fair to me, as otherwise you would be taking advantage of the lower rates in both the UK and Switzerland.

[BoredBloke]

So if I went back after 6 months, having earned 50k, the 50k would not incurr an extra level of taxation to bring it up to what would have been paid in the UK but any subsequent earnings would attract a far higher level of tax. Presumably they would simply tax this at 40% or can they tax it at a higher level?

If however I did not earn anything in the UK for the whole tax year, then there would be no extra tax to pay in the UK as all taxes had been paid overseas.

For me the difference is not huge between the 2 as I only see 68% of the gross out here. However my mate in Prague is panicking as the tax rate out there is stupidly low. As I said, he was told by the tax office that they can tax his income in prague to recoup the difference between what he is paying there and what would have been liable in the UK.

[Turion]

So if I went back after 6 months, having earned 50k, the 50k would not incurr an extra level of taxation to bring it up to what would have been paid in the UK but any subsequent earnings would attract a far higher level of tax. Presumably they would simply tax this at 40% or can they tax it at a higher level?

All UK earnings like interest. divis, wages will attract 40% tax. No more, no less.

If however I did not earn anything in the UK for the whole tax year, then there would be no extra tax to pay in the UK as all taxes had been paid overseas.

Correct

For me the difference is not huge between the 2 as I only see 68% of the gross out here. However my mate in Prague is panicking as the tax rate out there is stupidly low. As I said, he was told by the tax office that they can tax his income in prague to recoup the difference between what he is paying there and what would have been liable in the UK.

Possibly, but if the income has been declared and taxed in the country of origin, there should be no additional payment to HRMC. If it's a decent amount he should hire a tax advisor to do the return for him.

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[tim123]

A mate of mine is working in Prague and needs some advice regarding tax in the UK. He's working through a management compmay in Prague and paying all his taxes over there. However the tax rates are very low and he's been told by the UK tax office that they will want the difference between what he's paid out there and what he would have paid in the UK. Is this correct and if so, is this applicable to all countries?

Yes and yes (in both directions). In effect, you are supposed to pay an amount of tax equal to whichever country's is the highest on that income.

tim