UK Contractor in Germany: Using UK Payroll management companies , high net retention

[curiousman]

I am a software developer contracting in Germany.

When considering the job, I spoke with the payroll provider recommended by the recruitment agency to discover how much net retention I would have. The example I was provided (76%) was based off of a high expenses figure which is by no means achievable in Germany. The German system seems to be very specific on what can be claimed and definitely not the "you can claim pretty much anything" that I was told in the conversation. Hence the example was quite inaccurate and would have definitely affected my job choice.

After a few months of inaccurate feedback to my questions, including an expenses fiasco, I am told to register. But only after months of asking the initial question which I could have done on my arrival. The registration I had to do myself and was just given a few PDF templates as preparation and not much help. The most important point is that link have completely outsourced this to a company based in Poland.

I spoke with a person at the Polish management company before the Christmas, as I hoped they would remedy my tax situation and I wished for an example of net retention. The example was not forthcoming and she informed me that they were not providing accounting services or tax advisory services but they could hire a tax adviser for me if I so wished. So who actually is doing the tax advising/accounting ?

I also spoke with another management company, and they told me the 500 euro fee we are charged monthly is extraordinary and 100-200 is quite adequate. Also for this figure we could expect dedicated support and accounting services. They actually felt sympathetic to my situation and requested that I contact the recruitment firm and ask link for a refund for services rendered, as they actually have not provided any service. They themselves mentioned that they could get me 27% net retention using a non-repayable loan.

Are such practices legal and does it put me in a bad position ? Does anybody have any recommendations on how to get maximum net retention and recommendations on quality,trustworthy payroll providers ?

Thanks in advance

[cojak]

I have moved this out of the Umbrella Companies forum because you aren't working for an umbrella company and your problems are bigger and more specialist than anything over there...

[northernladyuk]

Sue @ IPAYE is the brains of that particular operation. PM her or phone them and pay close attention. Be very wary of high retention rates.

[curiousman]

Sue @ IPAYE is the brains of that particular operation. PM her or phone them and pay close attention. Be very wary of high retention rates.

It seems like its difficult to find transparency regarding this. Some companies state that you need to pay full tax with minimal expenses ~55% retention, whereas others have magic solutions (non repayable loan, claim all expenses (rent,lunch,transport,etc)

[northernladyuk]

It seems like its difficult to find transparency regarding this. Some companies state that you need to pay full tax with minimal expenses ~55% retention, whereas others have magic solutions (non repayable loan, claim all expenses (rent,lunch,transport,etc)

Do you believe in magic? If not the 55% people are likely to be transparent. Talk to Sue.

[northernladyuk]

If you're still not sure.

[stek]

To mis-quote Alan Partridge doing his voice for 'Scum on the Run', a sequel to 'Crash, Bang, Wallop - What A Video'....

'Britain has some of the fairest tax people in the World, but dis iz Die Finanzamt....'

It's actually 'Das Finanzamt' but it doesn't scan as well...

[BR14]

To mis-quote Alan Partridge doing his voice for 'Scum on the Run', a sequel to 'Crash, Bang, Wallop - What A Video'....

'Britain has some of the fairest tax people in the World, but dis iz Die Finanzamt....'

It's actually 'Das Finanzamt' but it doesn't scan as well...

it scans better than de belastingsdienst, but their philosophy is similar

[Sue B]

Hi Curiousman,

If you would like to contact me via PM or email [email protected] I would be happy to provide some specific information based on your circumstances. For the time being I'll keep it generic.

As German tax brackets open at 14% (small 0% bracket) and very quickly onto 42% (for income over approx €54000) and rising to 45%, then anyone offering a net retention of more 70+ % is doing something funny either with the tax, the social security, the expenses, or all of them combined.

All income earned in Germany, where your services are performed for a German end client (economic employer with a permanent establishment), are taxable from day 1. All income earned in Germany, where your services are performed for a UK client are taxable in Germany from day 1 if the contract will exceed 183 days.

Where you pay your NI/Social Security is dependent on your habitual resident status (for NI purposes, this is tested separately to Tax residence) and your employer.

Social security by default is paid where you work, so Germany, unless exempted with an A1 Certificate, which is obtained by the employer of a posted worker. If you are paying UK NI, and want to continue, then your employer must be based in the UK too.

I have just ran some calculations here, based on €500 per day with average expenses (would suggest that expenses of no more than 20% of gross is acceptable to most tax offices) and the most we could achieve would be 60%. The average rate of tax due was 36% and then there is National Insurance and our fees to consider. This is assuming you are eligible for an A1 Certificate for continued UK NI contributions. If you are not eligible and fall in to German social security brackets this would be less, around 50% maximum retention.

Finally with regard to the company that would provide you with full accountancy services for €200 per month and then suggested you could take home 73% net (i assume that's what you mean...) via a loan scheme, I cant really comment on this other than to say, €200 per month is actually a lot of money to pay for someone to put you on a collision course with both the German tax office and HMRC.


I hope this is helpful.

[BlasterBates]

If you are working temporarily a few months you should work through a management company that registers you as a "Freiberufler" A Freiberufler is exempt from social security. As Sue points out tax rates rise to about 45% at the high end, my experience is that you would probably pay approx 35% on net income. You ought to be able to claim travel expenses from the UK as long as you don't become resident in Germany i.e. don't rent a flat and return home regularly. As a Freiberufler there is nothing to pay apart from income tax and obviously a charge to an Accountant or Management company, and although social security can potentially be a problem, it almost certainly won't be if you are only there a few months. Social security is not chased by the Finanzamt and the Social Security Admin. will almost certainly not bother to chase anyone not resident in Germany.