UK resident contracting in Germany, via a company in Denmark

**Sally BFCA** · 24 May 2010, 11:06

Originally posted by proto View Post

I'm very new to contracting and have been trying to read up on the various options available to me (umbrella, self-employed, personal Ltd etc.) but am still not confident about what the best route would be. I also have a few concerns about taxation.

Currently, I am not registered as self-employed nor do I have an Ltd.... I have yet to start my contract and am looking for some advice on what I should do.

Soon I am going to be starting work in a firm based in Germany, but technically I'm being provided to them by a company based in Denmark. This company in Denmark have told me that they require me to either have a limited company of my own or to be under an umbrella company in the UK (PAYE etc.)... Basically they need to be invoiced by a registered company...

I think I'm going to do the umbrella thing, simply because it's simpler and it doesn't involve foreign corporate tax (right?).

I am still concerned about the taxation issues though. Am I going to get taxed in the UK, Germany AND Denmark?

I rang HMRC and they said that the UK would only tax me on the difference between whatever I'm being taxed elsewhere in the EC. So, say I get taxed 20% in Germany, and I'm in the 40% bracket in the UK ... the HMRC would ask for the remaining 20%... (at least, that's how I understood it).

Can anyone offer any advice?

Firstly, I would recommend that you make a comparison of net income between limited company and umbrella. There is a spreadsheet on our website that you can download if you wish.

HMRC are correct as long as the countries have a double taxation treaty with the UK. However with both limited company and umbrella option you will not be paying tax anywhere but the UK.
If you were to go the limited company route; earnings in the higher rate of tax on dividends it is 32.5% whereas on PAYE it is 40%. Of course your IR35 status has a role to play in the decision making process.