Reply to: Dual residence & filling in a UK return

[doodab]

Excellent result!

Indeed. Perhaps tax doesn't have to be taxing after all.

[Taxless]

Excellent result!

[doodab]

Either way, an entry has been missed from the 2009 tax return.

If you were expecting to be non-resident then the non-resident pages should have been completed. If you did not expect to be non-resident then the profit from your foreign exploits for the period to 5 April 2009 should have been returned in the UK tax return as self employed profits.

Yes, I was wondering about that but they seem to have accepted the note that my accountant put on.

Anyway, I spoke to HMRC and they tell me that I am non-resident and as all the "duties" from my self employment are performed in Germany my 09-10 return only needs to declare income arising in the UK.

[Taxless]

I'm not sure that applies in my case, when my 08-09 return was submitted it wasn't obvious that I would actually be away for the whole of the following tax year which I think is a prerequisite for requesting split year treatment when you depart. But you're right, it probably would have been easier to sort it out then.

TBH having read the P85 it seems to say that I shouldn't be filling it in at all because I was required to complete a self assessment form for the year I left, so I'm going to ignore that and just tick the non residence box on the tax return.

I've also come around to thinking that I'm almost certainly not resident, the family ties / clean break thing seems to be intended to catch people who claim to have left the UK permanently but haven't rather than people who actually work overseas full time.

Either way, an entry has been missed from the 2009 tax return.

If you were expecting to be non-resident then the non-resident pages should have been completed. If you did not expect to be non-resident then the profit from your foreign exploits for the period to 5 April 2009 should have been returned in the UK tax return as self employed profits.

You should have paid tax on that profit, although you would have got it back once you were later confirmed as not-resident.

I agree with what you say about the P85, but as mentioned above, the 2009 tax return you submitted does not tell the whole story for that tax year.

If you are happy you are not resident, it is likely that this may lead to some unwanted interest from HMRC but at the end of it, very possibly no UK tax to pay.

Good luck.

[doodab]

Sorry, but I would like to disagree.

When you leave the UK for a period that may include a period of non-residence, you effectively have split year tax treatment in the UK (resident to date of departure and non-resident thereafter).

This is where the P85 and non-residence pages on the tax return come in. The former tells HMRC of your intentions and the latter what you have done to the following 5 April (worked abroad). Now you have to tell them about something that happened nearly 3 years ago.

Not the end of the world, just a little more correspondence and a few more hoops.

I'm not sure that applies in my case, when my 08-09 return was submitted it wasn't obvious that I would actually be away for the whole of the following tax year which I think is a prerequisite for requesting split year treatment when you depart. But you're right, it probably would have been easier to sort it out then.

TBH having read the P85 it seems to say that I shouldn't be filling it in at all because I was required to complete a self assessment form for the year I left, so I'm going to ignore that and just tick the non residence box on the tax return.

I've also come around to thinking that I'm almost certainly not resident, the family ties / clean break thing seems to be intended to catch people who claim to have left the UK permanently but haven't rather than people who actually work overseas full time.

[Taxless]

[QUOTE=doodab;1347655]For 08-09 I was unquestionably resident in the UK as I was there more than 183 days, so the non residency section wasn't filled in. Neither was the self employment or foreign section but there is a note that German income & tax paid for Jan 09 - Dec 09 would be declared on the 09-10 return. Worth mentioning that although I started working here in 2008 I didn't invoice or get paid until Jan 09 due to delays getting a German VAT number. This was done by my UK accountant so AFAIK it's correct.[QUOTE]

Sorry, but I would like to disagree.

When you leave the UK for a period that may include a period of non-residence, you effectively have split year tax treatment in the UK (resident to date of departure and non-resident thereafter).

This is where the P85 and non-residence pages on the tax return come in. The former tells HMRC of your intentions and the latter what you have done to the following 5 April (worked abroad). Now you have to tell them about something that happened nearly 3 years ago.

Not the end of the world, just a little more correspondence and a few more hoops.

[QUOTE] I'm not concerned about a potential liability TBH. I'm fairly certain there isn't one.[QUOTE]

I suspect you are probably correct on that.

[QUOTE] .. can tell me definitively whether I am UK resident or not.[QUOTE]

It honestly isn't an easy answer, particularly given HMRC's activity in this arena. If you pay a UK adviser to advise you then that's what they should do. Why else are you paying them?

You give full facts and you get an opinion.

[doodab]

Yes agree it is better if you can seek professional advice. You could be surprised sometimes when you called HMRC, you may ask you if you have an accountant. If you do, ask them.

Yes, the feedback I have from my UK accountant is that I'm probably non resident but HMRC might not see it that way so I can either tick the non resident box or not and see what happens

I think I'm just going to go with the non residence option. The worst case scenario is that HMRC decide I'm wrong and waste their time & mine going through my paperwork in order to work out that I don't owe them anything.

[doodab]

As a UK director you are required to submit annual UK tax returns, so your 2009 tax return should have included non-resident pages showing your days out of the UK. What did you report there?

For 08-09 I was unquestionably resident in the UK as I was there more than 183 days, so the non residency section wasn't filled in. Neither was the self employment or foreign section but there is a note that German income & tax paid for Jan 09 - Dec 09 would be declared on the 09-10 return. Worth mentioning that although I started working here in 2008 I didn't invoice or get paid until Jan 09 due to delays getting a German VAT number. This was done by my UK accountant so AFAIK it's correct.

We do “self assess” in the UK now but you would have to fill in the non-residence pages and make an informed decision as to what else to report.

If HMRC find the return is wrong you will pay the tax, interest if the tax is paid late, and potentially a penalty up to 100% of the tax. The penalty is behaviour based so if they think you deliberately under declared your liability your penalty may be that much higher.

I'm not concerned about a potential liability TBH. I'm fairly certain there isn't one. I just want to avoid unnecessary hassle with the paperwork, particularly as it seems that I would need a second set of accounts drawn up in sterling with each item converted at a different exchange rate, which is going to be a costly and time consuming PITA.

In your position it might well be worth some professional input.

Indeed. Unfortunately before I left I couldn't find a single UK based adviser claiming to deal with UK contractors working in Germany that wasn't trying to sell me a "split income" scheme of a type known to be illegal here, my German accountant doesn't do UK tax returns and neither my current UK accountant nor anyone else I have spoken to can tell me definitively whether I am UK resident or not and need to fill in the self employment section on the return. It seems the only way to obtain an answer is to "suck it and see" with HMRC.

Yes agree it is better if you can seek professional advice. You could be surprised sometimes when you called HMRC, you may ask you if you have an accountant. If you do, ask them.

“ … this is in relation to a belated 09-10 return, but will probably apply to my 10-11 one as well….”

You left the UK during the 2008/09 tax year and have been out for more that a full tax year, namely beyond 5 April 2010 and have been working effectively full time, so subject to how many days you spent in the UK between leaving in September 2008 and 5 April 2009 you have probably avoided the 91 days on average trap.

With a family retained in the UK, whether you have done enough to satisfy HMRC that you are non-resident is another matter. Look at section 8.1 of HMRC6.

“If you are leaving the UK permanently or indefinitely, either to work or for another reason, you must tell us by contacting your tax office. We will give you form P85 to complete so that you can get any tax refund you are owed. We will also tell you if you will need to complete a UK tax return after you have left the country. Leaving the UK ‘permanently’ means that you are leaving the country to live abroad and will not return here to live. Leaving ‘indefinitely’ means that you are leaving to live abroad for a long time (at least three years) but you think that you might eventually return to live here, although you do not currently have plans to do so.

The act of leaving the UK does not necessarily make you not resident and not ordinarily resident. You must also make a definite break from the UK and any remaining ties you have with the UK must be consistent with not being resident here.”

At the moment you will see that both the three year and definite break tests may be a problem BUT I would stress that this is HMRC’s opinion it is not law.

However, asyou say, section 8.5 implies that a full tax year break (6 April to next 5 April), while working, would make your earnings non-UK taxable (subject to 91 day rule) and no mention of the three year rule. Section 8.8 applies the same rule for the self employed. Isn’t tax great?

All that said, even if you were to lose the non-residence test then you would receive credit for any foreign tax against any UK tax liability and so probably no, or little UK tax.

As a UK director you are required to submit annual UK tax returns, so your 2009 tax return should have included non-resident pages showing your days out of the UK. What did you report there?

“… fill the form in, claim non-residence and let HMRC challenge it if they disagree”

We do “self assess” in the UK now but you would have to fill in the non-residence pages and make an informed decision as to what else to report.

If HMRC find the return is wrong you will pay the tax, interest if the tax is paid late, and potentially a penalty up to 100% of the tax. The penalty is behaviour based so if they think you deliberately under declared your liability your penalty may be that much higher.

I think you need to take a realistic approach to this. If you ring HMRC you will spend ages trying to talk to someone who has any idea what you are talking about, if at all.

They do not give advice, they give opinions and guess what way that will be slanted? Even is they suggested something they are not bound by it so no come back for you later.

It is your tax and your responsibility.

In your position it might well be worth some professional input.

[Taxless]

“ … this is in relation to a belated 09-10 return, but will probably apply to my 10-11 one as well….”

You left the UK during the 2008/09 tax year and have been out for more that a full tax year, namely beyond 5 April 2010 and have been working effectively full time, so subject to how many days you spent in the UK between leaving in September 2008 and 5 April 2009 you have probably avoided the 91 days on average trap.

With a family retained in the UK, whether you have done enough to satisfy HMRC that you are non-resident is another matter. Look at section 8.1 of HMRC6.

“If you are leaving the UK permanently or indefinitely, either to work or for another reason, you must tell us by contacting your tax office. We will give you form P85 to complete so that you can get any tax refund you are owed. We will also tell you if you will need to complete a UK tax return after you have left the country. Leaving the UK ‘permanently’ means that you are leaving the country to live abroad and will not return here to live. Leaving ‘indefinitely’ means that you are leaving to live abroad for a long time (at least three years) but you think that you might eventually return to live here, although you do not currently have plans to do so.

The act of leaving the UK does not necessarily make you not resident and not ordinarily resident. You must also make a definite break from the UK and any remaining ties you have with the UK must be consistent with not being resident here.”

At the moment you will see that both the three year and definite break tests may be a problem BUT I would stress that this is HMRC’s opinion it is not law.

However, asyou say, section 8.5 implies that a full tax year break (6 April to next 5 April), while working, would make your earnings non-UK taxable (subject to 91 day rule) and no mention of the three year rule. Section 8.8 applies the same rule for the self employed. Isn’t tax great?

All that said, even if you were to lose the non-residence test then you would receive credit for any foreign tax against any UK tax liability and so probably no, or little UK tax.

As a UK director you are required to submit annual UK tax returns, so your 2009 tax return should have included non-resident pages showing your days out of the UK. What did you report there?

“… fill the form in, claim non-residence and let HMRC challenge it if they disagree”

We do “self assess” in the UK now but you would have to fill in the non-residence pages and make an informed decision as to what else to report.

If HMRC find the return is wrong you will pay the tax, interest if the tax is paid late, and potentially a penalty up to 100% of the tax. The penalty is behaviour based so if they think you deliberately under declared your liability your penalty may be that much higher.

I think you need to take a realistic approach to this. If you ring HMRC you will spend ages trying to talk to someone who has any idea what you are talking about, if at all.

They do not give advice, they give opinions and guess what way that will be slanted? Even is they suggested something they are not bound by it so no come back for you later.

It is your tax and your responsibility.

In your position it might well be worth some professional input.

Call HMRC and they will send you the form that you need
Residence is normally determined by the days you are in the UK

Yeah but I'm still a director of 2 UK companies. I definitely have to file a UK tax return, I just don't know what I need to put on it.

[doodab]

Director of what company? He's a freelancer in Germany......

Yeah but I'm still a director of 2 UK companies. I definitely have to file a UK tax return, I just don't know what I need to put on it.

[doodab]

As a director of a company by law you need to do your tax return ,the employment page.
Thanks
Harry Lee
Tax, accounts, bookkeeping Croydon Purley London UK Accountant SC Lee

But can I just fill in the basic form and the "residence, remittance basis etc" part and say I am non resident? Or do I need to do the whole self employment section and claiming of tax relief?

Looking at HMRC6 section 8.5 and 8.8 I would appear to be non-resident. But then looking at section 2.2 I'm not so sure.

I think I will give them a call tomorrow and ask them what they think.

[stek]

As a director of a company by law you need to do your tax return ,the employment page.
Thanks
Harry Lee
Tax, accounts, bookkeeping Croydon Purley London UK Accountant SC Lee

Director of what company? He's a freelancer in Germany......

As a director of a company by law you need to do your tax return ,the employment page.
Thanks
Harry Lee
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In terms of the treaty I am clearly resident and liable to pay tax in Germany, as I've been here about 300 days a year.

The problem is from a paperwork perspective it seems I might be resident in both countries. In much the same way as the Germans require me to declare all of my income the UK appears to want the same thing i.e. that I declare my German income and claim relief on the tax paid. Unfortunately they don't make it very clear how to go about it.