Accountants Guide for overseas contractors
One of the benefits of being a contractor or freelancer is that you can work from wherever and for whomever you want.
Nonetheless, working from abroad is not all sandals and margaritas: There are tax and legal implications if you are working for a foreign company or if you are working in a foreign country.Find out more
If you intend to be away for a few months or even just a few weeks and intend to work while abroad, then you typically will not have to deal with issues with regard to tax.
But if you intend to move for a period of three years or more or even permanently, you are going to be treated as a non-resident person right from the day you leave the UK. Once you are no longer deemed a resident of the UK, you will not have any tax obligations.
Things get more complex if you intend to visit the UK frequently while living abroad. If you have such intentions, the HMRC will deem you a resident expected to pay tax unless it is determined that your visits to the UK are less than:
1) 183 days of a tax year
2) An average of 91 days every tax year over a four year period
In addition to this, the HMRC will take into consideration several other factors such as:
1) Your ties to family
2) Memberships to UK societies and clubs which can prove social ties
3) If you still maintain a house in the UK
4) Whether you still retain work ties such as directorship of your limited company
It is important to note that the 91-day residency test can also be determined through qualitative analysis. These may include aspects such as whether or not you purchased properties in the foreign country you currently live in. If this is deemed insufficient as proof of change of residency, you will be treated as a UK resident for at least three years before your circumstances are reviewed again.
The implication of this is that you may have to pay taxes on capital gains and income on an adjusted basis if you spent a significant number of days in the UK. This is what is referred to as split year treatment.
This can be a particularly significant thing to note, especially if you also have to pay tax in your current country of residence. Given that each country has its own laws on tax and residency, it is advisable to always find a professional tax accountant to give you advice on how tax in your country works.
You also need to remember that you have to apply for the relevant visas if you are residing in a non-EU country. This is usually so if you are on a tourist visa and you intend to stay for more than the typical 90 days allowed.
Residency laws tend to be very complex and hence if you are not sure if you are classified as a UK resident or not, you need to speak with a specialist who knows these things. “Am I a UK Tax Resident” is an
excellent piece that should get you up to speed on how tax and residency in the UK works.
Finally, you will have to take into account your expenses and how the implications of these on your options. If you are going abroad as part of the fulfilment of a contract, then you can claim from your limited company expenses such as hotels, flights among other things.
Nonetheless, if you are just doing a little work while on holiday, you cannot claim any expenses for that.