In today’s increasingly virtual world, digital nomads and other flexible working arrangements are on the rise. These can be appealing as a way of reducing your tax and national insurance burden. Other countries such as Portugal and Spain have beneficial regimes for foreigners choosing to work there.
However, there are several pitfalls where individuals do not take proper tax advice before they make their plans. We explore some of the myths surrounding leaving the UK and what it takes to become non-resident.
“I’m not in the UK more than 183 days in any tax year so I’m non-resident.”
Days spent in the UK is one of the factors to determine your residence status. You also must consider your “ties” to the UK, such as available accommodation, resident family and partner, and where you were in the previous two tax years.
“I never spend more than 90 days in the UK on average over a four-year period.”
The 90-day average test was scrapped in 2013 and we now have a statutory residence test. If you spend fewer than 90 days in the UK in any tax year you may be non-resident, but as noted above, other ties will also play into this.
“I can travel around the world and not pay tax anywhere.”
This MAY be possible with some careful planning, but it depends on the countries involved. If you are not tax resident anywhere, you do not have the benefit of the tax treaty network protection, meaning you could be liable to pay tax and file tax returns in every single country you have worked in based on the time you spent there.
“I can choose to continue to pay PAYE in the UK and avoid overseas tax even though I live abroad.”
Whilst it is true that HMRC will not actively challenge you for paying tax to the UK even though you may not need to, this will not stop you from owing tax in the country where you are living and working. This means you have a serious cash-flow issue once the overseas tax is due, because you have now been taxed twice pending claiming a refund from HMRC. Tax returns claiming large refunds of PAYE are often the subject of HMRC enquiries, which can take months to resolve, thus further delaying the tax refund.
Taking advice before you leave the UK
If you are contemplating a move from the UK, talk to our experienced advisors at the earliest opportunity so that you can benefit from any potential tax advantages and optimise your overall position, accounting for considerations such as timing of move and how your income sources will be taxed when you are away. Simply call 020 3915 8585 or email us.