Freelancers’ Questions: Can I be a UK freelancer even as a non-resident?
Freelancer’s Question: Is it possible to register as a freelancer in the UK while being a non-resident?
To explain, I'm a British citizen and have been living overseas, in my current country of residence (inside Europe) for more than a decade, but I’ve always been a freelance copywriter and editorial consultant.
For various reasons, I want to move my business to the UK. I have a fixed address there and even paying full taxes there is preferable to what I am paying now.
Is there any tax reduction for non-residents (i.e. those who don't actually live in the country so don't use health services etc.)? At the least, is it possible to register as a freelancer while being resident in another EU country?
Expert’s Answer: I think the best way to deal with your poignant question is first to explain how tax is dealt with in the context of your current situation. Although you have not specified where you are currently living, I assume it is in another EU country where a double taxation treaty exists between the UK and that country.
A double taxation treaty exists to ensure that: a) tax is paid in at least one of the two countries party to the treaty, and b) that the same income is not unfairly taxed twice. Generally-speaking, tax will be paid first in the country where it arises and then again in the country of residence BUT with a tax credit of tax already paid in the first country. Although each country will have its own rules dictating where income is taxed (usually based on the length of time spent working in a country), a general rule is that where you reside in a country for more than six months in a tax year, you will be liable to tax on earnings arising in that county. The secondary consideration is whether income arising in another country is also taxable in your country of residence – and that can only be determined by reference to the regulations in that particular country. This is the distinction that we accountants make between being tax resident and being “ordinarily” tax resident.
Turning now to your question, it is not clear if you intend to actually come to the UK to perform the work, or just establish a (taxable) business in the UK through which the work will be channelled. If you were to create a self-employed consultancy in the UK but not actually work in the UK, then (depending on local tax regulations) this income would most probably be taxable in the country where you live and actually work. So no advantage there.
To have this income taxable in the UK, you will need to incorporate a company in the UK. The problem with this is that dividends (profit after tax and expenses) could, then, only be distributed by way of dividend to an “overseas” tax resident (i.e. you). These dividends will almost certainly then need to be declared in your country of residence and suffer local tax (less the UK tax credit). So you will end up paying tax at the effective higher rate on your UK sourced income, albeit spread over two tax authorities.
My recommendation is to consult a local tax advisor in the country where you now reside. There may be ways that tax can be sheltered in the UK but only by reference to local tax regulations. That said, from the few facts you present, I very much doubt that you will be able to reduce your taxes as described.
The expert was Barry Roback, co-founder of Privilege Accounts, an accountancy firm specialising in the taxation of freelance and self-employed professionals.
30th January 2014