How to tax-efficiently retain work and win new clients if I move abroad?
Freelancer’s Question: In August last year, I quit my job and became a freelance graphic designer and illustrator. And it's been going great!
But in the next few months I'm moving to the Netherlands (from England) and I don't know what steps I need to take regarding moving my freelance business with me. I want to make sure that I do everything legally and I'm worried I'll overlook something that will end up costing me somewhere down the road.
I want to keep working with my UK clients and, obviously, market myself to new Dutch ones, but I'm not totally sure where I stand regarding tax. I think I'm liable to pay tax in both the UK and to the Dutch government; is that correct?
Lastly, is there anything I should know and haven't mentioned about freelancing in foreign countries; is there a way to expand my services to acquire clients from other countries in Europe using a blanket approach, or would I have to set up routes for business for each country I supply to?
Expert’s Answer: I find this an interesting question, in part because you are a freelance designer rather than a contractor selling your time to your clients.
So, we do not need to become involved in your status, which we would do if you were a limited company. I assume herein that you take contracts, fulfil the work, invoice, get paid and move on to other independent work with other clients.
As a result, I would look at this first not from the tax angle but from a commercial angle.
A question for you to ask yourself, twice...
The vital thing, in my opinion, is to provide your clients with a business proposition with which they are happy. The question to ask them, or the question I suggest you should keep at the forefront of your mind, is: ‘Are they going to be satisfied working with a Dutch entity or will those clients in the UK insist upon a UK one?’
It would help you, I suggest, if you posed the same question to your clients – or about your clients -- outside the UK. You should not lose sight of the fact that, on top of the impact that the coronavirus outbreak is having on businesses and governments, and will probably still be having by the time of your intended move, the UK will shortly come to the end of its ‘transition period’ leaving the EU.
Three perks of becoming a company instead
Having established what is acceptable to your clients, we have a base from which to start. I would seriously consider opening a limited company rather than running as a self-employed person /sole trader, and there are three main reasons for this:
- You will enjoy limited liability (which will protect you in the event that something with your supply or services goes wrong);
- A company looks more serious and business-like to prospective clients than a self-employed person does; and
- You can control, and time, when you pay your taxes and the expenses, you can claim if you operate through your own company.
Regardless, what you should not have to do, subject to what I wrote earlier about client preferences, is to set up separate structures in each country. This is seldom necessary. When I say this, I am assuming that your clients are mainly VAT-registered businesses.
Why going Dutch will give you the edge
If you are now going to be resident in the Netherlands, my preference would be to set up a Dutch company and use this for your business as far as you can. The reasons again, that I say this are:
- Controlling directors/shareholders pay no social security in their Dutch company.
- Corporation tax for small companies is only 16.5% in 2020.
- Also in the Netherlands, there is no dividend tax.
- You may have to draw 70% of your profits out as salary as there are minimum salary requirements in the Netherlands for controlling director/shareholders.
- Most UK clients will accept invoices from your Dutch business (if they believe that you live there).
- Dutch clients will be delighted you have a Dutch company.
- Clients elsewhere should be entirely happy with your Dutch company.
- When you bill non-Dutch clients, you can use the ‘Reverse Charges’ provisions within the EU, so you need not charge them Dutch VAT.
Penultimately, consider that if you are leaving the UK for good, then you will cease to be a UK taxpayer, and you will have a UK tax liability only on any UK-sourced income.
You can end that liability by closing down your UK business and informing HMRC that you are leaving the UK for more than a full tax year to work.
Finally, since you and your company would be separate legal entities, the income you draw from your Dutch company is not UK-sourced even though your clients may be in the UK.
From the date of your departure, you will not need to worry about the income from your Dutch business and this is perfectly compliant. I wish you the best of luck with your move!
The expert was Kevin Austin, chief executive of accounting firm and overseas tax-compliance advisory Access Financial.