How to freelance in the UK for overseas clients

As a UK freelancer who carries out work for overseas clients, or who is based overseas yourself, you might wonder where and how to pay your tax bill. This is where a Statutory Residence Test comes in, so you can work out what your residency status is for tax purposes.

How to freelance in the UK for overseas clients

Here we look at how to freelance in the UK for overseas clients as told by Pandle.

What is a tax residence status?

In simple terms, your tax residence status is used to determine which country you should pay income tax to.

A British person working in the UK will normally pay tax on their income to HMRC. An Australian person working in Australia will normally pay income tax to the Australian government.

When paid work crosses border, it gets a bit more complicated! Understanding your tax residence status avoids the risk of not paying any income tax anywhere, or being taxed on the same income in two different countries.

How do I work out what my tax residence status is?

Your tax residence status is determined using a Statutory Residence Test. It can get quite complicated (this is HMRC, after all!), but it’s generally based on how many days you spend in the UK during a particular tax year.

Tax residence rules can get quite complicated (this is HMRC, after all!), but they generally take into account how long you spend, and where. The test also considers what your connection to the UK is.

Can I be a tax resident in two countries?

You can be classed as a tax resident of two countries; it’s known as being a dual resident. This happens if you live in the UK and another country, and both countries tax your income.

What if I’ve already paid tax on my overseas earnings?

The UK has Double Taxation Agreements with different countries, so you may be able to claim Foreign Credit Tax Relief when completing your Self-Assessment tax return.

If there isn’t a Double Taxation Agreement in place with that country, don’t panic – you might still be able to claim for something called Unilateral relief.

How much relief you get depends on the agreement that the UK has with that country. You might get back all or some of the UK tax you pay on your UK income, or the other country may give you a credit against the amount of tax you pay in the UK.

Can my residence status change?

Your tax residence status can change from one tax year to the next. If you regularly travel for work, or if you undertake work for overseas clients, it’s useful to review your residence status every tax year.

More on freelancer tax and how to freelance in the UK as an EU citizen after Brexit?