Tricky tax situation, what to do?
March 16, 2010 12:58 AM Subscribe
Asking on behalf of a friend who is silly enough to not have a MeFi account, but smart enough to know she will find answers here: "I am a freelance translator and I'm about to finish a big project for a US based company. The job is quite complex and long, so a fair amount of money is going to come my way. I have been moving around for the past 2 years, so I am not quite sure how to handle the invoicing / taxes. I'll explain my current situation and I would appreciate any advice, insight, etc.
For the last 2 tax years, I lived in the UK and was employed part time while I studied. My taxes were paid by the company I worked for and I didn't have to worry about a thing. Plus, I was working less than 20 hours per week, and my income was below any UK tax threshold. Before that, I was working in Mexico and I handled my taxes on my own. As far as I know, everything is in order and fully accounted for in both countries. From Jan. 2010 until May 2010 I will be living in Mexico, I've been on holiday and haven't worked for anyone here. I have a current bank account here that I have been using all along. I am going back to the UK in May, I also have a current bank account there. My client, the company paying for the translation, is based in the US and they are asking me for contact and bank account details in order to process my payment.
1. Which contact / bank information should I give them in order to minimise loss of income due to currency exchange and taxes?
2. I know how this would work in terms of taxes in Mexico, but if I get the money in my UK bank account, how would that work? It's money from an overseas company, for work done overseas... do I even have to declare it?
3. Is there any other possibility I'm not seeing?
Thanks MeFites!"
For the last 2 tax years, I lived in the UK and was employed part time while I studied. My taxes were paid by the company I worked for and I didn't have to worry about a thing. Plus, I was working less than 20 hours per week, and my income was below any UK tax threshold. Before that, I was working in Mexico and I handled my taxes on my own. As far as I know, everything is in order and fully accounted for in both countries. From Jan. 2010 until May 2010 I will be living in Mexico, I've been on holiday and haven't worked for anyone here. I have a current bank account here that I have been using all along. I am going back to the UK in May, I also have a current bank account there. My client, the company paying for the translation, is based in the US and they are asking me for contact and bank account details in order to process my payment.
1. Which contact / bank information should I give them in order to minimise loss of income due to currency exchange and taxes?
2. I know how this would work in terms of taxes in Mexico, but if I get the money in my UK bank account, how would that work? It's money from an overseas company, for work done overseas... do I even have to declare it?
3. Is there any other possibility I'm not seeing?
Thanks MeFites!"
Missing data is OP's citizenship, which may or may not be relevant. If they are American, for example, taxation (within constraints) is global.
Regarding point one: any FX transaction will incur cost so your answer here is simple - keep currency exchanges to a minimum. And don't waste time trying to find the "best quotes" or narrowest spread either; all the High Street services will quote pretty much the same (unless we're talking middle six or seven figure sized transactions the differences won't translate to significant savings) and if their bid / offer spread is tighter they'll make it up another way e.g., fees, commission, etc.
Regarding point two, for non domiciled UK taxpayers HMS assess on what's know as a remittance basis; effectively bring money into the UK and you're taxed on it. However this is in a serious state of flux and clarity is difficult to come by (even when discussing with Inland Revenue). So if the US side pays into a UK bank account you are triggering what's known as a tax event.
Of course this ignores debit cards but they sometimes do catch folks using ATMs to transfer money into the UK without paying the 40% hit to Inland Revenue. I've been in the UK about fourteen years, work in banking, and have heard of maybe a half dozen or so that got caught. So that's a personal judgment to make. Myself, I don't think its worth it so I pay, but ultimately this is up to each persons conscience.
three blind mice probably has the best advise you'll see in this thread - sit down with an accountant and discuss the specifics.
posted by Mutant at 2:16 AM on March 16, 2010
Regarding point one: any FX transaction will incur cost so your answer here is simple - keep currency exchanges to a minimum. And don't waste time trying to find the "best quotes" or narrowest spread either; all the High Street services will quote pretty much the same (unless we're talking middle six or seven figure sized transactions the differences won't translate to significant savings) and if their bid / offer spread is tighter they'll make it up another way e.g., fees, commission, etc.
Regarding point two, for non domiciled UK taxpayers HMS assess on what's know as a remittance basis; effectively bring money into the UK and you're taxed on it. However this is in a serious state of flux and clarity is difficult to come by (even when discussing with Inland Revenue). So if the US side pays into a UK bank account you are triggering what's known as a tax event.
Of course this ignores debit cards but they sometimes do catch folks using ATMs to transfer money into the UK without paying the 40% hit to Inland Revenue. I've been in the UK about fourteen years, work in banking, and have heard of maybe a half dozen or so that got caught. So that's a personal judgment to make. Myself, I don't think its worth it so I pay, but ultimately this is up to each persons conscience.
three blind mice probably has the best advise you'll see in this thread - sit down with an accountant and discuss the specifics.
posted by Mutant at 2:16 AM on March 16, 2010
The UK almost certainly considers her a UK resident for tax purposes (see this article on UK tax residency, for example. See also this handy little widget.
Even if your friend is not a UK citizen and is considered "non-domiciled" in the UK (not the same as residency), there's apparently a £30,000 tax fee to use the "remittance basis" taxation scheme that Mutant mentions, anyhow.
I'd have the payment sent to the account in the country where you plan to spend the money.
The proz.com business boards are very helpful with questions like this.
posted by drlith at 4:48 AM on March 16, 2010
Even if your friend is not a UK citizen and is considered "non-domiciled" in the UK (not the same as residency), there's apparently a £30,000 tax fee to use the "remittance basis" taxation scheme that Mutant mentions, anyhow.
I'd have the payment sent to the account in the country where you plan to spend the money.
The proz.com business boards are very helpful with questions like this.
posted by drlith at 4:48 AM on March 16, 2010
Your friend is finishing up a big translating project for a big company and is asking an anonymous bunch of internet people for tax advice that could potentially drastically affect her in the near future.
There are two answers here:
1. Tell her to get her own account, I mean, it's $5 and this thread alone should save her dozens of times that much.
2. Tell her to seek professional advice in her local jurisdiction regardless of the advice she receives here unless someone steps forward with an "IAAPITF" (I am a professional in this field)
If this is a derail I'm sorry, but this is a little chafe-y to me.
posted by TomMelee at 6:03 AM on March 16, 2010 [1 favorite]
There are two answers here:
1. Tell her to get her own account, I mean, it's $5 and this thread alone should save her dozens of times that much.
2. Tell her to seek professional advice in her local jurisdiction regardless of the advice she receives here unless someone steps forward with an "IAAPITF" (I am a professional in this field)
If this is a derail I'm sorry, but this is a little chafe-y to me.
posted by TomMelee at 6:03 AM on March 16, 2010 [1 favorite]
Where you transfer the money doesn't, or shouldn't, affect your tax obligations in principle.
Most countries, income earned abroad is covered by tax treaties and/or whether or not you are considered a resident for tax purposes. Others here seem far more informed than me about the UK side of this, so I'll not repeat that.
Canada, for instance, as long as you are non-resident for tax purposes, you do not have pay or even declare income - the trick being sure that you are non-resident for tax purposes. Going away for a planned 1 year offshore job and then coming back doesn't count, although there may be some exemptions or treaties that can help you, but by contrast going away for a planned indefinite amount of time and cutting primary ties to the country clearly (cancelling medical, selling car/house, closing bank accounts, etc) and then, due to sudden unforeseen loss of the foreign job 1 year later, or even less, you can still claim non-resident status (it is likely they will investigate the validity of your claims though). If you are gone more than 2 years, and cut ties properly, you are generally in the clear. I would be surprised if the UK was very different.
The US is quite different.
The answer, in all cases, is you need to consult with a tax specialist in your home country (the place you're moving back to) who specializes in this type of situation.
FutureAdviceForForeignJobsFilter: you want the answer to this question sorted out *before* you take the job offshore, because the answer significantly affects the value of the offer and the impact on your life it represents.
posted by TravellingDen at 6:57 AM on March 16, 2010
Most countries, income earned abroad is covered by tax treaties and/or whether or not you are considered a resident for tax purposes. Others here seem far more informed than me about the UK side of this, so I'll not repeat that.
Canada, for instance, as long as you are non-resident for tax purposes, you do not have pay or even declare income - the trick being sure that you are non-resident for tax purposes. Going away for a planned 1 year offshore job and then coming back doesn't count, although there may be some exemptions or treaties that can help you, but by contrast going away for a planned indefinite amount of time and cutting primary ties to the country clearly (cancelling medical, selling car/house, closing bank accounts, etc) and then, due to sudden unforeseen loss of the foreign job 1 year later, or even less, you can still claim non-resident status (it is likely they will investigate the validity of your claims though). If you are gone more than 2 years, and cut ties properly, you are generally in the clear. I would be surprised if the UK was very different.
The US is quite different.
The answer, in all cases, is you need to consult with a tax specialist in your home country (the place you're moving back to) who specializes in this type of situation.
FutureAdviceForForeignJobsFilter: you want the answer to this question sorted out *before* you take the job offshore, because the answer significantly affects the value of the offer and the impact on your life it represents.
posted by TravellingDen at 6:57 AM on March 16, 2010
This thread is closed to new comments.
Where were you residing when you performed the work? I'm assuming the UK.
I work as a consultant across Europe and have similar situations arisen. I'm not a UK chartered accountant, but my guess is that you owe the UK taxes for this income.
Generally, across Europe, you are responsible for paying taxes in your country of residence. As the purveyor of a service, it would be for the period when the service was performed - not invoiced. (Otherwise I would live and work in Sweden and once a year temporarily move to some low tax country - preferably warm and sunny like Mexico - to send my invoices and receive payment.)
You should seek the advice of a UK accountant.
posted by three blind mice at 2:08 AM on March 16, 2010