Contractors' Questions: Can I offset office cost abroad against UK tax?

Contractor’s Question: I have a 6-month IT contract in Europe. Do you think I would be able to offset an office cost in Germany against my UK corporation tax?

Expert’s Answer: Unfortunately, there are so many additional factors to take into account that it would be unwise to definitively answer your question without knowing more details.

But as you probably know, in the UK it is possible to offset most expenses against corporation tax. The issue for you is that rules and regulations change drastically from country to country and while Germany currently offers one of the more attractive settings for UK contractors to operate in, there are still a huge number of factors that would need to be taken into account before making the move overseas. And as many contractors find out, it’s not as straightforward as simply relocating your UK operation to another country and expecting there not to be any additional compliance issues.

In order to provide you with a confident yes/no answer as to whether you can offset your overseas expenses against your tax, it would be necessary to know information relating to, at the very least, your tax residency; where your ‘Ltd’ company is registered and from when and with what activity.

Whether the organisation is a personal service company, where each employee is based and works; what services they provide, how long you spend in each location and if there is potential to extend your initial contract, are other determining factors.

In addition, the German tax authorities would seek additional information on the contractual chain and who the Ltd company invoices, whether their services will be provided on a German client site; what the purposes are of the office in Germany, who will be using it on day-to-day basis and who will be based in Germany through the Ltd company. As you can see, this is quite a significant amount of information and it doesn’t necessarily end there.

Unfortunately, there’s no real way of getting around this laundry list of issues. But this list does serve to highlight the fact that the compliance arena is highly complex and anyone thinking they can navigate the processes and potential pitfalls on their own is likely to be in for a shock. We’d urge anyone considering contracting overseas to seek professional advice tailored to their individual circumstances, as failing to effectively manage your compliance status can result in significant punishments not only for you, but also the organisation you’re working on behalf of, which could obviously affect your chances of securing a contract with that outfit in the future.

The expert was Jonathan Clarke, commercial compliance manager for the EMEA region at CXC Global.

Editor’s Note: Related Reading –

Contracting abroad: a legal guide for IT contractors

Top 10 quirks of IT contracting overseas

IT contracting abroad: when to pay local tax