Contractors’ Questions: Does a British IT tutor in Germany need to self-assess with HMRC?

Contractor’s Question: My daughter who is a UK citizen moved to Germany in 2015 and has been working as a freelance technology tutor there since 2016. She lives in Germany the whole year and does not reside in the UK other than to visit family around month a year. She teaches clients in Germany and also in the UK via Skype, so she receives income from both countries.

She has completed tax returns in Germany since 2016 and paid all of her tax for both her German and her UK income in Germany. She completed the Double Tax Agreement and HMRC responded by asking her to complete Self-Assessment Tax returns from 2016 to date. HMRC have also made her pay fines for not submitting the returns.

If she has completed the Double Tax Agreement, is living and working in Germany and paying taxes on UK & German income in Germany, should she be completing a UK Self-Assessment?

She has been trying to sort this out for over a year but now thinks she can't seem to make them understand that she does not live in the UK or work for a UK company. Her company is based in Germany. Lastly, she informed HMRC that she was leaving the UK for work when she closed her UK business in 2015. Initially she moved to Germany for employed work, but quit and started her new tech tutoring business in Germany in 2016. Please advise!

Expert’s Answer: When leaving the UK to work abroad, your daughter should have informed HMRC by submitting a Form P85 to HMRC.

What she also should have done

She should have included Parts 2 and 3 of her P45 form from her employer, if she had one. 

She should also have sent a Self-Assessment tax return if she usually completed one as if, for example, she was self-employed.

You cannot use HMRC’s online services to tell them you’re leaving the UK. Instead, you need to send your tax return by post, use commercial software, or get help from an accountant.

She should also have completed the ‘residence’ section in her tax return (form SA109 if she was sending it by post).

UK tax issues

There would be a HMRC penalty if she did not meet the deadline, which is October 31st, if sent by post. 

Next, consider that a non-resident does not pay UK tax on income or gains you get outside the UK. Your daughter may have been a non-resident the day after leaving the UK.

This depended on how the ‘split year treatment’ applied to her. 

No UK liability, no self-assessment either

From what you have said, your daughter became a non-tax resident when she left for Germany, having left for work for more than a year. It follows that she is not liable for UK income tax on her income, unless it arose in the UK from elsewhere such as, perhaps given her situation, rent from a UK rental property.

It follows that your daughter is not obliged to complete a Self-Assessment tax return once she is no longer a UK tax resident. Be aware that HMRC may ask her to complete one, but they should conclude that she was not a UK tax resident and had no tax liability, and indeed, they seemingly should not have fined her, even though you state she was fined.

Call HMRC

As to solutions for this teacher of technology? I would say that the quickest way to resolve this matter is for your daughter to call HMRC on this number +44 161 931 9070 and explain the situation giving her PAYE reference and National Insurance number. I would also advise following up the call with a letter re-informing HMRC that she is resident in Germany from the date of her departure and request that HMRC reimburses her any penalties they have charged. Using a courier or tracked post is best.

Finally, you might like to know that based on the number of days your daughter now spends in the UK she cannot have regained her UK tax resident status under the Statutory Resident Test (SRT), which you can find here.

Non-residency refresher

Under the SRT, she is automatically non-resident if either:  

• she spends fewer than 16 days in the UK (or 46 days if not been classed as a UK resident for the three previous tax years) or 
• she works abroad full-time (averaging at least 35 hours a week) and spends fewer than 91 days in the UK, of which no more than 30 were spent working. 

I wish you both the best of luck!

The expert was chartered accountant Kevin Austin, managing director of overseas work advisory Access Financial.