Contractors’ Questions: How to keep contracting as a Dutch contractor in the UK and Netherlands?

Contractor’s Question: I'm a Dutch contractor currently contracting in the UK since October 2019 for a client in England. I will likely stay in the UK until August of 2020, but I'll be going back to the Netherlands regularly to visit friends, family and my Dutch customers.

For now, I'm still legally in the Netherlands. I'm registered there as a freelancer and I'm also still technically living in the Netherlands.The VAT invoices to my English clients are shifted to them according to EU regulations. I get paid into my Dutch bank account.

But it seems this strategy can only work for so long, as I think if I work longer than three months in the UK, I need to start paying VAT in England, instead of in the Netherlands; is that the case?

Also, I heard that my UK end-client companies will this year only want to work with contractors that are registered in the UK. Is that likely to be the case and, if so, why? Since I'm only staying for a short time in the UK (about six months more until summer 2020), I'd preferably to just use my Dutch company to write invoices, without the hassle of having to set up and operate two different companies/accounts for both countries. Would that be compliant, and what's the best way to proceed, taking Brexit and tax-efficiency into account?

Expert’s Answer: You do not need to worry about the implications from Brexit as this assignment will fall within the 'transition period' that the government has stated will last until December 31st 2020.

It sounds as if you invoice your clients from your Dutch company and the VAT managed under the Reverse Charge provisions where you charge them no Dutch VAT, but they account for UK input VAT on your outputs.

Your first question is regarding the VAT implications for you and your company. You can find some answers on this .gov webpage. The relevant sections appear in Section 9, stating:

A non-established taxable person (NETP) is any person who is not normally resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated in the UK.

A UK establishment exists if either the:

• place where essential management decisions are made and the business’s central administration is carried out is in the UK; or
• business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK.

You say that your company is a Dutch one and that you are a Dutch tax resident; therefore, your company would appear to be a NETP. However, HMRC could decide that you, as the sole director and shareholder of your business, have created a fixed place of business because you have moved here.

As an NETP, your Dutch company must register and account for UK VAT on any taxable supplies made in the UK. There is no threshold for registration, and it must be done immediately.

If, however, HMRC considers that a UK establishment exists, your company is not a NETP and it must register for VAT when its outputs exceed the VAT registration threshold (currently £85,000). This can be done online or by using Form VAT1.

To be safe, I recommend you register as a NETP and account for UK VAT on all your supplies in the UK.

Also, be aware that the Reverse Charge provisions do not apply to your company because the place of supply of services is in the UK, and not the Netherlands, so your company should charge its UK clients UK VAT.

Moving to your second question; from April 6th 2020, UK businesses will not be able to accept your assessment of whether or not you are self-employed. Instead, they will decide. Should they determine that you are not self-employed, they will withhold UK PAYE and National Insurance Contributions from payments that they make to your company, as new IR35 legislation will stipulate. The law applies if your company is a UK company or a foreign one such as yours.

In regard to tax compliance, you will automatically become UK tax resident if you spend more than 183 days in the tax year (April 6th to the following April 5th), and this means that you will become subject to UK tax on your worldwide income.

If you are not in the UK for more than this time, then you will be subject to UK tax on your UK-sourced income alone. Please note -- you will be subject to UK social security charges (NICs) unless your company obtains an A1 from the Dutch authorities that will exempt you from having to pay in the UK.

In our view, the most straightforward plan would be for you to use an umbrella company to employ you in the UK on your UK-sourced income. They would bill your UK client and tackle the UK VAT. This will minimise your administrative work for your company, ensure compliance and ease your concerns. If your client decides that you are self-employed, then opening a UK company for the duration of your contract and closing it when you leave the UK, is another option that is more complicated but slightly more financially rewarding.

Finally, you should know that registering your Dutch company in the UK as a foreign employer is not a possibility and the costs and complexity of staying within the law in any other way is full of difficulty and will almost certainly not be worth your while. Good luck!

The expert was Kevin Austin, managing director of overseas contracting specialists Access Financial.