Contractors’ Questions: How to make a six-month stint in Spain, once this is all over, less taxing?

Contractor’s Question: Once this pandemic eases a bit more, I’m going to move to Spain for six months. I’m currently a limited company in the UK, working as a freelancer for various UK-registered companies.

My plan when I am in Spain is to continue supplying the UK companies via freelance contracts with them invoicing in GBP and me earning the GBP into my UK bank account.

The projects I’ll be working on should mean I can work remotely in Spain and then travel back to the UK for certain ‘live’ elements of the projects. This isn’t a permanent move and I plan to return to the UK after six months or so. In this circumstance, can I stay as tax-registered in the UK and not register in Spain and then process my UK self-assessment as normal? Or do I need to register in Spain and then only pay tax in Spain on those earnings?

Finally, if I pick up freelance contracts in Spain as well as continuing my UK contracts, earning money in both GBP and EUROS, what are the tax implications for this new work with a Madrid company or two? I want to make sure I’m paying tax in the right place but not double paying or losing out on income!

Expert’s Answer: Since you are not quitting the UK, you remain a UK taxpayer and your worldwide income, as well as that of your company, remain subject to UK taxation.

What you will need to watch are two things. Firstly, will your clients in the UK agree to pay you gross or will they want you to dock UK PAYE and NICs? To avoid this, you will need to show them that you are indeed self-employed and not a disguised employee. This matter will become pressing from April 6th 2021, when the new off-payroll rules are almost sure to come into effect in the private sector.

Your issues (cont.)

Secondly, you’ll need to make sure that you do not spend more than six months in Spain in any tax year. If you do, you will become liable to Spanish taxes on your income.

Regarding your final query about picking up work while in Spain, in addition to your freelance contracts in the UK, there are no tax implications of earning in Euros. But there are tax implications of income arising in Spain, and the Spanish tax authorities will seek to tax you on these self-employed earnings. They will also look to you for social charges on income derived while you are living and working in Spain.

Tax and logistics

As to your worry about not paying taxes twice on the same income, here the Double Tax Treaty (DTT) between the UK and Spain will come to your rescue. The DTA ensures that you are not unfairly taxed on the same income twice.

In relation to the journey itself, and due to the covid-19 pandemic, you should check the Foreign Commonwealth Office’s latest travel advice for Spain before you make any plans to travel. You will also need to consider the availability of flights even once the ban on ‘all but essential’ international travel is relaxed. Good luck with the transition!

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