Contractors' Questions: Can I just pay UK tax on my overseas contract?

Contractor’s Question: I provide IT project management services for a property development company, which is registered in Latvia and the project is based in Latvia too. I am based in London, but on occasion I do make business trips to Latvia, on average once every three-four weeks for 3-4 days. What are the implications, from a tax standpoint, of receiving the remuneration for my work, which is around £2,000 a month? This is the only income I have, so I’d like to make the most of it.

Expert’s Answer: The golden rule when working as a contractor is that tax must be paid where the income is earned. In the example described above, I am assuming that the majority of the time and work will be carried out in home location (UK), with the occasional business trip to Latvia.

In this scenario, tax and social charges are due in the UK. Considering that your working pattern in Latvia boils down to an occasional 3-4 days, this time can be considered as business trip and there wouldn’t be a need to declare the income for such short time.

However, should your working pattern change and should you spend a considerable amount of time in Latvia (at least half of any given month), you will need to look into ensuring that your tax and social security obligations to Latvia are taken care of.

The key is to understand where you will be earning the income and where you will be spending the majority of time working, as these are the determining factors in working out where your tax liability lies.

The expert was Helene Truffa of Capital Consulting, a leading adviser to UK contractors working overseas.

Editor’s Note: Further Reading –

Contractors’ Questions: Should I use my limited company overseas?

Contractors’ Questions: Can my ‘Ltd’ escape in a zero tax nation?

IT contracting abroad: when to pay local tax

Monday 10th February 2014