Contractors’ Questions: Should I set up my own company if covid-19 sends me back to Australia?

Contractor’s Question: I’m an Australian citizen who has been in London for the past two years on a Tier 5 visa. I have been working for a UK company during this time , and had planned to obtain a separate visa (Ancestry), so I could continue to work for the same company in the UK for the next few years.

But due to coronavirus, I can no longer apply for this visa and I must return home to live in Australia. My employer has offered to keep me on, working remotely, for as long as it takes to find and train my replacement. My issue, however, is that technically my legal status (and right to work in the UK), ends when my Tier 5 visa ends -- on June 6th 2020.

So do I need to set up as a sole trader in Australia and get my employer to re-hire me as a freelancer, even if just to keep working to train my replacement? What steps do I (and my employer), need to take to allow me to continue working for them -- while in Australia, when my legal right to work for the company ends on June 6th?

Expert’s Answer: There is nothing to stop your end-user contracting with you -- or your Australian company, if you have one, and taking your services from you via that.

If you don’t have an Australian company, I recommend that you form an Australian one since your taxes and social security are all due in Australia as an Australian tax resident. The corollary of this is that since you will be no longer tax resident in the UK, then you will not have a tax liability here, nor be liable for National Insurance Contributions (NIC).

A compliance issue you don't ask about...

You should be aware that your client may be concerned about IR35 and whether or not they can pay you gross either personally or to your limited company. I mention IR35 because if you were until now an employee of the company but now wish to become a supplier, then HMRC could question your status as an independent supplier, as the rule was specifically set up to counter this ‘Friday-to-Monday’ scenario. This is the term for referring to those staff who, non-compliantly, left their workplace as an employee on a Friday only to return after a short break (the weekend), on a Monday, to work for the same workplace as a limited company.

After June 6th, since you will not be providing services in the UK, and you are not a UK taxpayer, then no UK PAYE or National Insurance Contributions (NICs) are due from you, and you should pay your taxes in Australia. That is still the case if you become a UK limited company, but you will have a liability to UK Corporation Tax on any profits that you make after drawing your salary/dividends, and your expenses.

Tell the taxman before you go

By the way, once your permit expires and you leave the UK for good, you should no longer be treated as tax resident in the UK. It is best to inform HMRC about this by completing a P85 and sending it to them.

If you fail to inform HMRC, then the risk is that they will continue to expect you to lodge UK tax returns and issue you with penalties if you fail to do so. It is better to inform HMRC and make a clean break.

Final thought

Ultimately, I think your problem is less of a concern than you think. In short, to keep working for the UK employer, from Australia, you should invoice your UK client from your Australian limited company. Or to keep working for the UK employer from the UK, you should apply for the legal right to work. Good luck!

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