CapnBilly

That's not my reading of the DTA. It says that you will be allowed a credit for tax paid on income that may be taxed in the UK. Ie rental income, employment income for work carried out in the UK. Employment income for work carried put in Spain is taxable in Spain. So, if it's a UK employer, technically you should declare it gross, pay tax in Spain, (as you pointed out earlier) and claim it back, and ask HMRC for it to besides NT.

Fred James

Yes, I understand that but if you cannot get the employer or HMRC to pay it gross, then I would assume that any tax paid is still deductable, even though it wasn't dealt with correctly in the UK.

guirijohn

Different things are being confused here. Firstly the UK employer must consider whether, under UK domestic law, it has an obligation to deduct PAYE. If the employer has no place of business in Spain, i.e. neither representative office nor branch, it follows that it is a UK employment and PAYE must be deducted. The employee may then claim, under the treaty, the UK tax deducted as a credit against Spanish income tax on the same income. The claim is made by the employee whereas the decision to apply PAYE is that of the employer. An NT coding could be obtained in the case of an overseas secondment, but this would require an overseas place of business.
The UK employer will want to ensure that its employee in Spain does not constitute a “Permanent Establishment” of the company, because the profits attributable to the PE would be subject to Spanish corporate taxes.

cricketman

Yes exactly

If you are working from Spain i.e. working from home or at an office based in Spain, then the Spanish government considers that you officially working in Spain

In which case someone needs to pay your social security contributions to the Spanish goverment

You can only pay your own contributions if you are registered as autonomo

The UK company can only pay your social security contributions if they have a legal presence in Spain (at which point they will have to provide annual accounts) - or if they have delegated their management of social security contributions to an administrator and filled in a form to say that they have no physical presence in Spain, and do not operate in the Spanish market. The latter option is the cheapest option, but will still cost the UK company around 300 euros per month in addition to your social security payments of between 260-700 euros per month

hatecold

"In order to work for just one employer then you must have an employment contract that is recognised by Spanish law - and your employer must meet the requirements held us by Spanish law. It is not just about taxes and social security payments and is why going autonomo is the easiest solution as then essentially you take on the responsibility for these obligations "

I just checked this from our government's site. It gives instructions to both employees and employers on how to handle this. (could link, but wouldn't help you much since it is in Finnish.)
The Finnish employer deducts some small presentage for ss, if the employee is still with the home country's ss. One has to be careful not to set up "permanent place of business", but that is not a problem, if working from home. I did not make these up. People do this all the time.

CapnBilly

Whilst I agree with most of what you say, assuming the employees currently works in the UK, which they do, then they will already have a tax code, and the company will continue to apply that, until it is told otherwise by HMRC.

My point is that the information provided by the "tax advisor" is partially incorrect. We all agree that the income is taxable in Spain. There are different views on whether you can offset any tax paid, whilst it is still being deducted. My view is that under the DTA, the treaty does not allow for tax to be offset, under the terms set out by the OP, which is basically they are working from home. It is possible that some may still be taxable in the UK if some of the work is done there. However, in general terms under the situation described, The income is ONLY taxable in Spain, and therefore the tax cannot be offset (although I know people do, and advisors say they can). If the work is carried out in Spain, then an NT can be obtained, by the employee.

The issue with regard to a PE is a different issue, and in fact, even if they are working from home. If they are contracting on behalf of the company, the Spanish authorities may consider this as a PE.

cricketman

That is not true. It doesnt matter what the Finnish government says, they are interested about their own schemes

If you are resident in Spain and working from Spain then you (or your employer) must pay Spanish social security contributions which are not a "small percentage" unless you are on a millionnaire salary of course

Domino

anyone working full time in Spain is doing just that.
the only people who don't come under the Spanish taxation are posted military and diplomatic staff.

billgates

If you are an employee of a UK company but working from home in Spain on a permanent basis then the UK employer can assign you an NT tax code and pay you gross (no tax nor NI deductions).

You declare yourself autonomo in Spain and pay your own SS contributions of 260 euros per month.

You file quarterly iva accounts of zero income/expenditure (you are an employee of the UK company, not a contractor).

You file a yearly tax return in June declaring all UK earned income and pay the appropriate rates of tax on that amount, taking into account personal allowances, married allowances, children, etc.

I've been doing exactly this for the last ten years now, paying my taxes in Spain and SS contributions every month.

Seems to work OK.

cricketman

Exactly, that is how I work also

Although to satisfy the Spanish social security office you should ideally (it is a legal requirement required by Spanish employment law) sign an autonomo TRADE contract with your UK employer, although you may be able to get away without one

Rosemary

I thought that only the tax office could assign you with NT code.

Rosemary

Domino

I remember joining a company without a P46 and so I was given an NT tax code by my employer to be ratified or corrected by the Tax Man within due course.
As it turned out the company actually didn't want me on the books but as self employed (only direct family were "employed" by the company) and I left as their advertising and interview indicated to the contrary.

I have an old copy of employment/payroll law somewhere but haven't seen it since I moved.
But I think NT is probably the only tax code that can by allocated by the company, everything else has to be in writing by the Tax Man.

hope you are keeping well Rosemary
rgds

Rosemary

Companies normally give you an emergency tax code which means that you pay more tax than you should and when the tax office allocate you with a number you have a refund. When I was sorting out my tax after Graham died I was told by the tax office that they are the only ones who ever allocate the NT code. Maybe they had illusions of grandeur that day!!!!

Rosemary

Fred James

I suspect you are right Rosemary. They will only issue an NT code if you can prove that you should have one, particularly if it involves residency.

A couple of years ago, they changed my NT code as their computer system got them all wrong and issued incorrect codes to 2 million people.

I contacted my pension provider and they said there was nothing they could do as the only people who could change it were HMRC.

catalicante

This is very interesting - thank you all very much for your help, I appreciate it.