Linken1647

My husband and I are seriously thinking of moving to Spain (Adra, Berja, Albunol area) this year permanently, subject to selling our house in the UK.
I have the opportunity to still work for my UK company but from home in Spain. It all seems a grey area as to whether I pay income tax in the uk, pay it in Spain or whether I have to become self-employed. Can anyone advise please?

Unexpat

It's not so much grey as dictated by very specific and exact circumstances. This page on the IR site provides many answers. Leaflet IR20 goes into detail on the rules applied.

Note, since the terms "resident" and "ordinarily resident" are not defined in UK tax law, the rules the IR applies are the result of a number of court rulings. In this context, you could describe the rules as "grey" if you have the courage to take the IR to court to argue a particular case :scared:

I believe that you will be taxed as a UK resident up until the date you leave permanently, assuming you do not return and cause your status to change. However, in the tax year that you leave, you will be considered resident, even if a split year formula is applied to you, as I read it.

Any UK income will continue to be taxed in the UK, even after you have left to become resident in Spain. The definition of UK income is in leaflet IR20. Allowances can of course be claimed in the usual manner.

Sometime after your departure, there may be double-taxation issues, with the onus on you to reclaim from the UK tax authorities.

Much will depend on how much income and assets you have. Under certain thresholds, or conditions, you do not even have to submit a tax return equivalent to the Hacienda and if you are not self-employed, you will not be looked at closely, assuming a modest income and assets. This makes it easy for you to pay what is due and not have to explain it all in detail and provide umpteen justifications, thus making for a relatively peaceful existence Spanish tax audits can be fierce and unnerving when you look at the potential size of the fines and penalties that can be levied for not crossing the "t"s and dotting the "i"s.

Bearing in mind that, with the exception of PAYE, you will be submitting a tax return for the previous tax year, it should be a simple matter of determining what your resident and ordinarily resident status was during the aforesaid year.

As far as a UK PAYE salary is concerned, that would count as UK income in any case and will be taxable in the UK as normal. The net amount would also count as income to the Spanish tax authorities, but you would then claim back the tax paid on it in Spain from the UK under the double taxation agreement. Not ideal

My gut feeling is that it would be better to become self-employed and charge the UK company for your services (in Euros of course ), thus avoiding the UK income and DT issues. Clearly it is going to depend on the amounts involved and other assets and income ... and then there is the whole question of National Insurance versus Seguridad Social contributions.

You need to sit down and calculate what it in your best interests for your specific situation, before you can decide what the best route is. Finally, this is solely my perspective on your situation on which I have made some assumptions.

NB. Post re-edited and expanded to clarify.

YMF

Hi
Despite what has been said, which is very good advice. it is a grey area. A friend of mine in exactly the same situation as you will be, ie: working for a UK employer across the internet but based in Spain has been told his salary will not be taxed in the UK and he should pay his tax to the Spanish tax system. His salary is still paid into a UK bank account NI is still deducted but not tax.
He also thought that his UK salary would be taxed in the UK but this is not the case, not sure if it makes a difference if you are sent to work in Spain or if you just move house but it happens to be overseas!

coralsoft

You might want to take a look here:
http://britishexpats.com/forum/showt...16#post3033016
and at other posts I've made on my experiences working from Spain for a UK client.
Unexpat's information is good, and apart I'd be inclined to go along with the idea of being self-employed in Spain (shame about the high social security) and charge your employer as a freelancer, so that they become a client. Unless they have a branch abroad, in which case you could take advantage of the secondment idea, paying tax in Spain once resident, but paying NI in the UK.

If you go the freelance route, don't forget to factor into the cost that your employer will be 'saving' pension, office, holiday, sickness and employers payments and you will need sufficient to build up a buffer to cover these and out-of-work periods yourself. There are freelance/permie salary/rate calculators around on the web which should help you do a conversion, but a ballpark would be 1.5 to 2.0 times gross salary as a starter.