Taxes for Freelancers in UK and Germany
Thread poster: Lif
Lif
Germany
Local time: 19:02
English to German
+ ...
Jun 27, 2008

Hello!

I am a freelance translator currently based in London and am planning on going back to Germany this year to continue working as a freelancer. Has anyone here had experience with working as a freelancer in the UK as well as in Germany?
Are taxes in Germany generally higher and the outcome lower? Is it tougher working as a freelancer in Germany? This is the impression I am generally getting when I talk to people, but I would like to know it from someone who has actually experienced the differences.

Thanks for your help!

Lisa


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RobinB  Identity Verified
Germany
Local time: 19:02
German to English
Favourable situation in Germany Jun 27, 2008

Lisa,

I've only ever worked as a freelancer in Germany, but I know plenty of UK freelancers and have a good idea of the situation there, too.

Are taxes in Germany generally higher and the outcome lower?


No, I don't think so overall, especially as there is no equivalent to Schedule D contributions in Germany: self-employed people in Germany don't pay any form of national insurance contributions. They are responsible for arranging their own health insurance and retirement provision, which is then tax-deductible up to a certain limit.

One thing you have to look out for is ensuring that you keep your "Freiberufler" status (check other posts). Do not allow yourself to be registered as a Gewerbetreibende (unless you intend to operate as a translation agency), otherwise you'll end up unnecessarily paying Gewerbesteuer/trade tax and IHK contributions.

Is it tougher working as a freelancer in Germany?


I don't think so. It's pretty unbureaucratic. The only formality is to notify your local tax office that you are now "freiberuflich tätig". It's also worth consulting a Steuerberater, and checking all the posts in various online translator newsgroups and forums relating to USt/VAT (same principles as in UK, practice varies slightly).

Otherwise, payment terms tend to be shorter than in the UK, cheap broadband is pretty ubiquitous and the cost of living is generally lower than in the UK (though everywhere is cheaper than London!). Plus, the translation market is very strong.

HTH,
Robin


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Lif
Germany
Local time: 19:02
English to German
+ ...
TOPIC STARTER
Thank you. Jun 27, 2008

Hi Robin,

that sounds good. Anywhere is cheaper than London, you are so right, that is one of the main reasons why I decided to go back!

Thanks a lot for your reply!

Lisa


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Gillian Searl  Identity Verified
United Kingdom
Local time: 18:02
Member (2004)
German to English
Go to Germany! Jun 27, 2008

Hi!
I have worked as a freelancer in both countries and my advice is go to Germany! Now I am back in the UK even though my income has even increased I still feel poor because of the cost of living. In Germany my steuerberater deducted all kinds of things from my taxes and over here I can hardly deduct anything at all.
I bought a house - mortgage not deductible; private healthcare, gym not deductible. In fact I am running scared about the tax bill for Jan 09 cos I have to pay 150% in my first year. If I could do it all again I would stay in Germany. You are much better off. Setting up is easy enough but one tip for you when you leave the UK. Make sure you tell the Inland Rev that your are gone and double check they process the form. Make sure they send you the next tax return to your German address and complete a zero return stating that you left the country. Otherwise they will still charge you - I did everything by the book and when I came back they had a bill for GBP20,000 which they cancelled after completing a zero return for the intervening years.
Gillian


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Charlie Bavington  Identity Verified
Local time: 18:02
French to English
Mortgage interest deductible Jun 27, 2008

Gillian Searl wrote:
I bought a house - mortgage not deductible; private healthcare, gym not deductible.
Gillian


Mortgage interest payments (not repayments of the actual amount borrowed) are deductible pro-rata to that portion of your gaff used for business.
Of course, it may be that in your particular case that amounts to zero, but I would hate anyone to stumble across this thread and be misled

You can also deduct a portion of your council tax on the same basis.

See also here http://www.proz.com/forum/business_issues/108110-expenses_for_the_self_employed_in_the_uk.html

I must confess I am at a loss to understand why you would think a gym should be deductible, unless you are a freelance sportsperson....


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Gillian Searl  Identity Verified
United Kingdom
Local time: 18:02
Member (2004)
German to English
Gym, health care and even personal trainer Jun 28, 2008

Cos I was living in Germany where it all is!!! That's my point.

Over there, just as an example, if you get divorced (freelancer or employed) you can deduct the costs of the divorce from your tax! In fact although the tax rate may be higher, because everything is deductible you end up paying less tax.

On the mortgage the interest I paid in a year is actually less than one month's mortgage payment. When I was renting I was claiming a proportion of each month's rent now I can only claim a portion of the interest,

Rip-off Britain is soooooo true but everyone here just thinks its situation normal.
Gillian


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Tansy  Identity Verified
Local time: 19:02
German to English
The gym! Really? Jun 29, 2008

I live in Germany and it's certainly never occured to me to try to deduct my gym membership. I don't really see the justification for it either - but if you've succeeded in doing so I'll try asking my accountant next time I see him!

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Seija Kerttula  Identity Verified
Germany
Local time: 19:02
English to Finnish
+ ...
UK taxation Feb 21, 2011

I moved from Ireland to the UK last summer and have been appalled by the level of taxation here ever since I saw my tax advisor. It seems to me, the taxation of the self-employed people in the UK is much harder than in other European countries, Nordic countries included. The mandatory taxes and payments (income tax + national insurance + council tax) take 31% of my net income and 43% of my taxable income, leaving me just enough money for living.

I cannot even pay my pension here as you have to pay income tax for that sum. The pension system works so that the government gives £20 for every £80 you pay to the pension insurance company, but it is not helping me when it impossible to pay anything. Anyway, I would only see those 20 pound notes at the age of 66 if I live that long and if the pension company has not burned them in share investments. In other European countries, you get a tax deduction of 70%-100% of your pension payment (which is only logical because you’ll pay income tax for your pension when you get it). This makes your taxable income and tax much lower and so possible for you to pay the pension at all.

Could someone tell me how an earth do self-employed people here pay their pensions unless they already are house-owners? How on earth can they save for a house if they rent? Although I work long days, my next tax year’s calculation seems so discouraging that I have to move away as soon as possible. Have I misunderstood something?


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Gillian Searl  Identity Verified
United Kingdom
Local time: 18:02
Member (2004)
German to English
I sent this by email too, Seija. Feb 26, 2011

Hi Seija,
The reason for the 150% taxes is that you pay some in arrears and some in advance. Let me give you an example:
You set up as a freelancer on 1st May 2009. The tax year ends 5th April 2010. You must complete a tax return by 31st October 2010.
Enter income 1st May 2009 – 5th April 2010.
Your tax liability is £5000.
Payment 31 January 2011: £5000 +£2500 payment on account
Payment 30 June 2011: £2500

The following year you only have to pay the balance between the payment on account and your actual tax liability - so you could get a refund if your income went down. When you first start out your tax liability is low so the payments on account are not high either. But if like me you move back from Germany with a significant income level, the payment on account is devastating. E.g. tax liability £10,000, payment on account £5000. I don't care how much in arrears it is, £15,000 is a lot to save in anybody's life. So did I survive? Yes, I did. Did I like it? You can bet I didn't! But now I am putting enough money into savings each month and know what to expect when the time comes to pay the bill. I should have been doing that from the day I moved back to the UK but I didn't. As an aside, I have no interest in discovering at the last minute how much HMRC wants me to pay so I get my tax return in as early as possible - May or June after the year ends in April. I need time to save up the cash so I can pay it at the end of Jan, and then June.

The Germans don't believe me but I know that I paid less tax overall in Germany compared to the UK (I can't talk about Ireland). There are so many things that you offset against tax in Germany that you can't in the UK so although the headline rates are higher over there, the amount you actually pay is lower. If I had no ties (and I don't want to bore you with the reasons I came back to the UK) I would move back to Germany - just remember your set-up costs are high over there, e.g. if you rent a flat/house you usually have to put a kitchen in. Get a German accountant you can trust and they will help you with all the processes - for a fee of course. Setting up over there took a little time but it would no matter where you move to.

Have I considered the "move to a low-cost, low-tax country with a warm climate" option? Sure I have. Brazil would be high on my list for that. But I haven't done it. Moving countries is an expensive business in and of itself so here I am paying UK tax.

Hope that helps.
Gillian


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