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Non-resident operating as a UK sole trader
Thread poster: Judith McLean

Judith McLean  Identity Verified
United Kingdom
Local time: 23:29
Italian to English
+ ...
Jan 5, 2010

I am a translator currently living and working in Italy with Italian residency for tax purposes but a British citizen. I am thinking of changing the way I work as I have been working on short term contracts here in Italy, but I'd like to change this and operate as a sole trader in the UK while living most of the year in Italy. Does anyone have experience with this? Is it possible for a non-resident to operate as a sole trader in the UK, and what are the implications for taxes in Italy?
Thanks


 

David Wright  Identity Verified
Austria
Local time: 00:29
German to English
+ ...
Can't really see the point Jan 5, 2010

As far as I know, a sole trader does not register and simply trades. If you were claiming to be a sole trader in the UK, as far as I can see the only way that this manifests itself is if you pay tax in the UK. However, if you spend most of the year in Italy, you are not liable for UK tax. I don't know if you can voluntarily pay tax in the UK, but even if you did, you would still, I assume, be liable for tax in Italy. Any tax you paid in the UK would be taken into account in Italy (double taxation agreement), but you would still end up one way or another paying the full amount of tax you pay in Italy.

 

Judith McLean  Identity Verified
United Kingdom
Local time: 23:29
Italian to English
+ ...
TOPIC STARTER
I don't want to avoid paying tax Jan 5, 2010

The reason for considering this option is because I don't know how long I'll be living in Italy and that I may have clients from the UK as well as Italy. If I stick with the system I know (i.e. the UK) it would be easier for me and I've heard of other people doing the same thing. You may be right of course that there is no point but I'd like to find out if other people have done it.

 

Sheila Wilson  Identity Verified
Spain
Local time: 23:29
Member (2007)
English
+ ...
If only life were that simple Jan 5, 2010

David Wright wrote:

As far as I know, a sole trader does not register and simply trades.


In France it's impossible to simply do anything without submitting a mountain of forms in triplicate and waiting a month or more for the go-ahead. As a British citizen I would dearly love to live here in France but register to work under UK rules, but it doesn't work that way and on balance I'd rather stay where I am and battle the bureaucracy along with my French neighbours.


 

David Wright  Identity Verified
Austria
Local time: 00:29
German to English
+ ...
I should have said: in the UK Jan 5, 2010

I have heard France is a bureaucratic nightmare, but as far as I know (from an old pal of mine) in the UK you just register for VAT and start trading.

Of course, an alternative is to set up a private limited company in the UK (doesn't cost much but may be a bit of a hassle), let it send your bills, it pays you a wage (taxable in Italy) and any remaining profits are taxed in the UK - only makes sense if you expect to save a lot from your business and then draw it out once you retire.

[Edited at 2010-01-05 16:16 GMT]


 

Gemma Collinge  Identity Verified
United Kingdom
Local time: 23:29
Member (2007)
Japanese to English
+ ...
Tax Residency Jan 5, 2010

Do you mean that you want to use a UK address for your business? Or do you mean that you want to pay your tax in the UK?

I believe you'd still be considered tax resident in Italy if you spent most of your year there. There is a 180-day rule that is often used to ascertain residency over a tax year. However, it's never cut and dry and they'll take a lot of things into consideration.

Even if you were to set up a limited company, they would probably consider the company to be liable under the Italian system. As the director of the company was resident mostly in Italy over the year. I know this has happened in Germany - the German authorities have deemed that as the director/owner is resident in Germany, so is the company. This again never seems to be cut and dry though.

Personally I wouldn't recommend what you were suggesting unless you have clear residency in the UK and spend most of your time here. If you do want to proceed, definitely get yourself an accountant who knows the relevant EU laws and the tax systems of the UK and Italy.

Good luck! Tax is never fun!


 

Williamson  Identity Verified
United Kingdom
Local time: 23:29
Flemish to English
+ ...
Register as a British company (ltd). Jan 5, 2010

David Wright wrote:

I have heard France is a bureaucratic nightmare, but as far as I know (from an old pal of mine) in the UK you just register for VAT and start trading.

Of course, an alternative is to set up a private limited company in the UK (doesn't cost much but may be a bit of a hassle), let it send your bills, it pays you a wage (taxable in Italy) and any remaining profits are taxed in the UK - only makes sense if you expect to save a lot from your business and then draw it out once you retire.

[Edited at 2010-01-05 16:16 GMT]


This is a good alternative, given that you make a distinction between the ltd. (legal person in its own right) and you (the natural person), who earns the minimum wage paid by his own company. Involves some paperwork, but less than in France and Italy. Perfectly legal construction in any country.
You do not not need to register for VAT if you stay below the £65,000 p.a. treshold.
Your employer (your company) can send you to anywhere in the world to work.

To set up a ltd.you need a British address. You can appoint as director and secretary persons living in the UK.
A secretary is no longer required, but comes handy if papers from Companies House/HMRC arrive at your companies' address. That secretary may be any person you know in the UK.

Besides, there is a ruling from the European Court of Justice of 2003 against Germany which states that all forms of company (GmbH, sprl, Sro, ltda, ltd ...) have equal rights in the E.U.

Does the +180-rule applies to legal entities? I don't think so.

I am not too sure whether or not your wages are liable to taxation in Italy, if you are an expat on secondment of a British company???
A bit like all those Americans, who work at European HQs of multinationals and who pay taxes to the IRS, not to the (high-taxed) country they work and live in for more than 180 days.

The best you can do is to contact and pay a British Certified Accountant to give you advice and handle your paperwork (annual accounts, taxes, your companies' contributions to hire you as an employee,...). As mentioned below, most of the explanation can be found on HMRC-website.

Good luck


[Edited at 2010-01-05 16:56 GMT]


 

Karen Stokes  Identity Verified
United Kingdom
Local time: 23:29
Member (2003)
French to English
Registering as sole trader in the UK Jan 5, 2010

David Wright wrote:

As far as I know, a sole trader does not register and simply trades.


Hi David,

Actually you do need to tell HMRC you are operating as a sole trader because you are liable for class 2 national insurance contributions (plus class 4 contributions on your profits). You may or may not have to register for VAT as well, depending on your turnover.

Either way, the best thing to do is look at the HMRC website or phone them up and talk to them - perhaps contrary to expectations they're usually extremely helpful!

Best,

Karen


 

Rad Graban  Identity Verified
United Kingdom
Local time: 23:29
English to Slovak
+ ...
Possibly useful link... Jan 5, 2010

... http://www.hmrc.gov.uk/cnr/faqs_general.htm#4nr .

 

David Wright  Identity Verified
Austria
Local time: 00:29
German to English
+ ...
To Mr/Ms (?) Williamson Jan 6, 2010

US citizens are a special case, since they always have to pay tax to the US wherever they might live and no matter how long they have lived there. It is however taken into account when they pay their local taxes (double taxation agreements).

 

Krzysztof Kajetanowicz  Identity Verified
Poland
Local time: 00:29
English to Polish
+ ...
careful Jan 6, 2010

Williamson wrote:
Does the +180-rule applies to legal entities? I don't think so.[Edited at 2010-01-05 16:56 GMT]


Very, very careful with this.

The 180-rule is for natural persons but, in general, dollars against nuts that a UK-based company that physically operates in Italy is subject to Italian income tax. It's called a permanent establishment. If the company activity is all about a person sitting in Italy doing translation work, Italian tax authorities will easily prove that corporate profits are subject to income tax in Italy. This works similarly in all European countries, based on double tax treaties and local CIT laws.

Moreover, there could be a discouraging amount of filing in Italy, whether or not tax-related. If you add the administrative hassle of operating a capital company, might not be worth the effort.

Finally, once the company has paid its income tax, I wonder if there's additional tax on dividends paid to shareholders who are natural persons. Out here there would be.


 

NiKx
France
Local time: 00:29
English to Turkish
+ ...
Yes you can but... Jan 6, 2010

I travel and work across the Europe (UK, France, Germany, Belgium, Netherlands) for 15 years.
There are two things to consider:
- Where are you going to pay the personal income tax?
- Where are you going to pay the social security contribution?

Now the rules, which answer the above questions:
- If you spend an average of 90 days a year over a four year period you would be regarded as a "resident".
- If you spend over 183 days in a single tax year in the UK you will be regarded as "tax resident."

Being a UK (tax) resident means you have to pay income tax in the UK. Being a resident means that you have to pay social security contributions in the UK. (If you stay/work more than 90 days in the UK).

You can setup a company elsewhere and work through your company. But you cannot perform work on UK soil for more than 90days without registration in the UK.

There are exceptions though; It is possible to avoid paying the social security contribution in the UK by filing a form which shows that you pay it elsewhere in the Europe. It is possible to avoid paying taxes in the UK via double taxation laws by proving that you pay your income tax elsewhere (in the country which you are legally resident). You note that this country won't be some tax heaven, also note that you have to prove that you are not residing in the UK which can be a tricky business.


[Edited at 2010-01-06 10:58 GMT]


 

Williamson  Identity Verified
United Kingdom
Local time: 23:29
Flemish to English
+ ...
Some Questions. Jan 6, 2010

Krzysztof Kajetanowicz wrote:

Williamson wrote:
Does the +180-rule applies to legal entities? I don't think so.[Edited at 2010-01-05 16:56 GMT]


Very, very careful with this.

The 180-rule is for natural persons but, in general, dollars against nuts that a UK-based company that physically operates in Italy is subject to Italian income tax. It's called a permanent establishment.

Finally, once the company has paid its income tax, I wonder if there's additional tax on dividends paid to shareholders who are natural persons. Out here there would be.


So, Ryanair with HQ in Ireland and a check-in + small office (?) in every European Airport, pays taxes in Ireland or in every country they are operating in?

The shareholders may be the director's family-members (wife, children) with whom he convenes to pay 0-dividends.



[Edited at 2010-01-06 10:25 GMT]


 

Nicholas Stedman  Identity Verified
Italy
Local time: 00:29
French to English
The 180 day rule for residency Jan 6, 2010

How is this enforced? Has anyone ever heard of a European citizen paying income tax in one country being questioned about his/her length of stay in another?

 

Williamson  Identity Verified
United Kingdom
Local time: 23:29
Flemish to English
+ ...
Not possible Jan 6, 2010

It isn't, because it is impossible to enforce unless a "European Stasi" is created.
There is such a thing as freedom of movement in the E.U. and there are half a billion citizens with 27 different tax-systems -the only thing which was not handed over to "Brussels" and which is doubtful that it ever will are taxes (and social security systems).

What is a person lives half of a day in France and half of a day in the U.K. or interprets one day in the UK, the other in France, the other in Bangkok...
The taxman is not going to stand beside every E.U.-citizen to see where he or she is at a given moment.

I've known an Italian translator, who stayed +181 days in Bermuda and had a registered office there and the rest of the year in Italy. I wonder why??

Why do tennis-stars and F1-champions stay in places like Monaco and Switzerland?
Rest assured they have enough money to pay legal and fiscal experts to set up the necessary constructions.

It is not as clear-cut as governments want their citizens to believe.

[Edited at 2010-01-06 18:46 GMT]


 
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