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VAT/health insurance implications for freelancer based in Germany wanting to switch to UK
Thread poster: Clarecita
Jan 4, 2011

I currently base my freelance translation business in Germany as a self-employed individual.

If I start up a self-employed business in the UK and send invoices to clients in Germany what happens with VAT, payment of invoices (can they still pay in Euros and to where?)?

Have noted resistance from customers in Germany about moving my tax base (who cite VAT and Eurostat issues as potential hurdles). However, as a self-employed person in Germany I pay expensive private health insurance, have an inadequate pension scheme and have no access to state pension and the benefits of free health insurance this brings with it on retirement.

As a UK national if I retire to the UK I get free NHS and am looking to start paying into the UK system.

I am currently still registered as living in Germany but spend a great deal of my time as various locations around Europe including the UK and Greece. Had previously considered switching tax bases to Greece on the advice of a German tax consultant. This solution seems entirely unacceptable as I can see no point in paying any kind of contributions into a country that is bankrupt....

Anyone in a similar boat with some helpful advice?


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Astrid Elke Witte  Identity Verified
Germany
Local time: 23:39
Member (2002)
German to English
+ ...
Regarding the UK state pension (to address one of the issues you raise) Jan 4, 2011

Hi Clarecita,

Once you have paid enough contributions into the UK system, you can get a full UK state pension, regardless of where you live in the world or whether you have taken on a different nationality since leaving the UK. As far as I understand, once you reach retirement age it will be paid to the government of the country in which you reside, and will be paid into your bank account each month by the government of the country in which you reside, along with any state pension entitlement you may have from that country (if any).

In the case of Germany, as a self-employed person it is unlikely that you will ever get any state pension to which you are entitled. Even if you have previously paid contributions in Germany as an employee for a number of years and get a letter every year telling you how much German pension you would theoretically get each month from the age of 65, to actually get it (so far as I understand) you have to pick a day on which you officially retire, in the same manner as an employee, and after that date you would then not be permitted to do any freelance work at all any more if you are receiving a German state pension, however small. If the contributions you have paid into the German system, however, would only create for you a pension equivalent to doing one freelance translation per month, you may not find this an attractive idea, preferring to do the one translation (i.e. keep on working part-time after retirement age).

If you have paid contributions towards your UK pension for quite a few years when you were younger, I would recommend looking into the possibility of paying up the remaining ones to obtain the UK pension eventually. However, if you do not pay up for the full pension, I think you may still be entitled to a pro rata pension, based on what you have paid in.

Best regards,

Astrid


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Clarecita
TOPIC STARTER
level of contributions to qualify for UK pension? Jan 4, 2011

Any idea of what kind of contributions you have to make to qualify?

Thanks for your advice.


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Astrid Elke Witte  Identity Verified
Germany
Local time: 23:39
Member (2002)
German to English
+ ...
You have to have a certain number of qualifying years for the pension Jan 4, 2011

You can pay up lump sums (e.g. a year or several years at a time). You can expect it to cost a few hundred per year that you need to pay.

Try this link to find out more:

http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008?CID=furl-Pensionforecast

You usually start investigating by requesting a state pension forecast.


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Russell Jones  Identity Verified
United Kingdom
Local time: 22:39
Italian to English
From a UK resident Jan 4, 2011

Hi Clarecita

Astrid has given you excellent advice. You don't say how old you are or where you have lived in the past but you need to consider the following:
A full state pension currently pays a little more than £400 a month. As a woman, you would be eligible to receive it at 60 but the age is scheduled to rise progressively in coming years.
You can only pay voluntary contributions to make up for "lost" years if you spent at least 3 years in the UK before going abroad.
Normal contributions for the self-employed are much lower than for those employed by others but there are different classes and you should check the benefits to which they entitle you.
A good starting point is here:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/WorkingAndPayingTax/DG_10016920
including the link: Voluntary National Insurance contributions; the basics.

The VAT question is still a little unclear, following the new EU rules introduced 12 months ago. In the UK, you need an annual turnover of nearly £70,000 before registration for VAT becomes compulsory and therefore few freelance translators are registered. Even though the new rules have not caused me any problems (and I know I am far from alone in this), there are posts on this site about European agencies refusing to pay UK based translators without a VAT number. It is not clear to me whether this is due to them not being prepared to operate different systems or whether the rules really do require registration. It appears to hinge on the definition of "place of supply". Since unregistered freelancers in the UK have no contact with the VAT authorities, they have been given no guidance on the issue.
If you have the time there are some very lengthy threads on the issue in this forum, from last year.

Good luck

[Edited at 2011-01-04 12:10 GMT]


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Burrell  Identity Verified
United Kingdom
Local time: 22:39
Member (2004)
English to Latvian
+ ...
UK state pension Jan 4, 2011

To qualify for UK state pension you have to work for more than 35 years as far as I know. And if you manage to qualify... you only get 90 pounds a week anyhow - one of the lowest state pensions in Europe. So unless you supplement it by private pension or savings there is no way on earth you will survive on it without claiming benefits which by the looks of it will be extinct in the near future anyhow.


Cheers,
Ines


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Clarecita
TOPIC STARTER
level of contributions to qualify for UK pension? Jan 4, 2011

Am 45 and have made very few contributions into the German and UK system on an employed basis.

I also have a short-term private pension (12 year) in Germany due to end in Nov of this year. I can either opt for a lump sum to reinvest or monthly payments. Neither option will be sufficient though.

Could I make back payments to UK state pension while keeping invoicing status in Germany as it is? Would this make sense?


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Astrid Elke Witte  Identity Verified
Germany
Local time: 23:39
Member (2002)
German to English
+ ...
Back payments towards UK state pension Jan 4, 2011

Hi Clarecita,

As far as I know, there is no connection between the two subjects of making back payments towards a UK state pension and your invoicing status in Germany. That is, there is no conflict (or was not, at least, when I paid up my UK pension in 2009). However, to find out whether you can make back payments, and what amounts, as well as the payment deadlines for paying up the contributions, you need to apply for a pension forecast, so that is your first step. If you have paid any contributions in the UK at all in the past, it could be worthwhile to apply for a pension forecast. You should receive a forecast, along with an "offer".

Forget the German state pension, however.

Astrid


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Madeleine MacRae Klintebo  Identity Verified
United Kingdom
Local time: 22:39
Swedish to English
+ ...
Unless you're very rich... Jan 4, 2011

...and employ expensive accounts, you cannot actually "choose" where you're domiciled for tax purposes.

Clarecita wrote:


I am currently still registered as living in Germany but spend a great deal of my time as various locations around Europe including the UK and Greece. Had previously considered switching tax bases to Greece on the advice of a German tax consultant. This solution seems entirely unacceptable as I can see no point in paying any kind of contributions into a country that is bankrupt....



"Generally speaking an individual is assessed to income tax in the United Kingdom if he is deemed to be UK resident for fiscal purposes. Unlike the United States citizenship is not a basis for levying income tax. Generally speaking a person is deemed UK resident for fiscal purposes:

- in any tax year in which he lives in the UK for more than 182 days or
- If his visits to the UK exceed 91 days per tax year for 4 consecutive tax years in which case he is tax resident in the 5th year or alternatively from the commencement of the tax year in which he first stated his intention to make such visits to the UK
- if he makes regular visits which are substantial, habitual and obligatory: Such visits may indicate residence provided they exclude an element of chance and occasion and provided they follow an almost mechanical regularity."

http://www.lowtax.net/lowtax/html/offon/uk/uktax.html

If you have no permanent base, i.e. you have no jurisdiction where you spend 182 days or more, it might be advisable to engage a tax accountant as you might have a few different countries claiming you owe them tax payments.


As a UK national if I retire to the UK I get free NHS and am looking to start paying into the UK system.

Nothing to do with being a "UK national". As a "UK resident" you have access to "free" NHS as in "free" medical treatment as well as access to certain basic benefits which are not based on contributions (please note the citation marks around your term "free" - there's no such thing as a free lunch, someone always has to pay).

When it comes to state pension, this is based on your National Insurance (NI) contributions. AFAIK, to receive a full state pension, you have to have paid 30-40 years' contributions. As Russell mentions, there is also the possibility to make voluntary contribution for lost years, but restrictions apply.


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RobinB  Identity Verified
Germany
Local time: 23:39
German to English
More questions Jan 4, 2011

Clarecita wrote:If I start up a self-employed business in the UK and send invoices to clients in Germany what happens with VAT, payment of invoices (can they still pay in Euros and to where?)?


No different to sending invoices to customers outside Germany while you're still living here. Of course they can pay in euros if you open a EUR account in the UK. OTOH, you'd probably be better off keeping your German bank account (lots of people do that).

Have noted resistance from customers in Germany about moving my tax base (who cite VAT and Eurostat issues as potential hurdles).


I don't understand that at all - there are no VAT issues about moving your tax base to the UK - it's certainly not a problem for VAT-registered businesses in Germany. And Eurostat surely doesn't enter into it.

However, as a self-employed person in Germany I pay expensive private health insurance, have an inadequate pension scheme and have no access to state pension and the benefits of free health insurance this brings with it on retirement.


You say elsewhere that your private pension insurance is only for 12 years and about to mature. You should take the lump sum (tax free!) and invest it as seed capital for your next private pension insurance, which should run for at least the next 15 years, if you plan to retire when you're 60. Also, remember that there is no "free" health insurance in Germany when you retire!

As a UK national if I retire to the UK I get free NHS and am looking to start paying into the UK system.


The NHS is only "free" if you don't pay any National Insurance contributions. As a self-employed translator in the UK, you'd be assessed for e.g. Schedule D contributions. Check with UK translators what this is likely to be as a percentage of your income.

And as others have pointed out, it's a bit late to pay now into the UK system and expect a pension on which you can live. That's why so many people in the UK now have private pensions. I would certainly advise against taking the lum sum payout from your German private pension and using it to top up UK national insurance contributions - that would be money down the drain!

If you want a reasonable standard of living when you retire, you're going to have to work to at least age 65, possibly longer, and keep paying into a private pension plan of some sort. As a yardstick, budget at least 10% of your business earnings before tax (i.e. the bottom line in your Einnahmenüberschussrechnung) as your private pension contributions (and more if possible, of course).


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Clarecita
TOPIC STARTER
leave tax base in Germany top up pension in UK Jan 4, 2011

How about if I leave the tax base in Germany as it is but pay UK NI contributions backdated for 6 years and until I retire. On retirement any contributions paid in short-term employment around Europe will be calculated to add to UK pension (just phoned NI hotline). In the meantime use the lump sum to invest in a seed capital pension in Germany and continue to pay into this private pension scheme in Germany until retirement? Does this make more sense?

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Gillian Searl  Identity Verified
United Kingdom
Local time: 22:39
Member (2004)
German to English
I'd keep your tax affairs in Germany Jan 4, 2011

I moved back to the UK about 4 years ago and I promise you, you pay more income tax in the UK than in Germany. Why? Because you can deduct a multitude of expenses from your gross revenue that you can't in the UK.

On topping up your UK pension entitlement, I would start here:
http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/DG_183754

You would only be paying voluntary NI contributions and not either Type 2 or 4 - for those you would have to be taxed in the UK.

I agree with Robin that there is no effect on VAT - German companies with a VAT number will not pay VAT on your invoices. I invoice mostly in EUR and German companies transfer EUR to my German bank account.
Gillian

[Edited at 2011-01-04 14:17 GMT]


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Madeleine MacRae Klintebo  Identity Verified
United Kingdom
Local time: 22:39
Swedish to English
+ ...
Again, where you are domicile for tax purposes... Jan 4, 2011

...is not based on choice. Where are you domiciled/live?

Clarecita wrote:

How about if I leave the tax base in Germany as it is but pay UK NI contributions backdated for 6 years and until I retire. On retirement any contributions paid in short-term employment around Europe will be calculated to add to UK pension (just phoned NI hotline).


NI contributions are part of the tax system in the UK. Choosing to pay into one part (NI) whilst avoiding another (tax) seems very iffy to me. Good luck to you if you manage to explain to HRMC why you are resident when it comes to NI but not when it comes to tax.

And please do not rely on some call centre person at HMRC to give you the go ahead for what appears to a case of tax avoidance (legal), if not evasion (illegal).

If you intend to work the systems of two countries in order to minimising your obligations in one country whilst maximising your entitlement in another you really do need an accountant.


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Madeleine MacRae Klintebo  Identity Verified
United Kingdom
Local time: 22:39
Swedish to English
+ ...
This applies to persons residing in the UK Jan 4, 2011

Gillian Searl wrote:

On topping up your UK pension entitlement, I would start here:
http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/DG_183754

You would only be paying voluntary NI contributions and not either Type 2 or 4 - for those you would have to be taxed in the UK.



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Williamson  Identity Verified
United Kingdom
Local time: 22:39
Flemish to English
+ ...
Moral Crusaders. Jan 4, 2011

Madeleine MacRae Klintebo wrote:

...is not based on choice. Where are you domiciled/live?

Clarecita wrote:

How about if I leave the tax base in Germany as it is but pay UK NI contributions backdated for 6 years and until I retire. On retirement any contributions paid in short-term employment around Europe will be calculated to add to UK pension (just phoned NI hotline).


NI contributions are part of the tax system in the UK. Choosing to pay into one part (NI) whilst avoiding another (tax) seems very iffy to me. Good luck to you if you manage to explain to HRMC why you are resident when it comes to NI but not when it comes to tax.

And please do not rely on some call centre person at HMRC to give you the go ahead for what appears to a case of tax avoidance (legal), if not evasion (illegal).

If you intend to work the systems of two countries in order to minimising your obligations in one country whilst maximising your entitlement in another you really do need an accountant.


Why the UK? If you want to avoid taxes, but pay to a better social system than the British, why don't you set up shop in the UAE with 0%-tax-rates.

A lot of expats there and if you need the explanation in German about the social security system, send a mail. Why don't i like moral crusaders with regard to taxes. What goes to taxes can not go to extra social security contributions.
You could also set up two ltds in two different countries with low taxes, who pay you a minimum salary. In the UK, the price of a ltd is not that high and in some Eastern-European Countries either. A legal entity differs from a natural person and can pay you a minimum wage, whereever you are.
Cyprus has the lowest taxes in the E.U., but a good social security system.

Is fiscal engineering only for the rich?
Paying an expert (agency) like KPMG might solve your problem.



[Edited at 2011-01-04 16:10 GMT]

[Edited at 2011-01-04 16:12 GMT]


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