Taxation when working abroad

[Spud1]

Got a question for those who know about tax, and for anyone who has worked abroad for 12 months.

I did my 3rd year university placement in Basel, Switzerland, between august 2005 and august 2006 - for a total of 12 months. During this time I lived and worked solely in switzerland, returning to the UK for just a couple of weeks at christmas and on one other occasion..in other words I was resident in Switzerland for the whole time, with a swiss work and residence permit (a G permit for those who know what it is

I was paid monthly, with a gross amount of CHF 2 300, from which my employer automatically deducted rent (650), and a total of 4 different taxes - which were AHV (basically national insurance), Unemployment tax (1%, goes to fund unemployment benefits), Police/Fire contribution, and Witholding tax (which I *think* is income tax).

Thats all fine and dandy, had a great year living there and spent all of my income over the 12 months, bringing nothing back into the UK at any point (its an expensive place to live, especially if you go snowboarding every weekend lol).

Since coming back to the UK I completed my course at uni, and for the past 10 months have been running my own business..which meant I had to register for self assessment amongst other things. This included sending them details of my earnings from 2005-2007. This has drawn attention to my tax affairs, and has started this long drawn out discussion between myself and HMRC..well I say discussion, I phone them and they just write short letters to me. It's worth noting that I've not taken a wage yet from the business, and my only income since switzerland has been £4k in the 2006-2007 tax year from Tesco (during my final year at uni)

In January this year I recieved a letter from HMRC containing two tax calcuations, one for 2005-2006, and one for 2006-2007. The calculations show my uk income before and after leaving for CH - which is all fine, as of course I should be taxed on any income while I am resident in the UK..no problem with that. However it also shows my income from switzerland, and a seemingly random amount of tax paid on there (doesnt work out with any of the amounts of tax I actually paid in switzerland)..and ends up leaving me with a bill of almost £500 to pay!

If you take off the swiss earnings, which imo should not be taxed in the UK at all as I have already paid tax on them at the source, then I owe HMRC nothing, and they actually owe me about £20 in tax overpaid.

So..if you have got through the above and understand it thats great, has anyone got any ideas about these questions.

Is it right that I should be taxed in one country and then in another..even though I was not living in the UK while I earnt that money and brought none of it back to the UK?
The letter states that I should be paying tax because I was not out of the UK for a "full tax year". Well I was gone for 12 months, thats a full year is it not? If it is talking about April->April, does that mean that if I was out of the uk april->april they would not try and charge me uk tax? That seems very unfair if so..
Is there any way I can make HMRC give me a full breakdown of how they have calculated my tax, rather than just a "income = X, tax = Y, amount to pay = Z"?
Is there any sort of complaints process I can use that is likely to do any good?

As things stand at the moment I have queried this once over the phone, got told to expect a call back within 4 weeks explaining things, and then today a 4 line letter appears on my doorstep which essentially says "your tax calculation is correct. Pay up " (obviously heavily paraphrased there!). So i've called back yet again to try and speak to someone who can explain things..but of course you can only get through to a callcenter, and they don't know anything and can only request a callback for you..so i'm playing the waiting game.

Any advice? Anyone been in a similar situation? Even some basic advice about how to get to speak to a useful person at HMRC would be awesome, rather than waiting for the callback that will never come..

Thanks for reading + any advice you can offer

Spud/Pete

[Salazaar]

When you say you spoke to HMRC, was it a central office or your local tax office? If it was the former I'd go and have a chat with your local tax man and ask them directly.

When I worked in the states I paid US taxes on my earnings and HMRC asked me for nothing, though it's probably a completely different situation when working inside the EU.

[Spud1]

Its an office up in scotland - my local one won't speak to me about it, they just refer me to Saughton House in edinburgh

Switzerland is outside of the EU too, but it has some agreements with the UK on tax that should prevent this kind of thing happening..which just adds to the confusion.

[SiM]

Switzerland is not part of the EU iirc.
Do you have swiss tax statements/receipts? I would phone local office, and suggest that you can send them photocopies if they don't believe you.

[Spud1]

thanks for the suggestion Yeah I have sent them full copies of my payslips + tax records - proving what tax I have paid and when with full breakdowns etc.

I will give my local tax office another go then I think, will see if I can get an appointment to go through it with them face to face.

[schmunk]

1) I am a UK Chartered Tax Adviser.

2) You remained UK Resident and Ordinarily Resident throughout your period of working in Switzerland, therefore liable to UK income tax on your worldwide employment income for the full period (yes, including Switzerland), as your period of living outside the UK did not emcompass a complete UK tax year (6 April to 5 April). Them's the rules.

3) UK tax rates are higher than Swiss tax rates, so you will owe more here than you have already paid in CH.

4) Switzerland and the UK have a treaty which ensures that income is not doubly taxed. You will need to claim a credit for the Swiss taxes paid in calculating your UK tax liability. As mentioned above, you are still likely to have an additional UK liability.

[SiM]

Well there is your answer. Unlucky mate!

[Spud1]

Thanks for the reply Schmunk, thats useful.

It is an atrocious state of affairs imo, as by that logic i'm correct that depending on when you leave the country, you will get charged more or less tax..ie if I left april-april I wouldnt pay any uk tax on my swiss earnings. Thats totally crazy.

I really, really, really, can't wait until I save up enough to move out of this ***hole of a country for good. What makes this doubly worse is that none of my friends who have been out there at the same time as me have had to pay anything extra at all! I imagine it is because hmrc don't know about it for whatever reason, and i'm not about to drop them in it by mentioning it..does leave me feeling very angry.

I was never told about any of this by my employer, or by my university placement office, or by hmrc when I filled out the "leaving the country" forms, otherwise I would have been prepared for this and wouldn't be anywhere near as angry.

However, even if i take into account what you have said, their maths still doesnt work out correct - the figures show a tax paid of ~£400 in 05/06, and just £60 in 06/07 - when that clearlys wrong (I worked 7 months in 05/06, 5 in 06/07), so their maths still doesnt add up..

Appreciate the repy and clearing up some of the facts for me, regardless of how ridiculous they are

[schmunk]

However, even if i take into account what you have said, their maths still doesnt work out correct - the figures show a tax paid of ~£400 in 05/06, and just £60 in 06/07 - when that clearlys wrong (I worked 7 months in 05/06, 5 in 06/07), so their maths still doesnt add up..

Appreciate the repy and clearing up some of the facts for me, regardless of how ridiculous they are

What do you mean by 'tax paid'?

[SiM]

I think he means tax payable...

[Spud1]

At the top of the calculation, in the "your income" section, there are two columns.

1) Income - shows total gross taxable income
2) Tax Paid - shows tax deducted at source.

This looks correct for any UK income I have received, however for the swiss income its totally out. 05/06 shows it as being roughly right (about £400), whereas 06/07 is totally wrong, showing just £60 tax paid on £5k of earnings..whereas in reality i paid about £400 again (and have the records to prove it).

So after recalculating with the exact figures (and using exchange rates from the correct years) I would owe just over £100, not the £500 they claim.

[schmunk]

Thanks for the reply Schmunk, thats useful.

It is an atrocious state of affairs imo, as by that logic i'm correct that depending on when you leave the country, you will get charged more or less tax..ie if I left april-april I wouldnt pay any uk tax on my swiss earnings. Thats totally crazy.

Many countries operate a similar system, or otherwise often a 'presence for 183 or more days in the tax year' test, which e.g. would have made you resident in CH for 2005 but not 2006 (although in fact CH's rules are different again)

I really, really, really, can't wait until I save up enough to move out of this ***hole of a country for good. What makes this doubly worse is that none of my friends who have been out there at the same time as me have had to pay anything extra at all! I imagine it is because hmrc don't know about it for whatever reason, and i'm not about to drop them in it by mentioning it..does leave me feeling very angry.

Yes, they should all be reporting this income to HMRC.

I didn't really take into account the level of income you earned in my first answer, but on the basis of those figures, your UK tax liability should be pretty small (as you receive a personal allowance of ~£5,000 per tax year, so tax only applies to income earned above this figure).

One thing to note is that, compared to most 'western' countries (although not Switzerland or the US), tax and social security rates in the UK are actually relatively low.

I was never told about any of this by my employer, or by my university placement office, or by hmrc when I filled out the "leaving the country" forms, otherwise I would have been prepared for this and wouldn't be anywhere near as angry.

Well, it's Self-Assessment, so it's your responsibility...

[schmunk]

If you can anonymise and scan the HMRC letter, I can advise further (for free...!). Otherwise, you'll be best seeking advice from an accountant / tax adviser.



(p.s. if I were doing this for you professionally, my firm's fees would likely be more than the total potential tax savings, not that I would personally see anything close to 100% of that....)

[Spud1]

Hehe the offer + advice is much appreciated schmunk, I know how expensive tax advice can get..some of the quotes we had from accountants for our business were insane.

I've managed to get hold of a friendly person at my local tax office, who is there working late (!), and he has said I can nip in and see him tomorrow, and he will try and clarify things for me.

I don't mind paying income tax as a rule, and the UK's tax isn't that bad in general - there are good reasons for it and pays for keeping the country running after all (leaving aside my political and social opinions for the moment), but I do object to paying tax when I was not even living here, it really irks me. I've been wanting to move abroad ever since I have seen how much better the quality of life is outside of the UK (in places I have been to and w/r to the things I hold up as important..not saying everywhere is better or that everyone will think the same), and this sort of thing just adds to that desire heh.

Its true that its called self assessment for a reason - however surely it is a bit irresponsible for a university to send students off to work abroad (bearing in mind that it was all organsied through them) without telling us some of the basic things like this. I supposed I should not have expected anything better since I was at Stafforshire Uni..hardly a 'good' uni. I did do some of my own research before going out, however as with anything to do with tax, if you don't know exactly what you are looking for you are kind of stuffed..things are supposed to have gotten easier in recent years, so I dread to think how bad it was previously.

Anyway, thanks again for the help + advice, I will see what the guy in my local office can tell me, hopefully can get this cleared up then

[schmunk]

hopefully can get this cleared up then

Hope so, good luck!

[Kumagoro]

You dont tell them you were working, you tell them you went travelling for a bit.