How to proceed with my UK tax situation?

[resident101]

Hello Forum,

Last year, I embarked on a new journey as a consultant. Previously, I had worked in the UK and left about two years ago. As an EU national, I hold pre-settled status in the UK and possess a Tax ID there.

When I took on my consulting role, I decided to register as a sole trader in the UK for tax purposes, believing it to be the simplest option at the time. Upon contacting HMRC to register, I was unexpectedly asked if I was currently in the UK. This question took me by surprise as I was under the impression that physical presence in the UK wasn't a requirement for registration. I responded with a 'no', leading the HMRC representative to inform me that I couldn't register and would be marked as living abroad. In a bid to prevent any changes to my status, I hastily mentioned that I would be returning to the UK soon, but the conversation concluded somewhat ambiguously.

A few days later, I received an email from HMRC stating my ineligibility to register as a sole trader due to my absence from the UK. In response, I clarified the misunderstanding, asserting that I was merely away on vacation and indeed based in the UK. Subsequently, I received confirmation of my registration as a sole trader.

I officially registered in late March 2023 and commenced my consulting work on April 10, 2023. By November, a self-assessment with HMRC indicated I owed no tax for the year, which was expected. Throughout this period, I wasn't residing in the UK, which, to my understanding, wasn't a requirement.

Recently, I was taken aback by an email from HMRC imposing a £100 fine for failing to submit my tax returns, despite my belief that I owed no tax for the fiscal year. This situation has left me with several pressing questions:

1. Should HMRC inquire about my presence in the UK, how should I respond, given the confusion surrounding the necessity of being in the UK?
2. As a tax resident of a socialist EU country, which I prefer to avoid dealing with for tax purposes, is there a risk of the UK tax authorities communicating with their counterparts in my home country?
3. Given that my consultancy work is for a company outside the UK, and there's a possibility that this income may not be taxable, I still wish to settle my taxes in the UK. What steps should I take to achieve this?
4. I'm considering forming an LLC, similar to the structure in the US. Would this be a viable option?

The challenges I've faced with the UK tax system, especially in the post-Brexit landscape, have been frustrating, marked by numerous inquiries and legal inconsistencies.

I would greatly appreciate any advice or insights from the forum members.

Thank you!

 

[daniels27]

1. Should HMRC inquire about my presence in the UK, how should I respond, given the confusion surrounding the necessity of being in the UK?

Sole trader, self employed, etc. means that you pay personal tax with your personal tax return. If you are not tax resident there, you cannot be a sole trader there. How else would you do the tax return. UK is a place where people use Limited companies normally, not sole traders.

You pay tax where you reside. You can check the local tax laws, UK has presence tests, the EU country has too. Then, there are double taxation agreements between the two which have clear rules where you need to pay tax.

If you are supposed to pay tax in X but you pay in UK, you risk being challenged by X.

The country which is losing tax substance is often the one challenging.

The year of the move, you can go under the radar if the country you are moving to does not know about you doing business there. It is not legal, but most of the time, nothing happens.

2. As a tax resident of a socialist EU country, which I prefer to avoid dealing with for tax purposes, is there a risk of the UK tax authorities communicating with their counterparts in my home country?

If you do not tell them, they won't know. If you tell them, that you are away, they won't want to deal with you.

3. Given that my consultancy work is for a company outside the UK, and there's a possibility that this income may not be taxable, I still wish to settle my taxes in the UK. What steps should I take to achieve this?

No, there is no such risk. UK will be happy to take the tax from you.

4. I'm considering forming an LLC, similar to the structure in the US. Would this be a viable option?

I would recommend a Limited in the UK. It is cheap and what most "sole traders" use in the UK.

 

[resident101]

Dear Daniels27,

I truly appreciate your insightful feedback.

It seems I may have received some incorrect guidance initially regarding my registration status.

As I plan to reach out to HMRC, I'm contemplating the best approach to explain my situation. My primary goal is to ensure that I'm able to fulfill my tax obligations on my income for this year. If I disclose that I am registered but not residing in the UK, I'm concerned about the implications for my tax payments since UK may not allow me to pay tax there.

The alternative, paying taxes in the EU country where I am considered a tax resident (the socialist country), would significantly reduce my earnings due to the high tax rates.

Is there a way I could persuade HMRC to allow me to pay taxes in the UK? Would setting up an LLC in the UK be a feasible solution to manage my tax liabilities for the previous year?

Furthermore, I've begun to research the complexities of working for a US company while being paid in the UK as an EU citizen, and it appears to be a rather intricate matter. There is Brexit, etc. I plan to delve deeper into this, but I'm cautious about disclosing my residence in the socialist country to HMRC, fearing they might communicate with the tax authorities there.

My sole intention is to transparently and responsibly manage my tax payments. Any guidance on how to navigate this situation would be immensely valuable.

Thank you once again for your support and advice.

Best regards.

 

[Larin]

There is a common misconception that as long as one pays taxes somewhere, they are ok not to pay taxes elsewhere. Your desire to give your money to HMRC does not absolve you from liabilities in the other country (if there are any).

If your income is taxable in the UK then by all means pay your taxes in the UK, however, if your income not taxable in the UK, or is taxable in another country then paying it in the UK does nothing to solve your liabilities elsewhere (you may be able to get some credit for the taxes paid, but that's another matter).

I'd start by looking at where your tax residency actually is and determine your tax liabilities from there, rather than just trying to pay HMRC and assume that you don't have to deal with your home country as a result.

 

[daniels27]

Are you employed in the US or involving then for your services? I assume the latter but want to confirm.

For the UK Limited, it is possible to register one today. You could then void all previous invoices and issue me ones from your UK Limited with a date later then the incorporation date. Not sure if your client accepts this.

You would then have to keep in mind they the socialists can claim that your UK Limited has a permanent establishment in their country and then you would be laughs to pay corporate taxes to the socialist government. You also would be taxed on dividends in are least one of the countries.

My recommendation is to leave any country where the taxes are too high as staying there will lead you into trouble.

 

[resident101]

@daniels27
I am working for a US company as a consultant.

But I can't ask my company to do anything strange related to invoices, as a matter of fact, I didn't ever issue any invoices at all, they simply transfer my salary to my personal account in the UK, I couldn't get business bank account.

I worked for a company from South America and now I've been working to this company in the US for some months.

This is all really confusing.

@Larin My tax residency is in a socialist s-hole. Not dealing with those people.

 

[wellington]

@daniels27
I am working for a US company as a consultant.

But I can't ask my company to do anything strange related to invoices, as a matter of fact, I didn't ever issue any invoices at all, they simply transfer my salary to my personal account in the UK, I couldn't get business bank account.

I worked for a company from South America and now I've been working to this company in the US for some months.

This is all really confusing.

@Larin My tax residency is in a socialist s-hole. Not dealing with those people.

As long as you don’t use the personal account for personal uses only commercial - that’s fine with a LTD… not common but fine…

If you don’t have a LTD then you are a self employed

 

[resident101]

@wellington
Thank you for your reply,

Sorry, I didn't get what you meant.

I am registered as a sole trader, not an LLC, I get paid to my personal uk account and I do use this account for my personal expenses.

What do you mean with LTD?

I don't have any commercial expenses.

 

[wellington]

@wellington
Thank you for your reply,

Sorry, I didn't get what you meant.

I am registered as a sole trader, not an LLC, I get paid to my personal uk account and I do use this account for my personal expenses.

What do you mean with LTD?

I don't have any commercial expenses.

Should always use a separate account even as a sole trader

 

[resident101]

@wellington Well I don't see what's the issue with that. I tried opening a business bank account but no bank would do it, so I don't have a choice. I know with LLCs it's better to have a separate one, but sole trader....

Anyhow, my issue is not this.

Is there some way to move my income from the previous year (2023) to a newly formed UK LLC retroactively? So I can then pay my tax on this income next year, if this makes sense?

 

[daniels27]

Is there some way to move my income from the previous year (2023) to a newly formed UK LLC retroactively? So I can then pay my tax on this income next year, if this makes sense?

You open a Limited. Limited not LLC. Then you write invoices for the work performed and date then post incorporation date. Then transfer all money from the personal account to the limited one.

Then start paying a salary and discussing the big junk as dividends.

If you have an audit, there will be questions why the money comes from you account. Hence maybe better discussed through some EMI that shows his EMI name on the statement. You can then say that they used this EMI to save on transfer fees.

You also may want to split the revenue over a couple of months.

 

[resident101]

May I ask you directly ,is this 100% legal, or is this grey?

For me it must be all 100% transparent and legal.

Thank you!

 

[daniels27]

It depends on what grounds you are getting paid. You said it is not salary. You said you do not invoice then. How is it in their book keeping? It is US, they may be able just to pay and then issue some IRS form to you, which you may not even get. Such payments are not possible in most parts outside North America. And that's where it gets interesting. Because in the European point of view, you need to use the same pair in your book keeping as your client. But your client may not use anything to pay. Hence you can say that those payments were prepayments for work that is invoiced once the company formation is finalised.

We per the forum rules, we do not provide tax advice. We can give you some inspiration for a different look at the matter which a tax advisor oversaw. In you case you probably may want to pay the 5000 for the tax advisor. It won't be cheap as you need some international dude.