“I love deadlines,” Douglas Adams, author of the Hitchhikers Guide to the Galaxy once said, “I love the whooshing sound they make as they fly by”. It’s a sentiment many expats can sympathise with. The deadline for 2014/15 tax returns whooshed past on 31st January 2016.
Many of us are too busy to take notice or just put the task on the to-do-list to try to deal with later. Others are confused about whether they should be preparing UK tax returns or not.
There are benefits to swallowing the elephant and filing a correct tax return – even after the deadline.
Mainly it is just good housekeeping. You positively record your status each year and build a track record of tax compliance. Getting brownie points with the taxman today can save you the pain in the future of going back over years of missed or poorly filled out tax returns because of suspected non-compliance.
Even if you have a letter from HMRC stating that you don’t need to file tax returns, make sure that you have read the caveats – e.g. you may need to file returns should your circumstances change. Expats who didn’t need to file tax returns a few years ago may want to check whether that is still the case today.
When you do get started with your tax returns (paper or online) there are some common pitfalls to watch out for.
Firstly – and surprisingly – it is impossible to file a correct tax return as a non-resident of the UK using the HMRCs own on-line system. If you do use their system and don’t complete the residence pages, HRMC will assume you are still a UK resident for tax purposes. Not a great outcome. You want to establish a track record of non-resident status.
Even after negotiating that particular stumbling block the definition of residence can be problematic.
The amount of time you can spend in the UK each year whilst non-resident can vary from as low as 15 days to 182 days per year, depending on circumstances. Contributing factors to residence include whether your children and spouse remain in the UK and the amount of time you spend working in the UK, regardless of whether you are based overseas, and the availability of accommodation in the UK. Professional advice is normally worth seeking.
Even the definition of work for Income Tax purposes needs to be considered – training, for example, may not be considered work, but managing a cross-border team and spending time in the UK on routine operational matters might very well qualify. Some larger employers file this information to HMRC automatically – and it’s worth knowing if that is the case.
Tax on rental properties is another common area for misunderstandings. Many of the expats we see rent out their UK property. The majority aren’t aware that most rental accounts need to be prepared on the ‘accruals’ basis, rather than just by adding up income and subtracting expenses incurred in the tax year itself.
In some cases, the Residence Pages are often incorrectly filled out, the Personal Allowance itself is not claimed and dividend income – which can often be tax free – remains taxed.
Ultimately many expats will eventually gravitate back to the UK. Choices made with their tax returns today can make a big difference upon their return.