Sole Trader part-way through year after working abroad

[wengerstoybus]

Hey folks, thanks for having a community like this one. Been thinking of posting for a while, and I decided now was the time.

For reference, I'm a British, UK citizen – Interactive Designer. This year (2018), I worked almost the entire year employed in Germany as a tax resident in Germany paid via salary. This was until near the end of the year, at which time I decided to make a pause (and return to England) to decide next steps, while knowing myself I wanted to go freelance (for the second time).

I have been deciding in between fully returning to Germany to freelance, or just staying in the UK and becoming a sole trader overnight. Germany is where I have built a life, and I found a good accountant – but anyone here who's moved abroad will know, the sheer amount of technical wraggles you open yourself up to by doing this (as well as their tax being a lot higher). Ultimately, I will do a lot of my work for worldwide clients and 'where' I am has no bearing on business (aside from hubs like London).

So my question is simple. If I chose to just become a sole trader in the UK tomorrow (hypothetical) – what are the legal/tax implications of me having started a part way through the year, having spent most of it as a tax resident in another country, and essentially having a 'split year'? How would this affect my return? I 100% wish to stay away from anything complicated and obviously don't wish to be taxed on anything I earned in Germany (completely taxed as salary). Would I also need to submit *all* of my earnings worldwide, and potentially be taxed on them since April 2018?

The other part is, to become a sole trader... what do you *need* in terms of a living arrangement? I have actually just been staying with parents during Christmas so in essence don't really 'live' anywhere until I decide what to do but I get mail sent here and could do with being paid for some work pretty soon – but until I know how to get paid legally, am kind of 'paralysed' in a way. As a sole trader, would there be any legal implications of me setting this address of my parents despite in no way 'living' here, while I found my feet to get a flat somewhere else in the UK? This part particularly, has me very on edge of knowing the right thing to do as though I get letters sent here, it isn't right that I essentially start a business from here. But maybe it's fine, I just would love to know options.

Between the 2 plans (Germany or UK) both having these what seem like complicated bits to them, I'm putting off and off the decision and now really need to make my mind up – but I can't without knowing what I'm doing first.

Second to last Q – is regarding VAT, I understand you only place VAT on invoices if you hit a certain threshold which in theory in 2018/19 tax year, I certainly wouldn't hit (but would if my worldwide tax was taken into account for example and that would be messy). Is this also the case for invoices sent to other EU countries? Normally in the past I used VAT reverse charge on these, but it would be cool to know if you really do just not place VAT on top until hitting that threshold.

And my final final quick Q – what is the paperwork involved in becoming a sole trader in this way (before then *maybe* setting up Ltd at the turn of the tax year? I am *very* averse to lots of letters being sent in the post and because I don't spent *much* time at my parents but it would be the address I set first possibly, it's important for me to know how much is dealt with via post and how much is (ideally) digital. I just can't have lots of forms being sent to my mum's place, it's not the actions of a professional 32 year old designer.

Understand this is quite a lot written but any help at all with this would be amazingly appreciated. For weeks I've wondered whether I'm simply overthinking. Thank you so much for any information.

B.

 

[Newchodge]

Question first. What dates does the German tax year run from and to?

 

[wengerstoybus]

Question first. What dates does the German tax year run from and to?

Thanks for the quick reply! Jan 1 to Dec 31. I know this because in my research and talks with the German (potential) accountant I would have, part of the cleanliness of going freelance there is to start in the new year).

 

[Newchodge]

So you were tax domiciled in Germany for their entire tax year, and have paid all taxes there. You will be UK tax domiciled for all of 2019/20 but for the last 3 months of the UK 2018/19 you may not be officially domiciled. You need a UK accountant, there may be one along tomorrow.

As far as your address is concerned, it can be any physical address at which you can be contacted. Even though you are not the owner or tenant it is currently the only place where you are living, so use that if your parents agree. Once you have another address, then change it. No big deal, but you have to show the address you use, on all your official paperwork.

 

[wengerstoybus]

So you were tax domiciled in Germany for their entire tax year, and have paid all taxes there. You will be UK tax domiciled for all of 2019/20 but for the last 3 months of the UK 2018/19 you may not be officially domiciled. You need a UK accountant, there may be one along tomorrow.

As far as your address is concerned, it can be any physical address at which you can be contacted. Even though you are not the owner or tenant it is currently the only place where you are living, so use that if your parents agree. Once you have another address, then change it. No big deal, but you have to show the address you use, on all your official paperwork.

Correct to the parts above, but it's nice to see it written with the right terms. I think the main question regarding the 'non domiciled' part, was that repeatedly it's seemed like if I started as a sole trader lets say Jan 1, then the UK tax on my earnings for 18/19 would in theory, be extremely low because of the low 'year income' because my 'year' was very short. This just seems a little 'too good to be true' to be honest. A UK accountant tomorrow would be rad – hopefully it makes sense why this complication seems a bit scary to mess with, as if it makes my 18/19 tax return messy and risks double-tax, then this is dangerous to me.

Great to know on the address though, because in a way then nothing is different to say the other stuff I get sent here (it's just way easier/consistent with how I've country-hopped 3 times in the last years). It's nice because if push came to shove, that means I could actually accept work in January and get paid *while* I get set up living somewhere new, rather than needing to have that wrapped up before getting paid.

 

[Scalloway]

There is information about tax and residence here.

https://www.gov.uk/tax-foreign-income/residence

 

[JakeM]

The U.K. and most EU countries have laws in place to avoid double taxation.

Unfortunately, this is a very difficult subject to find advice on - as most accountants don’t deal with international tax. I did find a few accountants who advised on this, but every single one gave completely different answers!

Regarding work split between Italy and the U.K., the double taxation treaty looks at a number of conditions to determine which country you are a tax resident of, and gives you a precise heirarchy for this.

I assume there will be a German one as well (which can be found on the Gov U.K. website).

Ultimately though - you only pay tax in the country for which you are considered a “tax resident” - although national insurance is still payable I believe.

It’s worth checking if it’s beneficial to work from a specific country and change your arrangements so as you become a tax resident of that country.

For example Italy requires a payment up front (5000 €) to register as self employed in your first year and every year thereafter. So in this case, it worked out better to change living arrangements to ensure a U.K. tax residency and then provide some services to Italy (rather than the other way around).