Expenses on Foreign Income

jb2013

When working in Europe I was paying the taxes in the country, but to avoid double taxation I'm now filling in the foreign pages on my tax return. There is a dual taxation agreement, so it looks like I'll have to pay in both countries, and then claim back from the none UK one.

But whilst working I was paid by my company directly into my UK bank account. This incurred fees including the transfer fee and the exchange rate didn't match the one HMRC says I need to use to fill in the pages.

So I could be out of pocket around £300. Can I claim this difference back as expenses?

Cook_County

You have lost me. You report all of your income in Sterling and claim credit in the UK for foreign tax. If the UK tax is higher you owe tax.

jennifernil

As above, plus use the actual exchange rate you got for each payment to work out the gross pay and tax deducted.

barak

Cook_County wrote: »

.....You report all of your income in Sterling and claim credit in the UK for foreign tax. If the UK tax is higher you owe tax.

.....and if the UK tax is lower [Spain deducts 21% from dividends] you probably get lost completing your SA while attempting to understand HMRC Notes on Foreign Tax Credit Relief!

jb2013

Sorry if the question wasn't too clear. Let me try and clear it up (it could come down to my miss-understanding the help forms!) -

1. I understand that I convert to UK sterling -
1a) Do I use the HMRC average year exchange rate - that they say to use
1b) Or do I use the accurate exchange rate for each month I got from XE.com
1c) Or do I use the very poor actual exchange rate I got from the UK bank that the salary was paid to? (This is one element where I would lose money)

2. The country is Italy - according to the dual taxation agreement - it only covers 15% of tax paid in Italy.

3. So - I paid around 26% in Italian taxes, as I understand - I will now have to pay around 25% in UK taxes, and can only claim 15% foreign tax credit relief.

4. Then I will have to claim back from Italy the (26% - 15% 11%.

5. And each month the salary was paid in the UK bank charged me around £20 for the transfer and conversion - this is the 2nd element I would like to claim on expenses.

Thanks for the help!

chrismac1

Before covering the tax, if this happens again call up a foreign currency broker first. One client has saved £10k a year, many have saved lesser amounts. The more people who do this, the more the rip-off UK banks have to think about their charges.

You should declare as income the net amount hitting the UK bank account in my view, as this is the actual income you are receiving in the UK.

In terms of the tax, under double taxation you end up paying the higher of the 2 tax rates but NOT both.

Suppose the Italian tax you paid is £1,000:

1. If the UK tax bill would be £1,100, after you enter the £1,000 in your tax return there should be £100 UK tax showing as due to pay.

2. If the UK tax would be £900, after you enter the £1,000 the UK tax due will be zero.

jennifernil

OK, OH has income from abroad, so we are pretty clued up on this.

When filling in his return, I use the actual exchange rate for each payment (monthly) to work out the Sterling equivalent of any tax deducted. As long as you are consistent, should any questions be asked, you will be fine.

If you got a poor exchange rate, this will mean you got less income (and of course the tax will seem less, you cannot have it both ways).

Assuming Italy has a double taxation agreement with UK (pretty certain it does) then any tax deducted in Italy can be set against tax due here. Unfortunately, should the tax deducted in Italy be more than it would have been here, you cannot claim it back.

(There are other options, but I am ignoring them here)

So, on the foreign income pages you enter the gross amount paid to you, the tax deducted, and indicate that you wish to claim foreign taxation relief.

I do not agree with what chrismac1 said, you do need to gross it up, net received + tax deducted = gross income. If you do not include the tax deducted, you cannot claim foreign tax relief.

Assuming this is earned income, you should fill it in on the employment pages, and make a note that you are claiming relief on the foreign pages. And on the foreign pages, note that you have entered it already on the employment pages.

(Note....OH has a paper return, it may be different on-line)

I do not understand your reference to 15%. You do not claim anything back from Italy.

Re the £20 charge to transfer, you need to get a better bank!