Remittance Basis - How to consider foreign self employment income?

chrisdelta

This looks like a challenging question for accountants . I've spent the day trying to find someone able to answer my question. Asking here, in a hope to get a proper answer.

I am French, living in the UK since January 2018 and full time employed. I became a UK treaty tax resident since my wife joined me here in the UK in January 2019

Question 1: I have got late payments from my French customers for work done abroad before becoming a UK tax resident (e.g. work done on October 2018, invoiced in December 2018 and paid in February 2019). The payment was made to my foreign bank account, not remitted to the UK and declared to the French tax as part of my French tax return.
In an arising basis situation, shall this global income be declared in my 18/19 tax return?

Question 2: the French self-employment income is being declared on a cash basis for both national insurance and income tax. Can I consider all my UK declarations on an accrual basis? This will help me combine two tax years worth of cash basis income into a single one, hence claim the remittance basis on only one of them. As well as reduce my potential HMRC penalty for late declaration for the Question 1 related 18/19 situation.

Thanks for your help and this MSE community!

Jeremy535897

Please clarify the following points:

• is your French based self employment continuing? If so, is it done by you going to France, or is it done in the UK?
• are you considering claiming that you are not domiciled in the UK for tax purposes? I assume so, as you mention the remittance basis

Broadly speaking, a self employment business is based where the business is carried on (this is a gross simplification). What this basically means is that if, once you became UK resident, your business base moved to the UK, your French business ceased and a new UK business started. Much more detail is at:
https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1

You will also find links to RDR3, the statutory residence guidance and the split year tests.

chrisdelta

Yes, the business continues, however since covid, this is done from the uk via zoom. This remote work is already considered as Uk sole trader and inferred income will be declared in the uk.

The work done abroad is the one I’m considering for the remittance basis. It will resume for sure after covid.

Yes, this is for tax purposes.

Jeremy535897

See this excerpt from RDR1:

What should I do if I come to the UK to work for myself?

3.8 If you’re self-employed you can find out what you need to do on the GOV.UK website or you can telephone our self-employed helpline. The helpline adviser will give you the advice you need to pay the right amount of UK tax at the right time.

3.9 If you continue to be a resident of a country with which the UK has a DTA, it may contain provisions about where you pay tax. You can find more information about this in section 10.

Self employment – business commencement and cessation provisions

3.10 As a resident of the UK you will pay UK tax on the profits of your trade, profession or vocation (business) regardless of where the business is carried on. There are special rules which apply when you start or end your business (‘commencement’ and ‘cessation’ rules). These rules may apply when you become resident in the UK even though you’ve not started or ended your business.

3.11 The cessation and commencement rules will apply if:

• you become UK resident
• you’ve been carrying on a business wholly or partly outside the UK

and you continue to carry on that business. You’re ‘deemed’ to have ceased one business and started another from the date of the change in your UK residence status or if split year treatment applies, from the split year date.

3.12 Unless split year treatment applies, the commencement of your residence in the UK takes place at the start of the tax year in which your change of residence occurs. Your business is deemed to have ceased and a new business to have commenced at that time. This may affect the amount of tax you’ve to pay.

3.13 If the business:

• was carried on wholly in the UK or partly in the UK before the change in your UK residence status, and
• is deemed to have ceased and commenced when you became UK resident

for UK tax purposes any unused losses in the UK business, or in the UK part of the business, before the deemed cessation can be:

• carried forward
• set against the profits of the ‘deemed’ commencing business

3.14 If the location of your UK business or the UK part of your business changes, generally the deeming rules don’t apply. The fact that your business is in a completely new location is likely to mean that it has:

• a different structure
• a different customer base
• different employees

And that the business has in fact ceased and a new business has commenced. In these circumstances you will not be able to carry forward unused losses from the old business to set against the profits of the new one.

3.15 Some businesses are not localised in this way. These businesses are mainly carried on by professional people, wherever in the world the person happens to be. Examples of this would include:

• actors
• sportsmen or women
• authors
• musicians

Effect of split year treatment when you carry on a trade, profession or vocation

3.16 If split year treatment applies to you, the deemed cessation and commencement of your business takes place at the beginning of the UK part of the tax year. For the year of arrival in the UK you will be liable to UK tax on:

• the proportion of your profits which reflect the profits you made in the UK part of the tax year
• the profits from a UK business or any part of a business carried on in the UK during the overseas part of the tax year - if the deeming rule applies, for UK tax purposes any unused UK losses before the deemed cessation can be carried forward and used against profit of the deemed commencing business

3.17 For Capital Gains Tax if you dispose of an asset:

• in the UK part of a split year, the normal Capital Gains Tax rules will apply
• in the overseas part of a split year:
  • where the asset was situated in the UK and was used or held for the purposes of a business that was carried on through a branch or agency in the UK, the disposal would be liable to Capital Gains Tax. Additionally, the cessation of the business, or the removal of the asset from the UK would give rise to a deemed disposal of the asset (see CG25500+ for more detailed guidance)
  • where the disposal was of any other asset, the gain may be liable to Capital Gains Tax if it falls within a period of temporary non-residence. For more information on temporary non-residence, see section 6 of the SRT Guidance Note (RDR3)
  • where the disposal was of a UK residential property, the gain may be liable to Capital Gains Tax. See Capital Gains Tax for non-residents: UK residential property for details

My reading of this is that your business ceased when you became UK resident. Clearly you would use the accruals basis, which would mean that mere settlement of debts arising before you became UK resident would not be regarded as taxable in the UK (as you were not UK resident and the work was done outside the UK). I am assuming the split year basis applies to you. Full guidance is at:
https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm12000

chrisdelta

Thanks, this is very helpful! Shall we consider the SRT Split year treatment or the Double Taxation Convention between Uk and France? because, based on the split year (based on the "only house test"), my residence started earlier than the DTC one (based on the relocation of the "center of vital interest")

Jeremy535897

I am not familiar with the rules on residence in France, but the double tax agreement is only relevant in determining residence for a period of time in which you are resident in both countries under their respective domestic laws. The UK France double tax agreement contains the usual clause:
"2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident only of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode; (c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the States shall settle the question by mutual agreement. "

If you have a permanent home in only one of the countries, that country is the one in which you are treated as resident at that time. Only then would you consider the "centre of vital interests".