Earnings from the EU paid in UK - tax query

DIYhelp76

Hi all

Hope someone can help advise please.

My partner is an Italian national living and working long term in the UK in a PAYE job where tax is deducted at source.

He very occasionally does some additional online work in a completely separate ad hoc job in Italy. Earning maybe £100 or £200 a month (irregular). He declares this in his Italian tax filings and pays tax on it in Italy. These earnings get paid into an Italian Euro bank account.

He now has a Fineco bank account which has both a Sterling and Euro option. He would like to simplify his accounts, close his Italian bank account and have the Italian earnings paid into his Fineco Euro account in the UK.  If he does this, would he also need to declare these earnings in a UK tax return and would he then become liable to pay tax on those earnings, even though he is already paying tax on them in Italy (which would mean he pays tax twice on the same income)?  He has no other UK earnings apart from his main job which is PAYE tax.
 
Many thx for any advice on this. 

Jeremy535897

For UK domestic law, the first question to ask is where your partner is domiciled, as the remittance basis can only apply if they are non-UK domiciled and the business is carried on wholly abroad. See https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm10435 . However, if your partner is a long term UK resident, the remittance basis would be unlikely to apply anyway as the annual charge would far exceed the actual tax payable.

Article 7 of the UK Italy double tax agreement modifies UK domestic law. The question is whether the business is a UK one or an Italian one. If it is Italian, then it may well be that your home here is a permanent establishment in the UK anyway, and so the profits are potentially subject to both Italian and UK tax.

Where is a trade carried on? For UK tax purposes, case law indicates that a trade is carried on where the operations which give rise to the profits of the trade are carried out. In determining that question of fact one of the important circumstances that has to be taken into consideration is the place where the contracts are made. Where would this be?

I suspect that the short answer is that he will have to declare the profits in the UK, but can claim credit for the Italian tax paid (up to the maximum of the UK tax due on the income). That however depends on whether Italy actually has the right to tax this income. That would only be the case if the income is derived from Italy under Italian law.

DIYhelp76

Hi Jeremy,

Thanks so much for your reply.  To provide some more information, my partner has lived and worked (PAYE - main job) in the UK for more than 6 years, maybe around 8-10 years(?)  The UK is now his main home where he owns his house, lives and works. 

The work he does is writing for an Italian publication - just ad hoc articles here and there for which he is paid in Euros. The publication is Italian and based in Italy, so I expect Italy are entitled to tax the earnings in Italy?  At least my partner has been declaring this income in Italy and paying tax on it there.

He just wishes to close down/simplify banking, so as to have one bank account rather than two. The Fineco gives him this facility because he can have both a £ and Euro account with them.  So, if he has these irregular, small Italian earnings paid into the UK Fineco Euro account, have I understood  you correctly that he would need to do a UK Self Assessment Tax Return each year to declare these earnings and then claim credit for the Italian tax paid?  Is this all done via the Self Assessment Tax Return and is it a simple thing to do or will be need an accountant etc?  If it is going to be a lot of extra work and hassle then he may opt to just leave these small earnings being paid into the Italian bank account and keep that open.

Thanks again for your helpful advice.

Jeremy535897

The problem is that the remittance basis only applies to non-UK domiciliaries, and if he has been resident here for seven out of the last nine years, he will be deemed domiciled here for income tax purposes. If that is the case, he needs to declare the income here and pay tax on it here as I described earlier, whether or not he keeps the Italian bank account.

penners324

It's irrelevant if the earnings are paid into an Italian bank or UK based bank.

UK tax is due, with Italian tax being deductible.

He needs to register for self assessment with hmrc

DIYhelp76

Hi Jeremy535897 and penners324 - just a quick thank you for your replies - they are really helpful. I will relay the information.