International and local tax advice needed

cactus96za

I am 72 years old

I left the UK in 1975 after having worked here for only 7 years

I lived in South Africa for 47 years but the country is really going to the dogs, so decided to get out while I could.

During the time in SA I did not pay into the UK NI system so have no claim on a UK pension

I sold my house in SA and cashed in other assets, transferring the funds to UK, but at a 20:1 exchange rate I do not have enough to allow me to retire, consequently I am still working.

For the last 12 years I have worked as a technical consultant, contracted to the company that once employed me in South Africa. As this was more than 50% of my income, for SA tax purposes I was still classed as an employee, so was taxed at source (PAYE). However, because I worked entirely from home and received no other benefits from the company I was able to claim all business expenses against tax, which then gave me a substantial annual refund.

The contract continues, so the SA company still deducts PAYE and deposits my earnings into my SA bank account. I then transfer the funds to my UK bank account once per quarter.

I arrived in the UK in March 2022, so guess I will need to register with HMRC as a tax payer and claim tax credits for tax paid in SA  

I have received my NI number from HMRC

My wife was born in SA and has never worked in UK, so does not have a NI number. She performs some office work for me but we have never formalised an employer/employee arrangement, she simply has access to our joint account and buys what she needs/wants (we are both very frugal so she does not waste money).

In SA there was no need to transfer allowances between partners - incomes were simply totalled together and we received the married partner's allowance against tax. My wife wasn't working in SA so I automatically received the higher allowance against my taxable earnings.

Any experts out there who can guide me into the most tax efficient structure to minimise any UK tax exposure. 

Jeremy535897

I am not clear why you are still being taxed in South Africa. Have a look at the UK South Africa double tax agreement, particularly Article 14. If you don't go to South Africa and you live in the UK permanently, you are resident in the UK for the purposes of that agreement.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/526891/2002_S_Africa_-_UK_DTA_as_amended_by_2010_protocol.pdf

cactus96za

There is one extra complication
My contract with the company was established 12 years ago. For the most tome it was necessary for me to regularly visit the company for face to face meetings and to give hands on advice and guidance to young inexperienced engineers. As Covid hit the stage I informed the company that given my age and health status, such visits would no longer be possible so we structured things around Zoom and Teams. 
When I decided to leave SA I requested that my contract should continue and the company agreed, providing there were no material changes, other than my location - hence they continue to pay me s an employee and deduct PAYE.
I could ask them to treat me as an overseas creditor and pay me the full amount against an invoice I submit, or I could approach SARS for a tax directive that would tell them not to deduct PAYE, but both of those are material changes to my contract and as such could jeopardise its continuation (something to be avoided at my age and financial status)
I am happy to continue as things are, even if it means claiming a full tax refund from SARS at the end of the SA financial year and then paying tax in a lump sum in the UK   

Referring to Article 14
It seems the whole agreement was written before the possibility of remote working so terms such as "... employment shall be taxable only in that State unless the employment is exercised in the other Contracting State" is ill defined. I am resident in one State, but the work I perform for the contracting company is via a web server that is housed in (choose a country??) and directly affects the company in SA, so is my employment exercised in the other contracting State? 

Jeremy535897

I don't think the concept of remote working changes anything:

"Where is Employment Exercised? Comm. on Art. 15, para. 1 “Employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid”. Meaning → a resident of a Contracting State (A State) exercises employment in A State but derives employment income, from sources in the other State (B State). He cannot be taxed in B State in respect of that income merely because he is paid from there and the results of this work are exploited in B State"

From https://www.taxand.com/wp-content/uploads/2019/07/6.-Employment-Income-2019.pdf

Looking at commentary concerning the impact of COVID, it focuses on the accidental creation of permanent establishments and accidental unwanted residence of individuals, not remote working, so I doubt the above advice has changed.

HMRC will only give credit for overseas tax legitimately deducted, so if the SA tax authorities should not be deducting it, HMRC will ignore it (at best they would tax you on the net income after the SA tax is deducted). Nor, I suspect, is it a legitimate option for a SA employer simply to continue to deduct tax incorrectly from your salary. (It wouldn't be an option here.)

I am not a legal expert, but I cannot see how your employer not having to deduct tax by virtue of the application of a double tax agreement can conceivably be a variation of your contract. Are they really likely to cancel your contract because of a bit of different (and probably easier) administration? Your seeking to claim a refund directly from the SA authorities may be quite difficult, but if they are successful, is there not a likelihood that they will then instruct your employer not to deduct tax, bringing about the "variation" you wish to avoid?

cactus96za

Thank you for this clarification, seems like I will need to negotiate the change after all.

now assuming I settle this and remain as a contactor to this company, with my wife performing some book=keeping and secretarial tasks, what is the most tax efficient way of structuring this in the UK?

Jeremy535897

That is a difficult one. You would either need to get your SA "employer" to change over your contract to a limited company rather than you personally (which may not achieve the objective anyway even if it were practical), or alternatively you have to declare yourself as self employed in the UK and employ your wife. But if, technically, if you really are an employee, you ought to set up a DPNI scheme:
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye20100

An employee cannot claim a deduction for paying his spouse to do some duties for him.

Jeremy535897

I should add that this is all rather complex, and you really would be well advised to seek advice from someone familiar with these areas (I have no practical experience of them). Search "PAYE for overseas employer with no UK presence" on the internet.