Foreign income or not?

LouP25

Hello,
I am selling videos on stock websites and I receive money via paypal in dollars from USA, Canada, Australia. Shutterstock, Adobe stock, Envato, etc.

I am doing my self assessment for the first time ever, and I thought I've completed all income sections. Now I came to an new page - where I need to state my foreign income gains. But I already completed all my gains in the previous sections. Should I do this again? Should I delete this foreign section? Or should I only complete this foreign section?

I really don't want to declare the same earning twice.

This foreign section wants:
"You said that you received other overseas income and gains in the tax year 6 April 2022 to 5 April 2023. Please complete the following question(s).

Gains on disposals of holdings in offshore funds (excluding the amounts entered in 'Taxable amount' box for 'All other income received by a person abroad and any remitted 'ring fenced' foreign income') and discretionary income from non-resident trusts. Enter the amount of the gain or payment"

etc etc

I cannot even understand this above sentence.
Thank you for any advice on this.

[Deleted User]

It sounds like you are a sole trader and wholly UK based.

If so, then I would say that the profits made from all video sales fall to be assessed as UK self employment income.

I don't think you need complete the foreign income section, unless you have other sources of income arising from abroad. 

LouP25

Curiousguy said:

It sounds like you are a sole trader and wholly UK based.

If so, then I would say that the profits made from all video sales fall to be assessed as UK self employment income.

I don't think you need complete the foreign income section, unless you have other sources of income arising from abroad. 

thank you very much. I'll delete the foreign section then )

DullGreyGuy

Are any of them withholding taxes when they pay you? 

Assuming they aren't then agree its not foreign income but the US in particular can require a fair few hoops to be jumped through for monies paid to an individual not to have taxes deducted if its for services etc. 

LouP25

DullGreyGuy said:

Are any of them withholding taxes when they pay you? 

only Envato, the Australian company, are taxing me 5% in Australia. All the rest have a 0% treaty with UK.

[Deleted User]

I've just checked the HMRC guidance in their Business Income Manual and its says that a deduction maybe allowed from trading profits charged on a person resident in the UK in respect of overseas trading, such as taxes charged on turnover.

From this  my view is that you include the gross amount of sales to Evanto in turnover and claim the 5% tax as a deduction/expense, so again, no need to be concerned about the foreign income section of the SA return.

[Deleted User]

Curiousguy said:

I've just checked the HMRC guidance in their Business Income Manual and its says that a deduction maybe allowed from trading profits charged on a person resident in the UK in respect of overseas trading, such as taxes charged on turnover.

From this  my view is that you include the gross amount of sales to Evanto in turnover and claim the 5% tax as a deduction/expense, so again, no need to be concerned about the foreign income section of the SA return.

Not quite correct. While the income is included in turnover the foreign tax credit is not an expense. To claim this you must complete the foreign pages ONLY for the purposes of claiming this credit. See attached -  page  FN16 under column F -

Foreign tax paid on employment, self-employment and other income

and later under

taxable amount. 

https://assets.publishing.service.gov.uk/media/6426c5587de82b000c3133ae/sa106_2023_notes.pdf

A pain - but that’s the way it’s done! Had no foreign tax been paid, foreign pages need not be completed.

[Deleted User]

purdyoaten2 said:

Curiousguy said:

I've just checked the HMRC guidance in their Business Income Manual and its says that a deduction maybe allowed from trading profits charged on a person resident in the UK in respect of overseas trading, such as taxes charged on turnover.

From this  my view is that you include the gross amount of sales to Evanto in turnover and claim the 5% tax as a deduction/expense, so again, no need to be concerned about the foreign income section of the SA return.

Not quite correct. While the income is included in turnover the foreign tax credit is not an expense. To claim this you must complete the foreign pages ONLY for the purposes of claiming this credit. See attached -  page  FN16 under column F -

Foreign tax paid on employment, self-employment and other income

and later under

taxable amount. 

https://assets.publishing.service.gov.uk/media/6426c5587de82b000c3133ae/sa106_2023_notes.pdf

A pain - but that’s the way it’s done! Had no foreign tax been paid, foreign pages need not be completed.

Thanks, and apologies to the OP if I've got it wrong.

It's not something I've come across before and either the BIM is wrong or I have misread it.

Are there any circumstances where the foreign tax could be included in the profits computation as an expense/deduction?

[Deleted User]

Curiousguy said:

purdyoaten2 said:

Curiousguy said:

I've just checked the HMRC guidance in their Business Income Manual and its says that a deduction maybe allowed from trading profits charged on a person resident in the UK in respect of overseas trading, such as taxes charged on turnover.

From this  my view is that you include the gross amount of sales to Evanto in turnover and claim the 5% tax as a deduction/expense, so again, no need to be concerned about the foreign income section of the SA return.

Not quite correct. While the income is included in turnover the foreign tax credit is not an expense. To claim this you must complete the foreign pages ONLY for the purposes of claiming this credit. See attached -  page  FN16 under column F -

Foreign tax paid on employment, self-employment and other income

and later under

taxable amount. 

https://assets.publishing.service.gov.uk/media/6426c5587de82b000c3133ae/sa106_2023_notes.pdf

A pain - but that’s the way it’s done! Had no foreign tax been paid, foreign pages need not be completed.

Thanks, and apologies to the OP if I've got it wrong.

It's not something I've come across before and either the BIM is wrong or I have misread it.

Are there any circumstances where the foreign tax could be included in the profits computation as an expense/deduction?

It would be a lot easier -wouldn’t it? But the taxpayer would be worse off!

I was involved in the consultation with HMRC when these forms were designed and, from memory, there wasn’t initially going to be ‘foreign pages’. However it was felt that there were so many U.K. citizens receiving foreign pensions (mostly from U.S. and Ireland) that they were introduced, and then expanded. 

I would doubt that any ‘tax’ could be claimed as an expense. For further clarification see HMRC reply in community forum:

https://community.hmrc.gov.uk/customerforums/sa/4067c2d4-4959-ee11-a81c-6045bd0e378d

[Deleted User]

If one thinks about it logically the inclusion of the foreign tax as an expense would mean that the taxpayer only obtains tax relief on the foreign tax, not a full credit for the tax actually paid. 

The foreign tax (converted to £sterling) will now be shown as a deduction on the tax calculation.

[Deleted User]

[Deleted User] said:

[Deleted User] said:

If one thinks about it logically the inclusion of the foreign tax as an expense would mean that the taxpayer only obtains tax relief on the foreign tax, not a full credit for the tax actually paid. 

That's right.  It can be advantageous if, for example, there is a loss in the year or the profits are covered by capital allowances, so that doing this would increase a loss that could be carried forward.  This is allowed by s112 TIOPA. 

Going back to the OP,  I'm assuming that this is really a 5% withholding on turnover rather than, for example, you being treated as an employee for Australian purposes and having 5% withheld under the equivalent of the UK's PAYE rules.  I'll also assume that you've really incurred this (i.e. its been deducted and you haven't got a refund, and you can't claim it back from the ATO).  If my assumption are wrong, ignore the rest of what I say below. 

Unfortunately, s112 does not allow a deduction as an expense when the foreign tax has been deducted from what is turnover rather than income.  So on the face of it, that is no use here.  But it can be deducted from trading profits of a business to put you in the same position as if you could use s112 (see BIM45901 for example).  So Curiousguy is right.

A turnover-based withholding tax is not relievable against actual UK tax as opposed to profits. That sounds contradictory, so an example is best. Keeping numbers simple, if you are a 20% taxpayer and your profits are £10,000 (including an invoice of £1,000 to the Australian company but ignoring the £50 tax they withheld) then the right answer is UK profits £9,950 x 20% tax = £1,990 and no foreign pages would be needed.  It would be wrong to say £10,000 of UK profits x 20% = £2,000 less £50 Australian tax = £1,950 (but see my caveats above about what the 5% really is).

I read the BIM again and the International Manual last night, slept on it and have just looked at TIOPA 2010 this morning.

My current thinking is the OP has a choice between:-

claiming FTR for the 5% Australian tax but this would not allow a deduction for it in computing the self employment profit and the foreign income section of the SA return would need to be completed

or

making a deduction for the 5% Australian tax in computing the self employment income and not completing the foreign income section of the SA return

and

which method is chosen would depend on what gives the least UK tax liability