Spanish Tax - Failed to complete La Renta - consequences?

EnglishMohican

My friend worked in Spain from 2014 to 2016 returning to the UK in August 2016. She had reputable employment and paid tax and completed La Renta for 2014 and 2015 but had a 5 month old baby at the vital time in 2017 when she should have completed the Renta for 2016. 

She is now being pursued by HMRC on behalf of the Spanish Tax Authorities for tax for the 2016 tax year including tax on the pay she received in the UK from her UK employment after she had returned plus penalties.

The first time she know about this was when HMRC contacted her. She received nothing from the Spanish authorities though post could have genuinely gone missing.

There are large amounts of money involved, approaching £10000 at present. To be clear, she paid the Spanish equivalent of PAYE while she was there and has paid UK PAYE once back in the UK.

She has now received some documents from Spain which she is trying to understand and sort out but its hard to know how to develop a plan of action. She is willing to pay something, she has no choice really - but would like to understand what the likely outcome is.

Has anybody any experience or knowledge of this sort of problem and can they offer any guidance? 

Is MSE the best place to ask or are there more specific forums for this sort of thing?

SiliconChip

She needs to set up her own account and ask the question herself because it's a complex situation and she will be the only person who can answer the inevitable questions that anyone trying to offer help will have. 

mybestattempt

EnglishMohican said:

My friend worked in Spain from 2014 to 2016 returning to the UK in August 2016. She had reputable employment and paid tax and completed La Renta for 2014 and 2015 but had a 5 month old baby at the vital time in 2017 when she should have completed the Renta for 2016. 

She is now being pursued by HMRC on behalf of the Spanish Tax Authorities for tax for the 2016 tax year including tax on the pay she received in the UK from her UK employment after she had returned plus penalties.

The first time she know about this was when HMRC contacted her. She received nothing from the Spanish authorities though post could have genuinely gone missing.

There are large amounts of money involved, approaching £10000 at present. To be clear, she paid the Spanish equivalent of PAYE while she was there and has paid UK PAYE once back in the UK.

She has now received some documents from Spain which she is trying to understand and sort out but its hard to know how to develop a plan of action. She is willing to pay something, she has no choice really - but would like to understand what the likely outcome is.

Has anybody any experience or knowledge of this sort of problem and can they offer any guidance? 

Is MSE the best place to ask or are there more specific forums for this sort of thing?

Perhaps as a starting point there is some official HMRC guidance in their Debt Management and Banking Manual for their pursuit of foreign tax debts:

https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm560245

Catonthemoon

If she has paid the Spanish equivalent of PAYE for the duration of her employment in Spain (2014 -2016), how can she have an outstanding tax liability? And, in particular, for the amount that’s involved?

sheramber

Catonthemoon said:

If she has paid the Spanish equivalent of PAYE for the duration of her employment in Spain (2014 -2016), how can she have an outstanding tax liability? And, in particular, for the amount that’s involved?

That is why the friend needs to post herself so the  relevant information can be ascertained

mybestattempt

sheramber said:

Catonthemoon said:

If she has paid the Spanish equivalent of PAYE for the duration of her employment in Spain (2014 -2016), how can she have an outstanding tax liability? And, in particular, for the amount that’s involved?

That is why the friend needs to post herself so the  relevant information can be ascertained

The OP has already said the Spanish tax debt includes penalties/fines which is perhaps unsurprising if the friend failed to file her Spanish tax return for the 2016 Spanish tax year in 2017; it's 8 years late. There may also be accrued interest for late payment.

If the friend disputes the amount being pursued by HMRC for the Spanish tax authority she will need to tell HMRC and then must take her dispute up with the Spanish tax authority.

If she accepts the amount is correct then she can ask HMRC for a time to pay arrangement if she cannot pay in full.

I think the friend will need to seek advice from a competent qualified tax adviser/accountant who knows Spanish tax laws and the procedures of the Spanish tax authorities.

EnglishMohican

mybestattempt said:

The OP has already said .....

Thank you for reading my post carefully. 

She has already contacted HMRC - they have postponed action for 4 weeks while she sorts it out with the Spanish Tax Authorities -but will not do anything other than accept the Spanish decision.

She is also talking to a tax expert in Spain - apparently they are quite common as many Spaniards use them to fill in the Renta whenever it is even slightly complex.

She does question the calculation - I think anybody would until they at least saw it and understood it and we have not got to that stage yet. 

So we have determined that if it was UK tax, HMRC would want the forms filling in (Self assessment form being the equivalent of the Renta), would then recalculate the tax and interest payment, possibly reducing them to zero but leaving the penalty in place for causing the extra work. We do not know whether the Spanish Authorities do the same or something different - and perhaps much more expensive. Essentially, that is the question I was looking for help with.

As a follow up, Spain's tax year runs from January to December - so she was in Spain for more than half a year, so Spain considers her to be a Spanish Resident. As the UK year runs April to March, they also consider her to be a British Tax Resident. That seems to cause confusion as both seem to want all the tax! - Well, that's the fear, Does anybody who has been through this or really knows tax law understand how this works out?

So we are looking for a broad brush but authoritative view of the process we should expect. 

DRS1

Sounds like she needs to look at the double tax treaty.

Also the UK allows for split years (ie non resident up to x date and resident after x date).  Not sure if there is a time limit for claiming that or if Spain does likewise.

mybestattempt

EnglishMohican said:

mybestattempt said:

The OP has already said .....

Thank you for reading my post carefully. 

She has already contacted HMRC - they have postponed action for 4 weeks while she sorts it out with the Spanish Tax Authorities -but will not do anything other than accept the Spanish decision.

She is also talking to a tax expert in Spain - apparently they are quite common as many Spaniards use them to fill in the Renta whenever it is even slightly complex.

She does question the calculation - I think anybody would until they at least saw it and understood it and we have not got to that stage yet. 

So we have determined that if it was UK tax, HMRC would want the forms filling in (Self assessment form being the equivalent of the Renta), would then recalculate the tax and interest payment, possibly reducing them to zero but leaving the penalty in place for causing the extra work. We do not know whether the Spanish Authorities do the same or something different - and perhaps much more expensive. Essentially, that is the question I was looking for help with.

As a follow up, Spain's tax year runs from January to December - so she was in Spain for more than half a year, so Spain considers her to be a Spanish Resident. As the UK year runs April to March, they also consider her to be a British Tax Resident. That seems to cause confusion as both seem to want all the tax! - Well, that's the fear, Does anybody who has been through this or really knows tax law understand how this works out?

So we are looking for a broad brush but authoritative view of the process we should expect. 

My understanding of disputing/appealing Spanish tax charges and penalties/fines is limited nor do I have any personal or professional experience in that field.

However, from an article I found today it appears the Spanish tax expert will be able to advise your friend about how to proceed given the normal time limits to appeal have long passed:

https://saez.law/en/post/multas-y-sanciones-hacienda-extranjeros/


If it is possible for a late Spanish tax return to be submitted for 2016 the Spanish tax expert will be able to advise on the amount of UK income to be included and any claim/deduction relating to UK tax for relief under the double taxation agreement between Spain and the UK.

poseidon1

DRS1 said:

Sounds like she needs to look at the double tax treaty.

Also the UK allows for split years (ie non resident up to x date and resident after x date).  Not sure if there is a time limit for claiming that or if Spain does likewise.

Suspect there is no point the OP or the friend trying to make sense of the DTA between Spain and UK.

As pointed out by @mybestattempt, she will need a UK adviser versed in cross border tax planning and compliance to determine her UK tax exposure in the year she arrived ( the split year rules), how this dovetails with her obligations when she departed Spain and which jurisdiction takes priority in terms of primary tax payable as countered by any DTA relief due in the other jurisdiction. 

DRS1

poseidon1 said:

DRS1 said:

Sounds like she needs to look at the double tax treaty.

Also the UK allows for split years (ie non resident up to x date and resident after x date).  Not sure if there is a time limit for claiming that or if Spain does likewise.

Suspect there is no point the OP or the friend trying to make sense of the DTA between Spain and UK.

As pointed out by @mybestattempt, she will need a UK adviser versed in cross border tax planning and compliance to determine her UK tax exposure in the year she arrived ( the split year rules), how this dovetails with her obligations when she departed Spain and which jurisdiction takes priority in terms of primary tax payable as countered by any DTA relief due in the other jurisdiction. 

Yes Article 14. 2 is as clear as mud.  It helps to substitute UK and Spain for first or other Contracting State.

Article 14 

INCOME FROM EMPLOYMENT 

1. 

Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other 

similar remuneration derived by a resident of a Contracting State in respect of an 

employment shall be taxable only in that State unless the employment is exercised in 

the other Contracting State. If the employment is so exercised, such remuneration as is 

derived therefrom may be taxed in that other State. 

2. 

Notwithstanding the provisions of paragraph 1, remuneration derived by a 

resident of a Contracting State in respect of an employment exercised in the other 

Contracting State shall be taxable only in the first-mentioned State if: 

a) the recipient is present in the other State for a period or periods not 

exceeding in the aggregate 183 days in any twelve month period 

commencing or ending in the fiscal year concerned, and 

b) the remuneration is paid by, or on behalf of, an employer who is not a 

resident of the other State, and

c) the remuneration is not borne by a permanent establishment which the 

employer has in the other State.

OP I was also thinking of the tie breaker rules in Article 4 for the debate about where she was resident in the different Spanish/UK tax years.  They may not help I suppose.
A link below to the DTT
 

 2014 UK-Spain Double Taxation Convention