Tax on remaining UK work

[dangg]

Hi, I have been granted a 100 partner visa and plan to enter Australia on this. I will have two months of my notice period with my UK employer remaining when I enter Australia, and they have agreed I can work this period in Australia.

Having done some research I believe that I will be considered a dual tax national and have to make arrangements in both countries to pay the correct amount of tax.

My employer has suggested that they terminate my contract early and then work the remaining two months as a contractor and invoice them, I don't think this really makes much difference to my situation. I did wonder whether it would be possible to be paid in full for the notice period before I leave the UK, would this simplify things?

Any help welcome, thank you!

[Marisawright]

12 hours ago, dangg said:

My employer has suggested that they terminate my contract early and then work the remaining two months as a contractor and invoice them, I don't think this really makes much difference to my situation.

It would make a massive difference, and it's a good idea.  

We've had people try to stay working for a UK employer before, and it's a bureaucratic nightmare which results in you having much less in your pocket. That's because there are all kinds of complications in setting up a UK employee to work in a foreign country.

Setting yourself up as a contractor in Australia is easy. You set yourself up as a "sole trader" and get yourself an ABN (Australian Business Number).  That makes you an Australian business.   So long as you're doing the work while you're actually in Australia, it doesn't matter whether your clients are here or overseas -- you're doing business in Australia so you'll be taxed only in Australia.   

When you do the work, you'll invoice your employer at your agreed hourly rate. They don't deduct tax, they just pay your bill.  You don't need to declare anything to the UK taxman because you haven't done any work in the UK.   At Australian tax time, you don't have to do a separate business return.  You just declare your income the same way you do your salary.  

Edited February 15 by Marisawright

[Jon the Hat]

2 hours ago, Marisawright said:

It would make a massive difference, and it's a good idea.  

We've had people try to stay working for a UK employer before, and it's a bureaucratic nightmare which results in you having much less in your pocket. That's because there are all kinds of complications in setting up a UK employee to work in a foreign country.

Setting yourself up as a contractor in Australia is easy. You set yourself up as a "sole trader" and get yourself an ABN (Australian Business Number).  That makes you an Australian business.   So long as you're doing the work while you're actually in Australia, it doesn't matter whether your clients are here or overseas -- you're doing business in Australia so you'll be taxed only in Australia.   

When you do the work, you'll invoice your employer at your agreed hourly rate. They don't deduct tax, they just pay your bill.  You don't need to declare anything to the UK taxman because you haven't done any work in the UK.   At Australian tax time, you don't have to do a separate business return.  You just declare your income the same way you do your salary.  

The contractor route is a much better plan.  Your employer will probably change their view as well once they realize the implications.

[Ken]

On 16/02/2024 at 07:00, Marisawright said:

At Australian tax time, you don't have to do a separate business return.  You just declare your income the same way you do your salary.  

There is a difference in how you claim a deduction for your expenses compared to how an employee would do it.

[Marisawright]

2 hours ago, Ken said:

There is a difference in how you claim a deduction for your expenses compared to how an employee would do it.

True, I didn't want to dive into too much detail.  The main thing is that the OP is better off acting a a sole trader and it's not too scary a process.

[Ausvisitor]

16 hours ago, Marisawright said:

True, I didn't want to dive into too much detail.  The main thing is that the OP is better off acting a a sole trader and it's not too scary a process.

No sensible well-run UK company should entertain employing an ex employee as a sole trader minutes after leaving.

It will open them up to all sorts of tax implications, equally even incorporating as a company won't solve the disguised employee issue this creates.

Whilst the method suggested does theoretically potentially remove some personal dual tax implications it opens up some murky corporate tax issues for both the OP and their client (I say client because if you think of them as your employer once you start contracting you've already failed the first test of being in business and not just an employee)

Edited February 18 by Ausvisitor

[Marisawright]

1 hour ago, Ausvisitor said:

even incorporating as a company won't solve the disguised employee issue this creates.

Good point.  If the OP had been an Australian, proposing to leave his company and continue working for them full-time, I'd have said the same thing.  Or a Brit proposing to do the same thing while staying in the UK.

However wouldn't the fact that he's only going to be with the company for a couple of months out of the whole tax year, make a difference?   

 

[Ausvisitor]

1 hour ago, Marisawright said:

Good point.  If the OP had been an Australian, proposing to leave his company and continue working for them full-time, I'd have said the same thing.  Or a Brit proposing to do the same thing while staying in the UK.

However wouldn't the fact that he's only going to be with the company for a couple of months out of the whole tax year, make a difference?   

 

No, the loss of tax to the UK exchequer would be large and the employment agreement hasn't changed (in it's essence even if the legal construct has)

If they were moving from contract to employee there would be no issue as the tax take would increase, but the other way around it's significantly less

(Remember tax isn't just the employee the removal of the person from the workforce reduces the companies tax - well NI - bill 12.8% as well)

[Blue Manna]

12 minutes ago, Ausvisitor said:

No, the loss of tax to the UK exchequer would be large and the employment agreement hasn't changed (in it's essence even if the legal construct has)

If they were moving from contract to employee there would be no issue as the tax take would increase, but the other way around it's significantly less

(Remember tax isn't just the employee the removal of the person from the workforce reduces the companies tax - well NI - bill 12.8% as well)

I would have thought it would fail ir35 and be taxed the same. Just sounds like an administrative difference to me.

[Ken]

1 hour ago, Ausvisitor said:

No, the loss of tax to the UK exchequer would be large and the employment agreement hasn't changed (in it's essence even if the legal construct has)

If they were moving from contract to employee there would be no issue as the tax take would increase, but the other way around it's significantly less

(Remember tax isn't just the employee the removal of the person from the workforce reduces the companies tax - well NI - bill 12.8% as well)

There is no NI or UK tax on employees who are permanently overseas so no loss to the exchequer either way. 

Where the Contractor is both tax resident outside the UK and performing all their services outside the UK, there are no PAYE or NICs liability in respect of that individual. The employer does not even need to carry out an IR35 status determination. There could be an issue if the employee travels back to the UK and does work there as you'd need to prove it was "incidental", but Australia is a long way from the UK, so the employee isn't likely to pop by the office.

It's the UK company's responsibilities under Australian employment law that would be a nightmare for them to comply with, which is why they should have them as a contractor.

[Jon the Hat]

1 hour ago, Ken said:

There is no NI or UK tax on employees who are permanently overseas so no loss to the exchequer either way. 

Where the Contractor is both tax resident outside the UK and performing all their services outside the UK, there are no PAYE or NICs liability in respect of that individual. The employer does not even need to carry out an IR35 status determination. There could be an issue if the employee travels back to the UK and does work there as you'd need to prove it was "incidental", but Australia is a long way from the UK, so the employee isn't likely to pop by the office.

It's the UK company's responsibilities under Australian employment law that would be a nightmare for them to comply with, which is why they should have them as a contractor.

Well put Ken, none of the points above are relevant for an overseas contractor.

[dangg]

Thank you all for your input, really appreciate it! Has certainly helped clarify a few things and made me more comfortable with taking on the arrangement as detailed above.