Where should you pay your taxes? In the UK or abroad?
I wrote an article on double taxation on the Polish Emito.net website, where I described in detail how double taxation works. Here, however, a quick summary in English and a reminder that, as a tax resident of a given country, you pay taxes where you reside.
I rent out an apartment abroad - I pay taxes in the UK!
It is not an isolated case when a client comes to my office worried because they never informed HMRC about their foreign income. Piotr has been renting flats in Poland for more than 4 years. He pays a tax in Poland using the Polish 8.5% flat rate. He believed that he did not have to pay tax on this income in the UK or even tell anyone about it, because he'd already paid one tax. Unfortunately, it turns out that he might be a subject to a fine of up to 200% of the tax he should have paid in the UK. Usually HMRC fines are up to 100% of what we owe in overdue tax. Here, however, with foreign income, which is more difficult, but not impossible for HMRC to verify, the fines can be higher.It is worth mentioning that the information flow between HMRC and the Polish ZUS (responsible for national insurance) is getting better and it is possible that Brexit will only intensify it.
Are you dreading the manila envelopes from HMRC?
Piotr admitted that he gets worried when a manila envelope from HMRC lands on his doorstep. I reassured him that we still have the chance to fix this, and that HMRC looks favourably on those who want to correct their mistakes. It also means that we can reduce all fines, depending on whether we report to HMRC ourselves and how detailed our report is. With Piotr, we go back four years, but I am dealing with a another case where the tax return will cover the last 8 years.
Recently, there are more and more cases when I fix the mistakes individual clients made in the past and it gives me great satisfaction when I hear about the relief they feel when they can finally get rid of this burden. And Marek, the one whose problematic accounts go back 8 years, told me that he feels at my office like on a therapist's couch.
If you have a similar problem, call me. I will help.