P85 and Contracting Overseas
26th September 2019
When you’re a contractor doing some or all of your work overseas, your tax situation can get a little tricky. For one thing, you’ve got to get in touch with the taxman to make sure your paperwork’s in good order.
Depending on how long you’ll be away, and a few other details, your residency status for tax purposes might change. One of the major documents involved in working overseas is the P85. Form P85 can be filled in online or in writing and it basically just helps HMRC work out what your tax status is when you’re leaving the UK. Generally, you won’t need to file one if you’re leaving for under a full tax year. However, if you’re going to be away for longer (or even permanently), your P85 suddenly becomes a lot more important.
If the length of time you’ll be out of the country means you don’t count as a UK resident for tax, you’ll only have to pay UK tax on any UK earnings you’ve got while overseas. For instance, if you’re earning money in the UK by renting out your property while you’re gone, that cash will be taxed as normal. As for who counts as a UK resident, in simplest terms it comes down to where you’re spending your time and what sorts of ties you have to the UK. For example, if you spend over 183 days in the UK during a tax year, you’ll probably count as a UK tax resident for that period.
One thing to keep in mind is that HMRC doesn’t just handle your Income Tax. There’s also your National Insurance record to consider. If you’re contracting overseas, you might be able to keep your NICs up to date while you’re away, so you don’t lose out on things like the State Pension down the line. This is generally only possible if you’re abroad for 2 years or less, though. It also makes a difference where in the world you’ll be working, so make sure you understand your position before making any arrangements. In some cases, your UK NICs can be used to qualify for allowances and benefits in the country you’ll be working in. There are some arrangements in place around the world to make this possible – but again, a lot depends on where you’re going and how long you’ll be there. Moving overseas for good will mean you don’t have automatic access to the UK’s NHS, for instance.
Obviously, the big danger is getting caught between 2 different countries’ taxation systems. Once again, the UK has some agreements in place to prevent you from getting taxed in 2 countries at once, but they’re not universal. Where there’s a “Double Taxation Agreement” in effect, then the tax you’re charged in one country can count against your tax bill in the other. You might, for example, be eligible for tax relief before your tax is taken off, or a refund afterward. As always, you’ve got to scout all this out beforehand, and get professional advice if you’re not sure where you stand.
While a P85 takes care of a lot of the details when you’re working overseas, it’s probably not the only thing you’ll need to take care of before you ship out. You won’t want to find yourself paying Council Tax on a property you’re not using, obviously, or running up unnecessary business costs if you’re working as a Limited Company. If you’re not absolutely sure of your footing, it’s always worth checking with a professional before you set off.
Those are the basics you’ll need to know when you’re contracting overseas. Whatever questions, problems or worries you’ve got, give RIFT a shout. We’ve got over 2 decades of experience sorting out tax issues and tax refunds for offshore workers, so wherever you work you’re always better off with RIFT.
RIFT are the UK's leading tax rebate and tax return specialists, who've been in the industry since 1999. If you want to know if you've got a claim, use our tax rebate calculator to get a free and instant estimate of how much your refund could be worth.