Victoria – studying and working abroad on a longer term basis
Following the 2016 European Union (EU) membership referendum in the UK, on 29 March 2017 the UK provided notice to the European Council of its intention to withdraw from the EU under Article 50 of the Treaty on European Union. At the time of writing (in March 2019), the date and terms of the UK’s departure from the EU have not yet been finalised. Therefore, please note that the guidance below reflects the law as it applies before the UK’s departure from the EU.
Victoria finds an English taught degree course in Amsterdam that she would like to do, where the tuition fees are lower. This is a three-year course starting on 15 September 2019. She lives in student accommodation in Amsterdam and works casually in a restaurant earning EUR 50 a shift, cash in hand. This is her second job in 2019/20 – her first one was a one-off modelling job in the UK in May 2019, where she earned £10,000. She comes back to the UK for a week at Christmas, a couple of days at Easter and one week over the summer to see her family and she always stays in her family home during this time.
In 2019/20, Victoria will probably be tax resident in the UK as she has her only home in the UK (albeit her parent’s home) for part of the year, even though she has fewer than 183 days of physical presence in the UK.
The first thing Victoria should do is seek some advice as to what, if anything, she needs to do to regularise the Dutch tax position. It may be correct for her employer to pay her in cash, but the last thing you want is to get on the wrong side of a foreign tax authority due to inadvertently underpaying taxes. In any case, the restaurant earnings should be taxed by default in the UK as this is her country of tax residence.
Here we assume there is no Dutch tax credit on the basis that she has paid no Dutch tax. As there is hardly any of her personal allowance left either, there will probably be a UK liability on the Dutch earnings, so she should register for a 2019/20 UK tax return.
For 2020/21 Victoria will spend the entire UK tax year (apart from 10 days) in the Netherlands. Under the Statutory Residence Test she may well be classed as non-resident during 2020/21 due to the very low level of physical presence in the UK. Her Dutch restaurant income now falls outside of the UK tax net and is taxable in the Netherlands only.
As a non-resident, Victoria will only be taxable on UK source income in 2020/21 in the UK – any UK bank interest, dividends or rental income for example. She does not have any, but if she did, she would still have the benefit of the UK personal allowance to set against such income because she is a UK citizen.
If Victoria completes a 2019/20 UK tax return, then HMRC may well issue one for completion for 2020/21 too. If Victoria does not consider that she needs to complete it (i.e. because she is a non-resident and has no UK source income), she can phone HMRC and explain that she is non-resident with no UK source income and ask them to withdraw it. If she does not do this but also does not take action to file it, late filing penalties may accrue unnecessarily – they can be up to £1,600!
Please note that even if Victoria does end up being classed as tax resident in the UK for 2020/21, it is likely her Dutch earnings, if they are her only income, will fall under the UK personal allowance, so this does not change the bottom line of there being no UK tax to pay.