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United Kingdom - Tax Guide for Freelance Contractors

Welcome to our guide to UK Taxation. You will find a wealth of information which will be useful if you plan to work in, or place consultants in, the United Kingdom.

Our tax guides give a general overview of the actual taxation rates and rules at the time of writing. There are of course many ways to legally reduce tax or social security burdens in the United Kingdom. Please contact us for more information or an actual breakdown of your situation, and to find out more about our range of payroll and contact management services in the United Kingdom.

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Tax-residents in the United Kingdom are generally subject to UK income tax on their worldwide income
 
Non tax-residents in the United Kingdom are liable for income tax on UK-source income only
 
 
Individuals will be regarded as tax residents:
  • if they spend 183 days or more in the country during the tax year
  •  if they visit the UK over four consecutive tax years for an average of 91 midnights or more per year.  In this case the individual is regarded as resident from the beginning of the fifth year. However, if the visits were planned from inception then the individual may be regarded as resident from the beginning of the visits.
  • Even if you make frequent trips abroad, whether for employment or other reasons, HMRC may consider that you have not ‘left’ the UK if you usually live in the UK and your home and settled domestic life remain there.  You could therefore still be considered to be UK Tax Resident despite meeting the 'midnights' criteria.
The territorial limitation on an individual’s liability to tax depends on two further factors:
  • ordinary residence
  • domicile.
Domicile:
 
Under UK law, an individual’s domicile is the country considered to be his/her permanent home, or domicile of origin, even though he/she may be currently resident in another country.
 
Residents who are not domiciled in the UK, employed by a non-UK employer and who perform other duties wholly outside the UK are taxed on compensation from that employment only if it is remitted to the UK. This is valid for a period of seven years only.
 
Ordinary residence:
 
Ordinary residence is not defined in the legislation but is generally considered to be based on an individual’s present and future intention as regards to his/her presence in the UK. Generally, if individuals are considered resident as a result of repeated visits over four consecutive tax years averaging 91 days or more in each tax year, they are deemed to be ordinarily resident.
  
Married persons and civil partnerships are taxed entirely separately and are entitled to their own personal allowances.
 
Taxable income includes:
  • salary
  • bonuses
  • commissions
  • overseas allowances
Certain deductions for 2012/2013 are permissible including:
  • A personal allowance of £ 9’205.  This will take effect in April 2013 and replaces the previous allowance of £ 8’105.

From tax year 2010/11, the personal allowance reduces - where the income is above £100'000 - by £1 for every £2 of income above the £100'000 limit.  This reduction applies irrespective of age.

Income tax rates for 2012/2013:
  • 20% from £ 0.00 up to £ 35’000 (basic rate),
  • 40% from £35'001 up to £150'000 (higher rate)
  • 45% over £150'000 (additional rate)
There are no changes to the 10% dividend ordinary rate, or the 32.5% dividend upper rate.  There is a new dividend additional rate of 42.5%.
 
Filing date:
 
The UK uses a self assessment system and taxpayers must file their tax return by 31 January following the end of the assessment year. Tax year runs from April 6th to April 5th.
 
 
 

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The information presented on this website gives a superficial overview of a very complex topic. You should seek professional advice about what to do before leaving one country, what to do when arriving in a new country of work, and most importantly, what your tax and social security liabilities will be in both, before, during and after an assignment. Please contact us for more detailed advice at info@capitaltaxconsulting.com
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