UK Fact-File Part 3:
Individual Business International Taxation

3.1 UK Individual Business International Tax Liability

Taxes incurred in foreign countries

An individual based in the United Kingdom can incur tax overseas in various different ways, and all types of foreign income should be declared by a resident individual, with a bun-fight over taxing rights potentially ensuing between the taxing authorities in the respective countries. Taxes applied in a foreign country may often be in the nature of 'withholding' taxes. However, if there is a double tax agreement in place between the country in question and the UK, then the ‘pecking order’ in terms of taxation will likely have been addressed already. If a tax treaty is not in place, then a credit against the double taxation of the income in question may be available, up to a point.

Value added tax may also be a consideration, depending on the turnover level, and under new rules coming into force between 2010 and 2015 which are likely to affect individuals exporting their services, business to business (B2B) supplies of services will be subject to VAT in the country in which the buyer is located, rather than the supplier’s country of residence, with the business consumer required to account for VAT using the reverse charge mechanism (whereby they act as both the supplier and the consumer, charging themselves the VAT where appropriate, and then claiming it back). However, changes relating to telecoms, broadcasting and electronic services are being delayed until January 1, 2015.

For business to private consumer (B2C) supplies of services, the place of taxation with regard to VAT will remain as the supplier’s location.

There will, however, be certain exceptions, where the general rules do not apply, and specific rules will be in place, to reflect that the place of taxation should be where the service is consumed. Exempted areas will include: the electronic supply of services, telecommunications and broadcasting, certain catering and hospitality services, scientific and educational supplies, and cultural and sporting services and supplies.

Tax reporting abroad

If the income earned overseas is potentially also liable for taxation in the UK (which, for an UK tax resident will be the case for almost all, if not all income), then evidence of the taxation incurred overseas will need to be provided to HM Revenue & Customs in order that the same income is not taxed twice.

Therefore, it is very important to obtain documentary evidence of the payment of any foreign tax which may be reclaimable or offsettable back in the UK.

In December 2009, HM Revenue and Customs warned holders of offshore accounts that they would need to declare account balances of greater than GBP25,000.

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