Self-employed and overseas
Many people in the armed forces may be posted overseas. Whether you or a member of your family carry out self-employment during that time, this section will help you comply with your UK tax obligations in relation to that self-employment.
We can give no information in relation to any obligations you may have overseas. You must satisfy yourself that you have complied with any requirements overseas. This includes making sure you have a right to work there. You may need a work permit or special visa for this purpose.
I am living overseas. Do I need to report my self-employment profits to the UK tax authorities and pay tax there?
The answer to this question is not straight-forward. This depends on where the self-employment trading is taking place, how long you have been living overseas and the tax agreement between the UK and the country where you are resident.
If you are trading in the UK, then any profits made in the UK need to be reported to HMRC and UK taxes paid on them, regardless of how long you have been living overseas. In many cases it will be clear where trading is taking place. For example, if you do painting and decorating work in people’s houses close to where you live in Germany, then you are trading in Germany. If you are not sure, then HMRC’s Manuals give some further guidance, but you may also wish to take professional advice.
The length of time you have lived overseas is also relevant. It is important to decide whether you remain UK resident, despite living overseas for a period of time. You can do this by using the Statutory Residence Test. For background reading you will find the section on Residence useful. If you remain UK resident, then you have to report your profits to HMRC and pay tax on them in the UK.
The final piece of information needed is whether there is any Double Tax Agreement between the UK and the country where you are now living. This is relevant because it is possible you may also have to report your profits and pay tax on them in the country where you are living. Thankfully this does not mean that you will pay double the amount of tax: instead, one country is given the first chance to charge taxation (‘primary taxing rights’), while the other country will take into account some (or all) of the tax already paid. You can read more about this on GOV.UK.
Do I still need to pay UK National Insurance contributions on my self-employment profits?
First, remember you only pay these contributions between the ages of 16 and state retirement age. As is the case for taxation shown above, there is the possibility of being liable to pay social security contributions (National Insurance contributions) in more than one country. There are ‘Reciprocal agreements’ that determine which country has the first right to collect those contributions.
Broadly you are liable to pay Class 2 National Insurance contributions if you are self-employed in the UK; and either
- You are resident in the UK; or
- You have been resident in the UK for at least 26 of the previous 52 weeks.
You may also choose to pay Class 2 National Insurance contributions even if you do not have to. This might help protect your entitlement to certain state benefits in the UK. You can read more about this in the section of our website dealing with ‘Self-employment’.
If you are accompanying your spouse on an armed forces posting overseas then you are automatically credited with National Insurance contributions and so would gain no benefit from paying any on a voluntary basis. You can read more about this in our section on ‘Residence and domicile’.
You can choose to pay such Class 2 National Insurance contributions on a voluntary basis for any week if:
- You are present in the UK; or
- You are self-employed outside the UK, you would be eligible to make the contributions if you were resident in the UK and you were paying National Insurance contributions as an employed or self-employed earner before you left the UK; and
- You have been resident in the UK for a continuous period of three or more years before these contributions are paid; or
- In any three prior tax years broadly you have paid National Insurance contributions based on earnings equivalent to around £8,424 (2018/19 level).
As far as liability to Class 4 National Insurance contributions is concerned, if you are not resident in the UK according to the Statutory Residence Test, then you are not liable to pay those contributions.
You can read more information on GOV.UK.