The allure of a digital nomadic lifestyle is undeniable for creative professionals. The freedom to work from anywhere in the world while pursuing your passion is a dream come true. However, with this newfound freedom comes with a common confusion on where and how to declare taxes. In this blog, we’ll explore the essential considerations for declaring income and handling taxes when moving abroad as a creative digital nomad.
Understanding Your Tax Residency
Before we dive into the details of declaring income and paying taxes while living abroad, it’s crucial to determine your tax residency status. Your tax residency affects which country has the right to tax your income. In the UK, your tax residency is determined by a combination of factors, including:
- The number of days you spend in the UK.
- Your ties to the UK, such as family, accommodation, and work.
- Your intentions regarding your stay in the UK.
1. Determine if you need to tell HMRC
If you are leaving the UK to live abroad permanently, or for at least one full tax year, you must notify HMRC. You can do this by notifying them on your self-assessment tax return orby completing form P85 Leaving the UK – getting your tax right, which you can download from GOV.UK or can complete online.
2. Declare Your Income Accurately
As a digital nomad, your income may come from various sources, including freelance work, online businesses, and investments. It’s essential to declare all your income accurately to ensure compliance with tax laws both in the UK and in your host country.
3. Understand Your Tax Obligations in the UK
Even if you are living and working abroad, you may still have tax obligations in the UK, such as reporting income generated from UK sources. Additionally, if you maintain ties to the UK, you could be considered a UK tax resident.
3. Research Your Host Country’s Tax Laws
Each country has its tax regulations, and it’s crucial to research and understand the tax laws of your host country. Some countries have tax treaties with the UK, which can affect how your income is taxed. Be aware of any filing deadlines and requirements in your new location.
4. Keep Detailed Records
Maintain thorough and organised records of your income, expenses, and any relevant tax documents. This will make it easier to report your income accurately and claim any deductions or credits you may be eligible for.
5. Consider Double Taxation
Double taxation can be a concern when you’re earning income in multiple countries. To mitigate this issue, explore tax treaties and agreements between your home country (the UK) and your host country. These treaties often provide mechanisms to avoid or reduce double taxation.
6. Seek Professional Advice
Navigating international tax laws can be complex, so it’s advisable to consult with a tax professional or an accountant who specialise in helping digital nomads. They can provide expert guidance tailored to your specific situation, helping you to reduce any tax liabilities while staying compliant with the law.
7. National Insurance Contributions
If you plan on returning to the UK, you may wish to pay your NICs whilst abroad, this will also be beneficial for state pension. Some countries have a social security agreement with the UK. This means you will pay National Insurance in the UK while you work abroad.
At AO Accountants we specialise in helping creative businesses with all things accounting, and our experience in this sector allows us to understand the challenges that business owners face in all stages of their creative business journey.
Get in contact with us here to find out how we can help you live the dream as a digital nomad.