Due to the quirks of the UK tax calendar that I described in the past, having not lived in the country for four and a half years, I would be due to file a tax return for only the third fiscal year in which I have had zero UK income this coming January. Thankfully, Her Majesty Revenue and Customs finally caught on to the fact that I have no financial obligations to the crown. Some weeks ago, I received an official letter stating that I will no longer be issued a directive to file the tax return going forward. Interpreting that as having to file my now habitual zero-income return this year still, I logged onto the HMRC Self-Assessment site and found that the return had apparently already been submitted on my behalf and my tax account balance had been confirmed as £0.00.
I have to admit that it is a reasonable approach: A couple of years of required returns to confirm the pattern of zero income, before letting the former taxpayer off the hook in a fairly non-intrusive manner.
Still, a lengthier time on the hook than the actual time living in England.
Turns out that even after not having lived in the UK for two and a half years and not having a single penny of UK-taxable income to my name, I still owe it to Her Majesty Revenue and Customs to fill out the tax return for the most recent fiscal year. Failure to do so by January 31st would result in a £100 penalty.
Apparently, the letter they sent me when the fiscal year had ended last April acts as a directive. I have received those letters for several years now, but I always assumed that they were simply form documents sent to all taxpayers. Not so. They are actually targeted to those who are required to submit a return. As I am being told, if the next year, based on my non-residency and zero-income status as recorded in this year’s return, HMRC will decide that I no longer need to file a tax return, they will not send me the letter and I will be off the hook. Of course, it is at their complete discretion: They may decide to ask me to file theoretically every year for the rest of my life (the phone representative swore that that would never happen).
The problem is, official mail from the UK takes inordinate amount of time to reach me and, while I have no specific examples of mail being lost, I can never be sure that everything reaches me properly. So, next year, I will probably be on the phone to HMRC again, trying to find out if I have to fill out the return for yet another year where I was not a UK resident and did not earn a penny of UK-taxable income.
And the funny thing is, remember how I kept saying how easy it is to complete a self-assessment return? The perspective changed greatly when I had no numbers to plug in. It still only took me less than 10 minutes, but flipping through multiple screens and waiting for “calculation” to confirm that zero income means zero owed in taxes felt rather annoying.
I’ve been back in the States and off UK payroll for nearly a year and a half. But because of the quirks of the UK taxation calendar, I ended up having had worked part of the 2009-10 tax year in the UK, for which the returns were due this coming Monday.
I sat down today to file that return, somewhat dreading that I’ll find my taxes underpaid and will have to fork over a few pounds sterling. In my previous years, I’ve never had to pay more than a few hundred with my return, but nowadays, with my remaining UK-based funds being largely symbolic, it would involve a scramble of wiring money over and making a payment right on the deadline. (I’ll be honest: I completely forgot that I still had to do it this year; I could have missed the deadline altogether if not for a friendly reminder from the Her Majesty Revenue and Customs, which arrived in my mailbox yesterday, having been mailed on December 16th.)
As I described in this post a year ago, the entire tax self-assessment process takes maybe fifteen minutes online, with a return as simple as mine – here’s how much I earned, here’s how much they withheld, no other deductions or increases, tell me how much I owe. But when I clicked on the final screen button to take me to the calculation, I was very pleasantly surprised.
It turns out that the British government owes me a neat four-digit refund. Sterling.
The calculation showed that I should have had a considerably smaller tax amount withheld from my paycheck than in fact was. Given that I worked for roughly the third of the tax year in the UK, I see two plausible explanations. First, my withholding may have been at the rate aimed at my entire yearly salary, and not commensurate with the final amount that was three times smaller. Second, tax brackets were adjusted in the UK within last year or so; my partial-year income may have qualified me for a lower bracket than when the salary was paid.
In any case, I just had a small bag of money fall into my lap from the sky. No complaints here.
Yep, 15 minutes, give or take.
January 31, 2010, is the deadline for filing UK taxes for fiscal year 2008-09, and I repeated the self-assessment process that I first mentioned here. This time, I literally typed in three different amounts provided to me on the British equivalent of W-2 form (called P60) and one other form (called P11D), after answering a series of binary questions regarding my sources of income and eligible deductions; to do all that I needed to click through about two dozen different screens at the HMRC website, but all of my personal information was already there, I only had to additionally re-enter my banking account attributes for the purposes of direct deposit. It all took 15 minutes, if that.
I actually ended up owing Her Majesty’s government a small amount of money, which was very easily paid through my UK bank online service. My tax account already reflects zero balance on the website.
Curiously enough, this is not the last time I will have to report taxes in the UK. Their fiscal year inexplicably runs from April 7th of one year through April 6th of the next. As I was on the UK payroll through early August of 2009, I earned about four months of salary in the fiscal year 2009-10. The tax return filing deadline for that will be January 31, 2011. Only after that I’ll no longer have any obligations to HM Revenue & Customs.
Few of my readers may remember the little adventure I had with my UK tax return about a year ago. In that post, I mentioned that the self-assessment process for filing tax returns in Britain is easy and even expressed anticipation towards trying it on my own.
It took a bit over two and a half hours to do everything that I needed, and most of that time can be explained away by me being somewhat tentative on my first try.
I more or less needed just three numbers, found on two forms that were sent to me at the end of the tax year in April: My gross earnings, total taxes withheld and the combined value of any taxable benefits. At the HMRC website, I then needed to provide my personal information, answer a couple of dozen Yes/No questions about what types of income I did or did not have during the year and what kinds of “reliefs” I expected to claim. After that, it was plugging the aforementioned numbers into a form, proceeding to happily review the amount of money I’m owed back, and clicking the Submit button.
Ok, it was a little bit more involved than that, primarily because as a not ordinarily resident I can exclude a portion of my salary earned while on business outside of the UK from the tax bill. Figuring out that one number took the lion’s share of the time spent on the return. But overall, the process approximated the idea of doing your taxes on the back of a napkin as close as anything else that I know.
Next year, it should take 15 minutes.
Expat taxation, That's England
If your income consists of solely salary and wages, then filing a tax return in England is a very simple self-assessment process. Online or on paper, you literally need to provide just a handful of numbers from your W-2 equivalent (called P60), tick off a bunch of boxes, sign, and voilà, you’re done.
It does get slightly more complicated if you have taxable interest earnings or capital gains (in the case of a non-ordinary non-domiciled alien who keeps all accounts offshore, those gains are non-taxable unless they are “remitted” onshore). More work comes with figuring out what you can exclude from your salary income based on having spent workdays abroad, if you are a non-dom, but in general, filing the return is a fairly quick and straightforward process.
Accounting firms inexplicably charge hundreds of pounds for the privilege of doing your UK taxes. Professional accounting help – for at least the first year, sometimes longer, – is a never-disputed component of any relocation package. Both of the facts above leave me scratching my head in confusion after my own first experience with UK returns.
The other day, I was approached by an American tax lawyer who resides in Europe and specializes in expatriate taxation. He came across my blog and, having formed a largely valid impression of me as a person who is interested in the matters of taxation, contacted me with an offer to discuss something that he feels is largely unknown to the US expatriate population: the Additional Child Tax Credit (ACTC), which provides an opportunity to certain overseas American parents to obtain IRS refunds even when US tax liability is zero and no US tax payments have been made.
I wrote in the past about tax situation that a humble expat family is stuck in. Now, there is a little twist to ours.
Expat medical notes, Expat taxation
Days are really slowing down. Maybe it’s a function of the general decrease in our touristic activity or possibly routine is continuing to take a greater hold. It could be a function of waiting – I am in the middle of the fun period of knowing the size of my bonus but not actually possessing the money yet.
Expat taxation, That's England