tax/business concerns

[allatsea]

Dear all,

this is my first posting.

I have been reading many posts on the subject of taxation. However, I need a few things cleared up. I am a teacher who in August will be moving to France as a resident along with my wife and three young children. I intend to teach in England travelling back to Normandy each weekend for about 20-25 weeks of the year. My questions are therefore as follows;

1. I think it is best register as a self employed person in France paying cotisations in France. I hope to avoid French income tax due to the double taxation treaty. In view of the amount of travelling I will have to do am I best served by being registered as regime reel where I can claim travelling/ subsistence expenses?

2. In England, I believe I need to either set up  a limited liability company whereby I will have to pay corporation tax and NI, whilst paying myself a salary and dividend. However, do I therefore work for myself and fill in a form E101 as I will be working for a company (my own) or do I register as an E106? I will be in France for more than 183 days of the year, although I have a principal private resince in England which is let out and a farm in France.

 Further, I have been informed by some teaching agencies that I can no longer work as a Limited Liability Company due to tax changes involving IR35 introduced last year? If so am I then looking at joining an umbrella company in England whereby they become my employer, and I pay them an administration fee. Can I still then receive the same expense benefits as I would if registered as LLC. Incidentally, I have a contract which begins in April 2009 paying me for my services as an Educational Consultant,  It is a one off payment and teaching would further supplement this amount. I am wary of earning too much money  in my first year as a self employed person, for fear of future tax penalties being incurred when assessed. However, if the monies earnt went into a my company, I would only be taxed on my salary- I think. If the money, in particular, the one off payment ( a not inconsiderable sum), came directly into my bank account  as income. I fear I could in future years be heavily taxed. Am I better advised spreading the one off payment over a number of years if the money does not go into my company but directly into my bank? I hope this makes sense to you?

3. Given I qualify for under the baner of an E106 or E101 is it compulsory for me to pay for a top up health  insurance, if so can you provide a guesstimate as to cost?

4. It is likely that I will have to pay two lots of NI (in England and France) which I feel, if so, is very unfair. How do I limit the level of cost?

As my name suggests I am all at sea, and I apologise in advance if I seem ignorant but I would appreciate some help on any of the aforementioned points. If you can answer any of these questions I would appreciate it. Furthermore, I would like to make contact with an English speaking French account preferably in the Normandy region who would be sympathetic to my concerns. I have emailed a couple but as yet received no response.

[Albert the InfoGipsy]

Lots of questions, but a lot of them would be avoided if you accept that working in the UK means that you do not need to register a business in France and should not pay cotisations there. The simple rule is that you pay tax & NI (or equivalent) in the country where you earn the money.You may need to pay some social charges, however. Where will you be working as a consultant?

I'm a freelance IT consultant, rather than a teacher, but the same rules apply.

Depending on what your potential clients expect you could operate in the UK as a sole trader, through your own limited company (I do, and I have reviewed my IR35 status), through an umbrella (automatically caught for IR35) or as a PAYE employee of an agency.

IR35 is a set of tax & NI rules used by the Inland Revenue to catch people who are really employees but trade as freelances. If you will be working as a staff member in a school alongside permanent staff then you may be caught by it. under different circumstances you will not.

If you are caught by IR35 then you pay tax & NI pretty much the same way as an employee does on 95% of your earnings; expense and dividend payment benefits are restricted to (IIRC) 5% of your turnover. If you operate through your own limited company then your exposure to IR35 depends on the terms of your contracts, as well as the reality of your working conditions. Under recent legislation, working through an umbrella company makes you automatically caught.

E101 has been replaced by EHIC and is intended for emergency cover on holiday. In the circumstances you describe you probably won't get an E106.

I must admit that I'd expect a teacher who is also going to be a consultant to have researched things better than your questions indicate. You could start here:

http://www.pcg.org.uk/cms/index.php

[AnOther]

Whew, all totally over my head but if there was ever someone who needed to consult an internationally qualified accountant....................................[:-))]

Good luck [:D]

[LEO]

To allatsea,

Ten out of ten for your choice of name!

[allatsea]

Thank you Albert,

 

I appreciate your help I have only just started researching and my expertise as a consultant is in education, a former Head, certainly not tax affairs. However, with people like you advising me I am sure I will come up to speed soon.

Notwithstanding the last remark, your advice is much appreciated. The IR35 does appear to be a problem. I shall be working as a supply teacher in England through agencies. I only need to work for a part of the year working as a freelance alongside permanent staff. With regards to your statement

 

‘Under recent legislation, working through an umbrella company makes you automatically caught.’

 

I am unsure therefore, how some teachers I know are working ‘supply’ via an umbrella organisation.

 

Ernie Y you are probably right, could you therefore help in recommending as was requested an accountant

[allatsea]

Dear Albert,

‘E101 has been replaced by EHIC and is intended for emergency cover on holiday. In the circumstances you describe you probably won't get an E106’.

I have informed the inland revenue of my intentions as previously laid out; I specifically asked if I would be eligible for an E106 the person I spoke to even suggested that I take a serious look at using the E101 form but if it is, as you say, purely for emergency cover than that would be impractical. (Although it could be argued, that supply teaching is by definition exactly that, emergency cover) This was confirmed by the IR that I would, on the proviso I that I paid social charges/cotisations and that France was my place of residence spending more than 183 days there. Surely, given I became self-employed in France would not my case for obtaining an E106 be further strengthened?

Please appreciate in your replies that I am new to this.

 

Albert, what it appears you are suggesting is that under the conditions that I have described I will not be eligible for an E106, which is worrying? If this is the case what would you suggest I do so that I can teach in England for 20 weeks (coming home at weekends) avoid losing a large part of my consultancy payment to the tax man and still be eligible for E106.

I am not trying to be awkward, I just need some answers. I am asking you because you at least provided a helpful response.

[Albert the InfoGipsy]

Dear Allatsea,

You are actually asking several questions and mixing them up a bit in the process.

I'm not terribly knowledgable about qualifying for an E106 so you may get one, but even so it's only issued for a maximum of about 2.5 years and some people get less. You would need to plan for what happens after the E106 runs out.

The question of where you pay tax & NI/cotisations is normally decided by where you do the work that earns the money. If you will be doing all your work in the UK then you will pay tax & NI there. France may take certain social charges but they will be very small compared to the UK deductions. If you will be doing the teaching in Britain and the consultancy while in France then your earnings for each strand of your business will be handled by the country where you do the work.

EHIC (was E101) is for people on holiday in Europe and I would expect that for someone primarily resident in France the UK authorities would not issue one. There may be an E-form that would cover you but it would probably have to be issued by France.

On IR35, it is purely a UK tax & NI issue. It does not directly stop you following any career or taking any job. I'll give some simple figures to illustrate. All the figures, including tax rates are simplified for my sake!

Charlie earns £50,000 gross from his work as a freelance.

If he has his own Ltd Co and is not caught by IR35 then he claims all his expenses for travel (£5,000), accountant fees (£1,000) and various other costs (£4,000) as legitimate business costs. This leaves £40,000. He pays himself a salary of £10,000 a year, on which he pays tax & NI (£2,000) leaving him with £8,000 net salary.. The remainder (£30,000) is liable to business rate tax at 20% (£6,000), leaving £24,000, which he takes as dividends, which are not liable to NI and are treated as tax paid. Higher rate tax kicks in at about £34,000 so Charlie is not affected by that. His total tax & NI come to £8,000.

In this scenario, Charlie takes home £32,000 in total.

If caught by IR35 the basic rule is that you can deduct 5% (£2,500) of your turnover to cover business expenses, although travel and some other costs directly attributable to a given contract can be deducted as well. Let's allow Charlie's £5,000 of travel as well. This leaves £42,500 to be taxed and have NI deductions. The NI cost is 20% (employer + worker deductions), that's £8,500. Tax is based on the whole of  the £42,500. In simple terms that's 20% of £35,000 and 40% of the rest making about £10,000. Charlie's total tax & NI come to £18,500.

Under IR35 charlie gives HM government about £10,000 more than if he was not caught. That's about 120% extra

The difference gets worse the more you earn, so if Charlie was earning £25,000 then he may only pay 50% more, at a guess.

You really need to get the figures for the amount you expect to earn and do the sums. Speaking of sums, I'm prepared to have mine corrected. It wouldn't be the first time I've got them wrong, but the basic message is definitely true.

Good luck.

 

 

[allatsea]

Thank you again Albert,

 

You’re an absolute diamond,

 

I’d very much appreciate it if others could contribute as there must be other people thinking about living in France who would benefit from reading this site who are considering working (in my case for a short period) in UK but living in France, I contacted a tax company based in England yesterday, but wanted £1400 for a 4 page letter and advice for 6 months- I may have badly misjudged them but I sensed I was being ripped off, in effect exploiting my inability to speak French fluently, I am asking again, does anybody know of an English speaking French based accountant preferably in Normandy who is conversant with both English and French tax systems with business integrity.

 

I am concerned Albert, that if I stick to paying into the English tax system, my family will not qualify under French health system We want to live in France. I am happy to pay cotisations and would even pay NI in England also (which I still think would be unfair) if it meant I could stop worrying about the health of my family. I just have to work in France for a period of time

 

I am sure there is a way through this and if the solving of this problem can be achieved through this link then it would put a stop to unscrupulous accountants ripping off well meaning, hard working British émigré’s seeking a better life.

[Rose (& Greyman)]

Sorry allatsea I cant give any direct advice for your situation as I'm a long way from you and my circumstances are not identical. I have found a local accountant who I am consulting and that must be the best solution - there will be some in Normandy without a doubt, you just need to try lots of forums for recommendations.

However, what I wanted to say was about cost. I am actually an accountant, no knowledge of French tax law though, but you have to realise that the advice you seek is very specialised. Others can give either generalised or detailed advice on here but it is unlikely to cover your circumstances exactly. You need to be sure that what you are told is precise and also that you have a comeback if it is wrong. The cost of a mistake could be as much as 50% of your income if you find yourself in the fairly punative French tax and cotisation system unexpectedly. You may find a local accountant who will charge less than £1400 but that is not actually a huge fee for the knowledge you require. It is not the lenght of the letter it is the quality that is in it that counts, and for a specialised situation that can only be earned the hard way by the provider so they have to charge a lot to cover that effort. And six months continuing support in a specialist area is also not cheap.

So, what I'm saying is not necessarily to go wit the £1400, but don't expect to get this sort of advice for free or on the cheap. It will likely backfire on you. I'm sure you'll happily pay more than this to move your furniture to France so why not for financial peace of mind.

Hope it all works out.

[Will]

I believe Albert is wrong on one thing. The E101 has not been superseded by the EHIC (he may be thinking of the E111), and it offers full cover for the holder. It is valid for one year, and may, with the agreement of the authorities in England and France, be renewed for a further year. It is not intended for those moving permanently to France so you have to retain a UK office address. As its purpose is for those working in UK going on temporary assignment to another European country, you would have to continue the same work overseas as you were previously doing in Britain, and leave the door open, so to speak, to return to Britain before the form runs out. In practice, there is no reason why you cannot change your mind and register as a business in France before the E101 expires. I did.

Where this falls down in your case is that, if I read things right, you will still be working in Britain (teaching), and doing something different in France (farming). So the E101 would not suit, and you would be expected to pay tax in both countries on your work in each place.

Where you pay social security depends basically on where you spend most time. If you spend more time in Britain and neither you nor any of your family members work in France, your situation is reasonably clear - you pay NI, you apply for an E form (probably E109) for your family, and you use the EHIC for your own health cover when in France. If you work in France as well, or spend more time in France than Britain, things start to get very complicated, with serious consequences if you get things wrong - so you MUST take good qualified professional advice.

[allatsea]

Thank you Will and Greyman,

Some very good advice, many thanks for both your constructive help and interest. An accountant is important for advice. I agree. I will continue with my research so that when the day arrives I will be confident and prepared. I shall watch and learn as much as I can from this and other sites. If there is anybody who can recommend a good English-speaking accountant in France, I really would appreciate it. I am looking into a company in Guernsey called PKF and another named Club 95. Has anyone any experience in dealing with these two companies. I would appreciate some feedback.

[Russethouse]

Can you not legitimately avoid the dreaded IR 35 by having more than one UK employer ?  How difficult would it be to do other private work independent of your first contract ?

[Will]

I would recommend anybody to read the guides put out by PKF which are kept well up to date. I have sent you a private message about the other company you mention.

We use an excellent accountant based near Rennes, though I believe they are somewhat overloaded so may not be taking on new work at present.

[allatsea]

Thank you Will,

I left a message with an accountant advertised in AngloInfo based near or in Rennes. In the event I receive a response I will let you know.

I have not received your private message.  Would you mind trying again? I very much appreciate your help.

[Albert the InfoGipsy]

[quote user="Will"]

I believe Albert is wrong on one thing. The E101 has not been superseded by the EHIC (he may be thinking of the E111), and it offers full cover for the holder.

Well spotted, Will. I was hoping you'd turn up.

Where this falls down in your case is that, if I read things right, you will still be working in Britain (teaching), and doing something different in France (farming).

Didn't notice anything about farming. Which post was that in?

[/quote]

By the way, I totally agree with the people who say you need a suitable accountant. I would guess that you'd have a better chance of finding one in Paris or another major cosmopolitan city.

[allatsea]

Ref: Farm

 

Third paragraph, (question number 2)

 

I do have a farm which will initially be used on a non commercial basis.

[Will]

Thanks - I knew I'd seen something about a farm in there somewhere, but on second reading I note that you may not be actually farming there. However, there is something called the MSA (Mutualité Sociale Agricole) that seems to poke its oar into any use of farming land, be it commercial or non-commercial, to demand its pound of flesh. It's certainly not easy (officially, at least) to take on a farm and run it as something else, so I would advise finding out a bit more about your possible commitments (should any apply to you) as an owner of agricultural land.

I have re-sent the PM. sorry, but on the first attempts I got time-out errors. Slow forum again...

[Albert the InfoGipsy]

So you won't actually be farming as a business -- there are lots of French rules about that, I believe. There are lots of people on here who 'own a farm' but have never sold a potato or a pig in all the time they've been in France.

Just to emphasise something. You can't choose where to pay tax and other charges, except by adjusting your living/working patterns to comply with the rules you want to have applied.

Edit: Will posted more detailed info about this while I was typing.