Tax return for self-employed in Ukraine

Dear Sirs, I have a few questions about self-assessment in my particular case. My wife and 14 years old daughter arrived in the UK in May 2022 under the Homes for Ukraine scheme and stayed with their hosts till the beginning of January 2023. Then they were able to rent the apartment together with another co-tenant and move there. I left Ukraine later in November 2022. At first I stayed in Poland till January 7 2023. Then I moved to the UK (also under the Homes for Ukraine program) and I’m still staying with my host here. Since then till now I also have spent some time outside the UK (about 2 weeks in March, about 4 weeks in April-May, about 4 weeks in July-August). In Ukraine I am registered as self-employed and I’m working as an independent contractor in web-development. My customers are foreign companies (neither from Ukraine nor from the UK). After leaving Ukraine I wasn’t sure about my further location but I needed to keep working, so I set up a Revolut account in Poland to withdraw my earnings, which I receive to my Payoneer account in USD only. And I keep working this way now. I didn’t open and still don't have any UK bank account due to several reasons: 1) it was a tough situation in general and I wasn’t sure about any further plans and possibilities for me and my family in the UK 2) I keep working with the same clients since before leaving Ukraine as Ukrainian self-employed contractor 3) I wasn’t (and I’m still not) sure about my residency 4) I don’t use all my earned money myself in the UK and send some of it to Ukraine for my elderly parents and other relatives and friends I need to support. So I used my Revolut (EU) account and card to pay for the goods everywhere I went (including the UK) and to support some of my close people outside the UK. In the UK the tax year finishes on the 5th of April. In Ukraine the tax period starts on January 1st and ends on December 31st. I should have reported quarterly in Ukraine but I didn’t do it during this year yet as I’m still not sure about my residence. I’m going to do it for the whole year if I figure out that I need to. But as a self-employed I make my regular required social insurance payment every 3 months in Ukraine. Recently (before October 5th) I’ve registered for self-assessment as a sole trader in the UK just in case I need to send a tax return for 2022-2023. And now I need to figure out a few things to make everything properly. And the first of these things is what my residence is. On the one hand according to my SRT I should be a UK resident in 2022-2023 (if I understand it correctly) as I have worked as self-employed from the UK since I’ve moved here for almost 3 month. On the other hand Ukraine may still be considering me as its resident due to several factors: 1) I’m still registered as self-employed in Ukraine 2) I have a permanent abode in Ukraine 3) I have other personal and economic relations with Ukraine: - my parents and other relatives live there and I financially support them - I’ve been paying off a mortgage for my permanent abode in Ukraine since 2009 As I understand in this case my residence status should be defined according to the UK/Ukraine Double Taxation Convention. Article 4 of this conventions states: “(1) For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income or capital gains from sources in that State. … (3) Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows: (a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests); (b) if the State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode; (c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national; (d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. …” Here in the UK I live at the host’s house and don’t have any other home available for me at the moment. I’m not sure if this place might be considered as my permanent home or not (it seems to me that not). But even if yes, I also have a permanent home in Ukraine, as I wrote previously. If it’s defined that I do have permanent homes in both States, then we should consider my personal and economic relations with them. And again it’s not too clear. I have my wife and my daughter here in the UK and I’m working from the UK. But I also have my active self-employment in Ukraine and I regularly send financial support to my parents, brother and other relatives to Ukraine, and also have a mortgage there. And even though I haven’t paid income taxes in Ukraine yet for this year, as a self-employed I’m making my required social insurance payment every 3 months during this year. I understand that probably the perfect solution for me would be to unregister my self-employment in Ukraine and start reporting only in the UK if I’m going to stay here. And this is definitely my plan for the near future. But I anyway have to resolve the existing situation for 2022/2023 and later for 2023/2024, which is not clear for me. Taking everything above into account, could you please help me to choose the correct approach to my tax reporting? Should I report my incomes and pay taxes as self-employed in Ukraine and also report these earnings here in the UK as my foreign incomes and reduce the amount of UK taxes by the amount I paid in Ukraine? Or should I report my income here as only a UK resident? Or is there another way I should do it? Thank you very much in advance for your help.

Hi,

HMRC cannot tell you what your residence status is as this is for you to determine based on the guidance available. You may therefore wish to seek professional help if you are still unsure of your status to then determine if a tax return is required for the 2022 to 2023 tax year.

Thank you.

Thank you for your reply. But maybe I wasn't too clear in my question. I definitely know that Ukraine is still considering me as its tax resident as I have an active self-employment there, which I use to work for the non-UK and non-Ukrainian customers, even staying in the UK. And I will be a UK resident too (even if I'm not in 2022-2023 yet then I'll definitely be in 2023-2024). And there are incomes which I declare in Ukraine as self-employed and pay taxes on them in Ukraine too. Then should I declare the same incomes in the UK as my foreign income or is there another approach?

Hi
Article 7 of the UK / Ukraine double taxation agreement advise that the business profits are taxable in the UK, unless you have premises in Ukraine from which the business is carried out.  
You would need to declare the net profits and tax deducted in SA106 to claim a foreign tax credit.  
The self employment gross profit and expenses, should also be shown in SA103.

Thank you very much for your explanation. And one more question. Am I allowed to use remittance basis in this case?

Hi
The remittance basis is an alternative tax treatment that’s available to individuals who are resident but not domiciled in the UK and have foreign income and gains.
Remittance basis is not available if you are deemed domicile in the UK.
You will be deemed domicile if you were born in the UK with UK domicile of origin and UK resident in 2022 to 2023 tax year, or you have been UK resident for at least 15 of the previous 20 tax years and UK resident in 2022 to 2023 tax year.
If you meet the conditions, you can use the remittance basis.

Thank you for explanation. I also have 1 question regarding time of occurrence of income while using Payoneer account in USD. 1) If I'm using a remittance basis it's almost clear that I should take into account the money which I transferred to UK bank account or spent in the UK from my foreign account. But what if I use a regular tax treatment (not remittance)? Let's say during 2022-2023 I was receiving all my incomes to my USD Payoneer account (which is not a bank but payment service) and partially withdrew them to my foreign bank account in 2022-2023, and another part in 2023-2024. Should I include the whole income received to Payoneer account in my tax return for 2022-2023, or can I base on when these money were transferred to my bank account and report them in 2022-2023 and 2023-2024 tax returns respectively? 2) If I choose remittance basis for my tax return can I still reduce my incomes by the cost of appliance which I bought here in the UK for performing my work as self employed? 3) And the last question about Class 2 (and Class 4). Should I pay them in my case if I choose remittance basis? 4) If I worked few weeks from abroad (while being the UK resident already) - should I still pay Class 2 for these periods of time?

Hi,

1. If the payment service is based in the UK, then the monies would be considered brough into the UK, if paid into that service. If not using the remittance basis, then you are using the arising basis and would declare your world-wide income / gains in the tax year that it arises.
2. The remittance basis relates to overseas income or gains not brough into the UK. If you used your UK income, to purchase appliances, such as laptops for your work, then you can claim business expenses.
   
   Expenses if you're self-employed
    
3. Yes, class 2 and class 4 NIC would still be payable.

Thank you.

Dear Admins, I need one more clarification. In my case, If I choose using remittance basis for my tax return - should I still make 2 documents: SA106 and SA103?

Hi Kirill

Yes if you are remitting income from abroad to show what it is.

Thank you

 

Thank you for your reply. And in my case when I'm choosing remittance basis for my foreign incomes as a self employed - are these 2 documents (SA106 and SA103) all I need to make? Or should I also prepare Residence, remittance basis etc (Self Assessment SA109) and anything else?

Hi
You also need to include the SA109 to show that you are claiming the remittance basis.

Dear Admins, I've submitted my tax return via GOSIMPLETAX software. It included SA103, SA106 and SA109. Now in my Business Tax Account I see the sum I owe to pay and the link to Make a self-assessment payment. But I have some questions regarding Class 2 and Class 4. 1) Firsly, while making self assessment tax return I didn't see any fields related to Class 2 and Class 4 directly. But I did put the date when my self employment started. And in the final calculation I got Class 2 and Class 4 as 0. Should they be calculated automatically? 2) Secondly, I don't see any Class 2 or Class 4 calculations in my Business Tax Account. The amount of my remitted profit (Total income on which tax is due) is more than Small Profits Threshold (£6,725) but less than Lower Profits Limit (£11,908). So, does it mean that Class 2 and Class 4 are not listed to be paid because the profit is less than the Lower Profits Limit? 3) Finally, when I go to National Insurance record in my Business Tax Account, for the year 2022-2023 I see the following status: "We are checking this year to see if it counts towards your pension. We’ll update your record when this is finished, you do not need to do anything." Does it mean that my Class 2 and Class 4 are not calculated/checked/verified yet and may appear in my Business Tax Account later? Thank you in advance for your explanations.

Dear Admins, In addition to my previous request, I received the message in my tax account: Your new Self Assessment statement has been prepared. You'll be able to view it online within 4 working days. Your statement will tell you if you owe any payments to HM Revenue and Customs, or if you're due a refund. It's not available yet so I can't see what it includes. But does it mean that I only should pay those payments which are listed there? And if it doesn't have any Class 2 or Class 4 depts then I don't need to pay them? Thank you in advance.

Hi
If you have not registered for Class 2 National Insurance this wont be on your tax return.
This registration is separate from registering from self assessment.
Based on your level of profit, no class 4 will be due. you will need to contact the NI office direct for any missing payments/discrepancies - 0300 200 3500.