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Newly Non-Resident; Still Working For UK Clients

How is the UK/Spain DTA applied to self-employed individual who has moved permanently to Spain?

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I have a client who is a self-employed photo-therapy artist with UK clients. In 20/21 he sold his only home in UK, permanently moved to Spain, has a Spanish home, and is deemed to be a Spanish tax resident under their rules for 2021 fiscal year onwards.

He will continue his business for UK clients, mostly remotely, but occasionally in person, but he has no permanent place of business or residence in the UK.

Under the SRT he is likely to be non-resident (unless he lied about how may days he intends to come back for this year) but if not, under the tie breaker rules of the DTA between Spain and UK he should be deemed non-UK resident, I think.

My question though is whether articles 5 and 7 of the Double Tax Agreement apply to him and if, so, does doing work for UK clients remotely need to be treated as UK income under Article 7? His Spanish accountant say these articles only apply to companies, but I think that is incorrect?

There isn’t much tax involved each year which is why I haven’t just referred this onto someone else, but was wondering if I am missing something obvious?

Replies (8)

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Caroline
By accountantccole
03rd Dec 2021 12:43

The location of clients is not important. Where he is performing the work is important. If he is sitting at a desk in Spain and working remotely for clients in the UK, he should probably be registered as a Spanish business. UK sole trade is likely to have ceased effectively, unless he wants to keep it going for the occasional UK visits.

Presumably he should be in the Spanish system and "buying in" to the healthcare system etc?

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Replying to accountantccole:
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By ChrisKM
03rd Dec 2021 13:04

accountantccole wrote:

The location of clients is not important. Where he is performing the work is important. If he is sitting at a desk in Spain and working remotely for clients in the UK, he should probably be registered as a Spanish business. UK sole trade is likely to have ceased effectively, unless he wants to keep it going for the occasional UK visits.

Presumably he should be in the Spanish system and "buying in" to the healthcare system etc?

Many thanks for the reply.

I was a bit unclear about whether his UK businesss has ceased as he will be doing some sessions in the UK in person, although most will be undertaken remotely from Spain I believe.

Even if he comes over to the UK for some sessions, does the DTA not prevent UK tax on this work on the basis that he has no PE in the UK?

His Spanish accountant thinks he should declare his income from UK clients in the UK (and Spain, claiming double tax relief in Spain for the UK tax sufferred) and from Spanish clients in Spain only but I am not sure on what basis they think this is the case.

He will be buying into their social security system I presume, but this si still to be confirmed.

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Replying to ChrisKM:
Caroline
By accountantccole
03rd Dec 2021 13:37

It doesn't sound right that UK client income is taxed in the UK (unless work done in the UK). Are you sure he has told the Spanish accountant the right information? Nothing lost in translation or a mis communication re where work is done?
We've got French res clients who still go to UK to perform some sole trade work who pay UK tax (and declare in France as part of worldwide income) on this still but most who are remotely working change to a French business. I'm not particularly up to speed on UK/Spain DTA but don't imagine it is wildly different.

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Replying to accountantccole:
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By ChrisKM
03rd Dec 2021 13:46

Thank you again.

I agree that it doesn't sound right for the remote working. And your comment about your French client seems to me to make the most sense in that I should treat work performed in UK as UK taxable and everything else (i.e. remote suff) as Spanish.

Are your Fench res clients deemed to work from a PE in the UK or is that not relevant?

Thanks again.

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By adam.arca
03rd Dec 2021 13:53

Not my field at all and hope you don't mind me intruding.

Out of curiosity and not wanting to throw a spanner in the works, how do you handle work which is specced up by a visit to the UK but then completed remotely in Spain / France / wherever? Fair apportionment?

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By jonharris999
03rd Dec 2021 17:36

I think the Spanish accountant is wrong (or misinformed) unless, as has been said above, there is a PE that we haven't been told about. The same applies to @accountantccole's comments about France.

Article 7 definitely applies to sole traders, and a PE is what it says on the tin. Visiting 100 clients at their homes wouldn't make one, and neither would servicing them at, say, a rented 'hub' venue or equivalent.

On the face of what we have been told this looks like all Spanish income.

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Replying to jonharris999:
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By ChrisKM
03rd Dec 2021 19:32

Thank you very much for that, especially confirming that Article 7 applies to sole traders. I had always thought as much but got thrown when the Spanish Accountant said it only applies to Corporations.

To be fair to the Spanish accountant, I believe she has another similar client from the UK (another artist) who is resident in Spain and does some work in the UK, but I think this client has a second home in the UK and may be using that as a place of business. Maybe the accountant thought the same situation applied to my client, which it doesn't. Just a guess.

Thanks again.

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Replying to ChrisKM:
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By jonharris999
03rd Dec 2021 20:02

Some kinds of "artists" might be a bit different - see Article 16.

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