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Trouble with Tax on overseas income calculations..

Tax on Overseas Income

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Evening all!

At the peak of the January rush, I've been approached by an old friend to complete a return including overseas income.

As a 'first' for me, it was back to the textbooks from a year or ten ago, but not quite sure if my calcs are correct

His earnings are in Kazakhstan (gas/oil based occuaption), paid in USD and taxed at source.

Gross Income £79k, Tax at source £9k.

After running calcs of FTCR, I came to a figure of £3600, but using this in a UK tax calulation would mean the client would pay a further tax in January of £16600..Total tax paid would then equate to - £16600 + £9000 = £25600.

While if I used a normal UK tax calculation, total tax due on earnings - £20250, less the £9k as tax "already paid", the liability in January would be £11250

The part where I have come unstuck, is why the additional Tax liability of £5350 when I use the foreign Tax credit caculation in comparison to the UK calulations??

Any advice much appreciated at this time of the month!

Replies (6)

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By Tim Vane
26th Jan 2019 22:52

You'll have to explain the figure of £3600. Why isn't the full £9000 allowable for FTCR? You say earnings so I assume this is employment income. You don't mention his residence state, or the employer's PE or whether the employment income is wholly or partly taxable in the UK (assuming it is taxable at all). I also assume that the foreign tax is not limited by treaty.

Assuming it is fully taxable foreign employed income for a UK resident with no treaty rate limitation then I would suggest the correct FTCR calculation would be £79K less PA of £11,500 so income tax charged =£20,300 less £9K FTCR = £11,300.

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Replying to Tim Vane:
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By Jonesbach
26th Jan 2019 23:20

Thanks for your reply Tim!
You'll have to bear with me, as I said, this is my first of this kind.
Yes earnings were all from employment. He is UK resident and income is UK taxable.
The £3600 was derived from the drawn out process of calculation as per HMRC's paper FTCRWS forms.

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Replying to Jonesbach:
By Tim Vane
27th Jan 2019 01:19

I think you must have gone wrong somewhere with the forms. Claim 9000 FTCR and you’ll be fine. The ridiculously long winded working sheet is attempting to work out the slice of uk tax on the 79K but it’s clearly more than £9k so no problem claiming the full amount. Any tax software would have calculated the same result with a mouse click.

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Replying to Tim Vane:
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By Jonesbach
27th Jan 2019 01:37

I'm not sure where, but the final figure definitely doesn't feel or look right.
I prepare 95% of clients returns through HMRC agents portal, with the balance through Andica software..this program was asking for a FTCR figure to be added in, ie calculated by the user..I was hoping for a simple mouse click to complete my "blank".
Thanks again Tim..nice to see that I'm not alone with the twilight shift!!

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By Montrose
28th Jan 2019 17:39

Have a look at https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt11053 to check that the Kazakhstan tax is creditable.
Subject to that, ignore the FTCRWS, and follow your instinct

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Replying to Montrose:
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By Jonesbach
28th Jan 2019 19:26

Hi Montrose,
I had found a document stating that the tax was an allowable credit. I have followed my gut as you say and gone with what seems like logic. My final figure sits well so will follow that through.
It's been rather nice to have a new challenge to break up the factory line of Self assessment.

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