German Tax

[Rosier2012]

I work for a recruitment company who contracted 9 Uk citizens to work for a company in Germany. We made sure they abided by the 183 rule and as they were employed by us (UK company) we paid them in the UK and deducted PAYE and NI.

We have now been told by the German authroities the contractors should have paid tax in Germany due to them working for a German company. According to German law the compnay you work for is the actual place of work not who pays you?

We have had to pay the German tax, do you know if we can reclaim the UK tax from 2009? I have called the Revenue but no one could point me in the right direction of who to talk to.

I have very little knowledge of payroll outside the UK, any help appreciated.

[Tim Kelsey]

Hi

You need to consider the circumstances carefully and study the UK/German Double Taxation Agreement, looking at the article on Dependent Personal Services. This is the one that governs the 183 day rule - in order for the tax to be payable in the UK the individual would need to be in Germany for no more than 183 days AND have the salary paid by a UK company AND not have the salary charge passed back to a German business. Im guessing it is this bit you have breached, but do remember that a "price for the job" rather than a charge based on salary cost does not breach this rule. If you pass the salary charge back to the German company in a way that it is identifiable then the taxing rights pass to Germany regardless of the days spent in country.

Assuming that this is the case you will find that you are now in a difficult position as UK tax continues to be due (as the employee wont be out of the UK for a complete tax year) as well. The technical rememdy is for the employee to make a claim for foreign tax credit relief via the self assessment tax return but of course this cant be initiated until after the end of the tax year leaving the employee with the cashflow problem of paying both German and UK tax.

In order to help employees in this situation HMRC allow employers to apply to operate a special PAYE relaxation known as Net of Foreign Tax Credit Relief (EPAPP5). This allows a credit to be awarded in the PAYE calculation for the foreign tax suffered simultaneously. Do be aware that most UK payroll software does not allow this special relaxation to work automatically, and it can be quite a bit of work manually adjusting systems. You cannot use EPAPP5 without applying for HMRC permission first.

If you want further help on this issue please dont hesitate to call me on 01296 320724. Good luck!