How to pay tax as an Italian freelancer for a London-based company?

Freelancer’s Question:

I am Italian and I lived in London for five years. In April 2018, I moved back to Italy – where I am still -- but I kept my job, and started working remotely for a London-based company. The company offered me to keep my contract as it was and I did. But now they’ve offered me to work as a freelancer, and here is where I need your help FreelanceUK!

Firstly, should I pay my taxes in the UK or in Italy -- or in both countries as I did until now as an employee? How do I know which country applies?

Secondly, my big fear. If I have to pay my taxes just in Italy as a freelancer, the taxes will likely be much higher than if I still was in London! That’s not very tax-efficient is it, so what should I do?

Thirdly, how much are the taxes likely to be if my net will be £9,000 and generally-speaking, how should I calculate the liability if my net is more/less?

Expert’s Answer:

Where you are working and performing services as a freelance worker, is where you are going to be liable for taxes – so, in your case, in Italy, and from the very first day that your self-employed work activity begins.

If you have relocated to Italy full-time, with no intention to return to the UK, you should advise the UK – specifically HMRC -- that you have left Britain, and will no longer be considered tax resident. As an Italian tax resident, you will be liable to taxes on your income in Italy.

If you intend to return to the UK at some point in the future, you may remain UK tax resident depending on when you return to the UK. If you return to the UK as a tax resident, the Double Taxation Agreement between Italy and the UK allows you to offset taxes paid in Italy against any liability in the UK.

Regarding your second question, unfortunately, there is not much that can be done about this – your ‘big fear.’The reality is that you are not able to nominate where you pay tax on the basis of which country has the most preferable tax rates.Paying tax is based on your tax residence status and where services are performed. The fact that you are working as a freelancer in Italy means that your centre of interest has moved to Italy and therefore, you are liable for Italian tax from day one of your work activities in Italy.

Lastly, you ask about your likely tax liabilities from self-employment. Well, as a freelancer, this will depend on a number of factors! But what we can advise you is that if you were employed during your time in the UK, and your annual income was under €30,000 a year (£25,478), and you have never worked as a freelancer in Italy, you should be able to benefit from a significantly reduced tax rate as a first-time freelancer. If this is not the case, but you have genuine business expenses that can be offset against your tax liability, this will also impact your return on income. An average return on income for a freelancer paying standard tax in Italy will be around 50%. We wish you the very best of luck with your freelance career!

The expert was Michelle Reilly, chief executive of 6CATS International, an expert supplier of contractor, tax and compliant management services.