Double tax agreement implications - working in the Netherlands and in the UK at the same time
I‘m a UK national. I work for a Dutch company full-time (40hrs per week) - 4 days here in NL, and 1 day from back in the UK (from my home there). I travel over to NL on a Monday morning and back to the UK on a Thursday evening - so only here in NL for 4 days / 3 nights - and back in the UK for 4 nights / 3 days. Based on UK income tax rules I appear to be a UK resident - but I‘m also being regarded as NL resident and pay all the taxes here. I obviously don‘t want to be paying two lots of taxes on the same income from the 2 countries so how does this work under the double tax agreement between UK and NL?
This can be a complicated issue, I‘ll try to keep it as short as possible.
The double tax agreement creates certain tax consequences based on residency. Where one lives certain tax is paid. But where do you live? The agreement doesn‘t say that. Definitions in the tax agreement are further specified in the national legislation. This means that both UK and NL have laid down in their own tax laws when a person is considered to be living in the UK or NL. Based on the actual facts and circumstances the UK can see you as a UK resident, on the other hand the Netherlands can see you as a NL resident. If this happens it must be negotiated between both countries. But I don‘t expect this will be a problem in your case. I believe it is not a problem to convince the Dutch authorities that you have your permanent residence in the UK.
Taxation of income from work
Important is what will happen with your salary. Which country has the right to tax this income? The double tax agreement states that the country in which the work is actually done, has the right to tax the income. If we follow this rule, you will need to pay tax on the days you work in the Netherlands and pay tax in the UK on the days you work from home. Your employer did not want to make this decision and decided to keep the entire payroll administration in the Netherlands. In your income tax return you can still claim a deduction for your foreign workdays. This is possible since the UK is your main residence and will therefore tax your world wide income unless another country has a higher right to tax certain income. Based on the double tax agreement the Netherlands can only claim tax for the days you actually work here. So now you see that the place of living is important, besides the place of work. If you want to claim a deduction for the foreign work days it is important that you can proof that you worked in the UK and not in NL. This can be done by showing your employment contract or an addition to the contract in which is agreed that you work from home, more specific that you work from home on Friday‘s. If you also keep track of your flight tickets you can proof that you leave the Netherlands every Thursday and come back every Monday. A travel calendar is important. We have got one on our website.
Premiums social security
Other issue is the social security. Premiums are paid in the country where you work. If you work in two countries at the same time, premiums will be paid in the country where you live based on EU regulations (again your main residence is important). This is only different if the work in your home country is less than 25% of the time spent on work or money earned with the work. In that case all premiums will have to be paid in the country where your employer is based / the contract is arranged, i.e. the Netherlands. If you were already working from home before May 1, 2010 you will still fall under the old rules which means that it is enough that you work from home regularly, which can even be 1 day per month, to pay the premiums in the UK. But in that case the situation must not change. As soon as it does, the new rules are applicable.
Double taxation will be prevented by the double taxation agreement. Double premiums social security are prevented by EU legislation. But it is good to determine what is applicable in your personal situation and to file the Dutch tax return such that you do not declare more in the Netherlands than you have to.
Expatax can assist you with filing the Dutch tax return.