How double tax relief arises
Many people are under the impression that if you pay all your taxes in Norway, then there is no further tax liability in the UK. This is not correct, but your liability will be limited by double tax relief.
There can often be a further tax liability in the UK in some cases. The following examples show how a liability can arise, and how it can be calculated.
If you are a UK resident, then you are taxed on your worldwide income. You also are given credit for the tax paid in Norway (and many other countries) in the form of double tax relief.
The examples that follow are based on Norwegian tax rates and allowances for calendar 2019 and UK tax rates and allowances for 2019/20. As such are nothing more than an indication of how the computations works.
The Norwegian PAYE system is non-cumulative – basically a week 1/month 1 tax system throughout the year. Because of this, it is sometimes difficult to ascertain your correct tax position just by looking at one payslip in isolation.
There are also some allowances available in Norway that can only be claimed on your tax return. These have not been taken into account.
In the UK it is possible to use the earnings and tax paid in Norway in the previous calendar year on your UK tax return. As a result you don’t have to split the income between UK tax years. This is discretionary, but most Tax Inspectors will permit it, and we are assuming that this applies in the following examples.
Please be aware that your circumstances may differ dramatically from the example given. You should not take assume that this general example is entirely applicable to your circumstances; although the vast majority of individuals should be able to use this as guidance.
For ease of computation, we have assumed that £1 = 10 kr.
General position on Double Tax Relief
For simplicity the examples look only at Income Tax, and National Insurance and Norwegian NIS is not considered.
To summarise the situation, Norwegian income taxes start at 22% (compared to 19-21% in Scotland and 20% in the rest of the UK) and climbs up to 40% tax at about £90,000. In the UK the 40% band starts at £50,000 (Scotland: £46,000) and the 50% band at £150,000, but you lose your personal allowance if your income exceeds £100,000.
The consequence is that if your annual income is below about £80,000 then you pay more tax in Norway. If it is above that figure you pay additional tax in the UK. That is to say, the UK has a higher tax rate when your income exceeds around £80,000.
Alex works in Norway from 1 January to 31 December and earns 500,000 kr (£50,000). The tax due in Norway on this is £10,632, and this is paid by his employer.
HMRC will know that he have been working outside the UK, as the employer has to notify this. Alex will almost certainly be asked to prepare a UK tax return. The UK Tax Return shows UK tax due of £7,500 (Scotland: £9,041) and a claim for double tax relief for the £10,632 already paid. No UK tax liability arises, and no refund is due in the UK.
Billy works in Norway from 1 January to 31 December and earns 1,000,000 kr (£100,000). The tax due in Norway on this is £25,743, and this is paid by his employer.
HMRC will know that he have been working outside the UK, as the employer has to notify this. Billy will almost certainly be asked to prepare a UK tax return. The UK Tax Return shows UK tax due of £27,500 (Scotland: £29,541) and a claim for double tax relief for the £25,743 already paid. Tax will be due in the UK for the shortfall on 31 January following the UK tax year end.
If you are being paid via a Norwegian payroll, then you will probably pay Norwegian NI. Your employer can apply for an A1 to exempt you from Norwegian NI and pay UK NI instead. This is administratively complex, and should not affect your UK pension or benefits entitlement unless you stay in Norway for over a year. (This can be a very tricky aspect where specific advice should be sought.)
The computation of National insurance is quite complex. The general principles are that in the UK employees pay 12% on all earnings between £182 and £963 per week, and 2% on anything above that.
In Norway, employees pay 7.8% on all earnings above £4,460 per annum. (There is a slightly higher for those on the very lowest earnings, but the details are not important).
NI summary position
This means that if you earn less than about £25,000 per annum or more than about £58,000 then you will pay more National Insurance in Norway. Between those levels you will pay more NI in the UK.
If you need further information then please contact us, or you may want to download our free TaxApp which will help you calculate your UK tax liability.