How to work from the beach, without facing extra tax

For many, living a nomadic lifestyle is merely something of a pipedream. Travelling the world while maintaining a career is certainly an attractive prospect, being sat with a laptop on the beach or working from a café in a picturesque European city.

More than a quarter of British workers now carry out their jobs through a hybrid of working from home and commuting, according to the Office for National Statistics (ONS). This figure is more than double the proportion who did so before the Covid-19 pandemic.

For those who have the option, additional flexibility from hybrid working provides the opportunity to make the 9 to 5 a bit more interesting by working abroad. But, I know what you’re thinking – what are the tax implications?

Here, Telegraph Money takes you through what you need to know so you can work from the beach without losing any more of your income to tax than you need to.

Who pays tax on foreign earnings?

UK residents, broadly categorised as someone who spends 183 days or more a year in the country, must pay tax on foreign earnings, ie. money made from working abroad.

The opposite is true for non-doms – short for non-domiciled – who may only pay UK tax on earnings in the country. You won’t pay UK tax on foreign income if income or gains are less than £2,000, or if you do not bring them into the UK (for example, transferring them to a UK bank account).

However, the rules for this group are set to change as Labour has committed to seeing through the previous government’s planned reforms in the area. From April 2025, non-doms will need to start paying tax after four years in the country.

What counts as working abroad?

While it may seem logical that if you are employed by a UK company you can work anywhere in the world as long as you can perform your role, it is not that simple.

Working from another jurisdiction, even if it is for your UK job, can result in a load of tax and legal consequences for both you and potentially your employer.

According to the Low Income Tax Reform Group if you physically carry out duties overseas then usually the country you are based in will seek to tax the income you receive for those duties.

This could be in addition to the UK tax you pay on your income if there isn’t a double taxation agreement in place.

In addition to income tax, it’s important to remember that while you remain a UK resident you will still be paying tax on your salary including PAYE and National Insurance.

Mike Warburton, The Telegraph’s tax expert, said: “Working remotely from overseas part of the time can also be attractive. However, don’t assume that this allows you to escape the clutches of HMRC.

“If you remain a UK resident you will be subject to tax in the UK on your worldwide income. If that includes employment with a UK business, PAYE and National Insurance will work just the same as if you were working in the office five days a week.”

Double taxation agreements

Double taxation agreements (DTA) are treaties between two countries that determine when tax needs to be paid and to where. The UK has signed agreements with 20 countries, one of the world’s largest networks.

The aim of these agreements is to stop you being taxed in two places on the same income, and how they apply depends on which country you are a resident of. They are designed to override the domestic tax arrangements of each country.

However, it is hard to generalise about how these treaties work in practice as much depends on your individual circumstances.

According to wealth management firm Chase Buchanan, if you are a UK resident and the overseas country you’re working from does have a DTA, and you stayed long enough to pay tax in that country, you will usually be able to claim it back by declaring it on a UK self-assessment tax return.

HMRC can verify that the information provided is accurate and deduct the taxation from their calculation. Any difference between what you’ve already paid and how much tax you still owe would remain payable.

Mr Warburton said: “We have tax treaties with popular destinations like Spain, Greece, Italy, Morocco and America. Assuming you are being paid from the UK, under the treaty you would need to spend more than 183 days there in the year before you had a tax liability with the countries mentioned above. These treaties also provide that if you pay tax overseas while remaining a UK resident the overseas tax can be set off against your UK tax liability.”

What if there is no double taxation agreement?

If there is no DTA in place you may still be able to claim back any tax you pay overseas on your income via a foreign tax credit.

You can claim foreign tax credit using a self-assessment form and you will likely be in line for some relief on your UK taxes, even if there isn’t an agreement in place.

The rules about how much tax you pay, and to where, may also differ if you have dual residence. In this case, Mr Warburton said, there may be arrangements between the countries that outline which takes precedence for the purposes of taxation.

“The main issue when working overseas is whether you will be caught for tax in the country concerned. The rules vary depending on the country, but this usually depends on how much time you spend there,” he said.

Concerns for your employer

Assuming you have been granted permission by your employer to work from abroad, there may be elements of the arrangements it has to think about.

For example, if your presence in another country crosses a threshold for a “permanent residence”, your employer may need to start paying corporation tax, and possibly start making any social security contributions required in the country. Social security contributions may be necessary even if you’re not being charged income tax in the country.

However, if you are only working abroad on a temporary basis this is unlikely to become an issue. More pertinent may be whether or not you’re still able to access company benefits such as insurance while you’re based abroad. If you receive private medical insurance, for example, this may not cover you while you’re overseas.

Can you work for longer abroad without paying tax?

In some countries, the “183-day” rule refers to 183 days within a calendar year, while in other countries, it refers to a specific financial year or even just a generic 12-month period.

It’s important to check when the 183-day period will reset for the country you are residing in, as it will determine the point at which you will become a tax resident there, and will need to start paying local taxes.

This also means that depending on the time you move to a different country, if you’re working in a UK-based role, you may be able to go almost a full year without paying local taxes. This can be advantageous if the taxes in your new country of residence are higher than in the UK, or the country does not have a double taxation treaty with Britain.

For example, you become a tax resident in Spain if you spend 183 days or more there within a calendar year. This means that if you move to Spain at the start of August, you won’t need to pay local taxes until the following July. This is because your 183-day allowance will reset on January 1.