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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I work in the oil industry in Azerbijan for approx. 6.5 months

Customer Question

I work in the oil industry in Azerbijan for approx. 6.5 months of year. I earn approx. USD 85,000 after local tax is paid and salary is paid into my UK bank account in "pounds £" after my bank takes an admin charge for the exchange rate conversion.

How is my UK HMRC tax liability calculated?
Submitted: 4 years ago.
Category: Tax
Expert:  TonyTax replied 4 years ago.

Do you work on a self-employed basis or as an employee? Is the employer or contractor you work for based in Azerbaijan?
Customer: replied 4 years ago.

I work for a contractor based in Aberdeen on a self employed basis.

Expert:  TonyTax replied 4 years ago.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 4 years ago.
Hi again.

The taxing of earnings from Azerbaijan for independent contractors such as yourself is dealt with in Article 14 of the UK/Azerbaijan tax treaty here. Your earnings will be taxable in Azerbaijan as you almost certainly have a fixed base there, albeit one owned by the Aberdeen company

As you are likely to be treated as resident in the UK (see the notes here), your earnings will be taxable in the UK as well as in Azerbaijan but you will be entitled to deduct the Tax paid in Azerbaijan from your UK tax liability under Article 22 of the tax treaty. You should claim the bank's admin charge as a business expense.

I hope this helps but let me know if you have any further questions.
Customer: replied 4 years ago.

ok then does HMRC want to know my gross earnings abroad then they calculate my UK tax liability less what was paid in local Azerbijan tax and if so what rate of UK tax would apply ie, 40% on everything above the £35k theshold

Expert:  TonyTax replied 4 years ago.
You need to add back the tax paid in Azerbaijan to get to your gross earnings for UK tax purposes. That will be the figure you report to HMRC.

For 2012/13, you have a personal allowance of £8,105 so that comes off your gross pay. The next £34,370 is taxed at 20% and the next £115,630 (maximum) is taxable at 40%.

The tax and NIC rates (Class 2 and 4 for self-employed) are here and here. After calculating your UK tax liability you deduct the tax paid in Azerbaijan to leave you with a net UK liability.