- My permanent residence is in (mainland) Spain
- I'm studying at a university in the UK (specifically, Scotland)
- At the start of this academic year (September 2020), I moved to the UK for university
- Due to COVID, I have been "attending" university from home (Spain) since November 2020
- I have accepted and signed the contract for a 2021 summer internship (June to August) for a UK-based company
I have an internship contract for summer 2021 in an Edinburgh-based company. Since the start of the recruitment process, candidates were told that the internship could end up being in-person or remote depending on the situation and that a final decision would be made in March 2021. This month, they have informed candidates that all internships will be remote.
I had assumed that, were this to be the case, I could participate in the internship from home (Spain); but the recruiter has recently contacted me and told me that, due to tax reasons, I would still have to move to the UK. Note the absurdity: I would have to travel to the UK, pay £1750 to self-isolate in a hotel for 10 days and then proceed to stay in accommodation for 2 months (paying out of my own pocket), just to stay locked up in a room behind a computer.
I told the recruiter that this would be a last-resort solution for me, and to check whether this was really necessary. After some consultation with their finance team, he came back to me saying that coming to the UK would be the only way, again citing tax and social security as the reasons:
Tax treaties exist where 2 countries have agreed to respect tax residence in one of the countries and avoid taxing individuals in both countries where they are majority tax resident in one. So, if you're spending more than 183 days in the tax year in Spain but spent e.g. 2-3 months in the UK (or vice versa) you would only be liable for tax in the country you spent the most amount of time in (Spain) and could offset any taxes deducted in the UK against what you pay in Spain.
However, if living in the country for more than 6 months is what determines tax residency, moving to the UK for the internship (start of June to start of August) wouldn't change this in any way, since I would have still been living in Spain since November. Moreover, according to my own research (see below), this definition of residency is not entirely correct, and according to what I found, I would still be a Spanish resident and have to pay taxes in Spain regardless of whether I move or not. I think the ideal solution to this would be to make them pay UK taxes as for any other UK employee, and then I, as an individual, would state my income in a Spanish tax return and pay any taxes due there (minus appropriate deductions).
There is also another problem, social security:
The more important treaty is the social security agreements which also state that if you are majority resident in Spain, then you must pay your employer/employee social security in that country. Social security is always the major factor in how we address these situations. As you have been in Spain (I assume) for more than 6 months and intend to continue to live in Spain for some time to come then we must pay employer/ employee social security in Spain via a Spanish payroll.
Again, here I think the ideal outcome would be to make them pay UK national insurance (NI) as usual, but I don't know if it is possible.
From what I understand, they're not willing to pay taxes and/or social security in Spain, so any solution would have to include them paying taxes and social security in the UK, if at all. If this doesn't get resolved, they will give the internship to someone else.
What are possible solutions to this? I.e., what tax/social security approach will allow me to participate in the internship without having to move to the UK? I would appreciate any help on this, and particularly if it's with authoritative references which I can send to the company.
The tax issue
I have a small amount of experience with UK-Spain tax agreements due to a previous question. There is a double taxation convention (DTC) between the UK and Spain; I'll highlight the fragments relevant to my case, together with my interpretations.
Article 4 defines the notion of "resident":
For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income or capital gains from sources in that State or capital situated therein. [...]
Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; [...]
I only have a permanent home in Spain, so under this definition, I'm only a resident of Spain.
Article 14 deals with "Income from Employment" (annotations in italics are mine):
INCOME FROM EMPLOYMENT
- Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other similar remuneration derived by a resident (me) of a Contracting State (Spain) in respect of an employment shall be taxable only in that State (Spain) unless the employment is exercised in the other Contracting State (UK). If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State (UK).
I don't know whether working remotely for a UK company from Spain counts as "exercising the employment in the UK", but let's assume it does.
- Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State (Spain) in respect of an employment exercised in the other Contracting State (UK) shall be taxable only in the first-mentioned State (Spain) if:
- a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned (this is the case for me), and
- b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State (this is not the case for me, they are indeed a UK company), and
- c) [...]
This would mean I have to pay tax in both Spain and the UK.
Article 22, "Elimination of Double Taxation", mentions how I can deduce tax paid in the UK from what is due in Spain, but honestly, this is a secondary issue; I would rather pay tax twice than lose the internship.
All of this suggests that I could work from Spain, with them paying taxes in the UK and I paying any remaining taxes in Spain (without them having to do any Spanish paperwork themselves).
The social security issue
I've found unreferenced claims online that the company can pay NI in the UK and not have to pay social security in Spain, but I wasn't able to come to a definitive answer.