I am an Australian citizen and resident for tax purposes, but I have recently moved to the UK and planning on staying here for around 6 months. I have a valid working visa.
I have picked up some freelance work and initially for the first month I went through an umbrella company for convenience, but have now registered a Ltd company and moved my contract to the company.
My local (UK) accountant has advised that the most tax effective way to pay myself from the company is to pay myself minimum wage and and pay the remainder as a dividend. This means that the remainder will be subject to 19% corporation tax, but I will pay a lower income tax locally as dividend income is taxed following a different tax table (which is a lower rate).
This is great and all, but since I am an Australian resident for tax purposes, I need to declare my income earned overseas on my Australian tax return. I "may be eligible" for a tax credit for tax paid overseas.
My question is, if I follow the advice of my UK accountant, will that mean I ultimately get double-taxed? Since the 19% corporations tax is not paid by me (but rather by my company), is it an accurate assumption that this tax would not be eligible for credit? In Australia, dividends are taxed at the full income rate, but corporation tax paid before those dividends are paid ultimately become franking credits to avoid double taxation. From what I can tell, it seems that as the dividends are earned overseas they do not come with franking credits, and despite having been taxed already by corporation tax, I will be required to pay full Australian tax (at my income bracket rate) on the dividend amount received.
Do any Australians have experience freelancing overseas, or earning dividends on the London Stock Exchange, or otherwise faced a similar scenario and able to comment on how it worked out for them?
I am still researching this but have discovered the following:
- As I expected, corporation tax is not eligible for any credit on my individual tax return. Frustratingly, it seems I just have to accept this.
- However by paying myself a dividend instead of the full salary, I am not required to pay employers' nor employees' National Insurance, which added together is close to 20%.
I am still trying to confirm this one, but my interpretation of the UK Australia Double Tax Treaty is that the UK cannot tax me more than 15% on dividend income. This means I will effectively pay my Australian tax rate on dividends and not more.
Will provide a further update once I have confirmed.