If you work in the UK, or if you are a Polish entrepreneur running a business in the UK, you need to find out which rules apply to you and in which country you should pay tax. Getting your tax residence wrong can have serious financial consequences in both Poland and the UK. This is why it is so important to establish in which country you are legally liable to pay tax. This is especially true if you are a business looking to operate in the UK market.
Table of Contents:
- What is the tax residency of a company?
- When can a Polish LTD company lose its UK tax residency?
- What tools do the Polish tax authorities use to verify tax residency?
- What are the consequences of not being tax resident?
- How do you prove your UK tax residence? What is the UK tax residence test?
- How do I prove my UK tax residence? What are the UK tax residence tests?
- Determining your tax residency and paying your taxes correctly is much easier with professional help!
What is a company’s tax residency?
Tax residency determines the country in which a company should pay tax on its income. The rules for determining tax residency are closely linked to the place of residence or the place where the business is located, managed and carried on.
For multinational companies, determining the place of tax liability can be particularly complicated and requires careful analysis of the rules. For example, a limited company registered in the UK is not necessarily tax resident in that country. It will still need to determine where strategic decisions about its business are made. If management takes these decisions outside the UK, this may have implications for tax jurisdiction.
When can a Polish LTD company lose its tax residency in the UK?
An LTD (Limited Company) is only considered to be resident in the UK for tax purposes if the main decisions concerning its activities are made in the British Isles.
If the owner of the company lives in Poland for the majority of days in the tax year and the business is carried on outside the UK, the company may lose its tax status.
Furthermore, in such a situation there is a risk of being taxed in both Poland and the UK. It is therefore advisable to consult a tax advisor who will help to assess the situation accurately and explain the consequences of changing the country of taxation.
What tools do Polish tax authorities use to verify tax residence?
The Polish authorities, like other tax administrations around the world, use modern analytical tools and technologies to verify the residency of taxpayers.
In addition to traditional methods such as checking documents or analysing a double tax treaty, the tax authorities are using more sophisticated technology. This can mean that if a company appears to operate mainly in the UK, this may come to light during an audit.
Verification of logins to online systems
The Polish tax authorities are able to check data from accounting systems, online banking or e-commerce platforms. This allows them to identify the location of devices (based on IP addresses) from which company owners or directors log in. If logins are made from countries other than the company’s country of registration, this may indicate that the company’s management is located outside of Poland.
Analysis of the taxpayer’s call history
Institutions can see the phone numbers and locations from which important business calls are made. They use analytics and call history – obtained from telephone operator reports. Regular calls from a particular region can also indicate that a company is actually run from outside Poland, even though its headquarters are formally based in the country.
Review of flight and travel history
Tax authorities can also analyse flight records to determine where the business owner is actually based. For example, if company directors regularly travel to the UK, the tax authorities may suspect that the centre of management and control of the company is actually in the British Isles. Flight and travel records can also be used to determine whether company directors actually spend most of their time in Poland or abroad.
Analysis of accounting documents and minutes
The tax office can pay attention to minutes of board meetings, invoices or other accounting documents. In this way, it is able to check whether decisions and meetings are actually implemented in the country where the business is registered.
The tax office may look at minutes of board meetings, invoices or other accounting documents. This allows them to check whether decisions and meetings are actually carried out in the country where the company is registered.
What are the consequences of incorrectly determining tax residency?
Misidentification of residence, whether by an individual or a company, can have serious financial and legal consequences.
Firstly, if a company is deemed to be tax resident in both the UK and Poland, each country will want to tax the income from the business. This, of course, creates the risk of high double taxation costs.
In addition, if tax residency is incorrectly established, high penalties and interest on arrears may have to be paid. In some industries, this can lead to liquidity and business development problems, not to mention the impact on the company’s image and reputation.
How do you prove your place of taxation in the UK? What is the UK tax residency test?
To prove residency, you need to provide solid evidence that your company has its centre of management and control in the UK.
In the UK, under HMRC rules, the main criterion for determining tax status is where key strategic and management decisions are made. The business owner or directors should be regularly in the UK and hold board meetings here. Evidence that these conditions are met can include airline tickets, hotel bookings, logins to IT systems or phone calls made from within the UK.
In addition, it is important to have an actual registered office or office in the UK, i.e. a place of business. One of the main evidences that a company is resident will be documentation that proves decision-making for example: minutes of board meetings during the tax year.
UK tax residence certificate – a way to avoid double taxation
The tax resident status in the UK can also be confirmed by a special certificate. It will allow you to avoid paying tax in the UK and Poland at the same time.
Individuals and companies paying tax on foreign income in the UK and meeting the conditions for UK residency can apply for the certificate. The certificate is issued on application submitted electronically.
To be successful, the application must contain all the details required by HMRC – including the company’s full name, identification number and address. When preparing such a form, it is therefore best to enlist the support of an accountancy firm and ensure that the application contains up-to-date and complete information.
Determining tax residency and settling your taxes correctly is much easier with professional help!
Failure to establish tax residency correctly can lead to serious problems with tax authorities, heavy penalties and interest, as well as exposing the company to the risk of double taxation
At the same time, the correct determination of residency can be complicated for a person without knowledge and experience in this area. Among other things, it is necessary to consider whether, in a given situation, the company satisfies the conditions for UK domicile. He or she will also need to check whether there are any double taxation treaties that may be relevant to the particular case. Finally, it is necessary to ensure that all formalities relating to, inter alia, tax returns, applications for a tax residence certificate and possible audits by the tax authorities are complied with.
Why should you use our tax office?
For more than 15 years we have been assisting with the establishment of tax domicile and the settlement of foreign income and taxes. Our assistance is used not only by Poles living in the UK, but also by people doing business there, especially through limited companies. As part of our services:
- We help you to establish your tax residence;
- We check whether there is any possibility of avoiding double taxation on income from your business;
- Assist in the preparation of documentation for tax purposes;
- Make the necessary returns to HMRC;
- Help you obtain a tax residence certificate;
- Provide full professional support.
Gain confidence that you are getting your taxes right!
Determine your tax residence with the help of our accounting office. Avoid unnecessary costs, problems with the authorities in Poland and the UK and grow your business with peace of mind! Contact our team to discuss your situation and benefit from professional support!
