What UK tax will you pay if you move to Australia?

What’s not to love about Australia? The seemingly continuous warm, sunny weather means people can enjoy their lives in the great outdoors for most of the year. Australia’s cities are ultra modern and the natural environment is stunning, especially the beaches, which attract huge numbers (85% of Australia’s population live within 30 miles of the coast).

Brits love the land Down Under. There are no language issues, Aussies are a friendly, informal bunch, their culture is similar and many Brits have relatives and friends already in Australia. Reportedly, the number of UK citizens moving to Australia is at its highest level since 2012. Moving there allows Brits to leave behind the UK gloom, start a new life and enjoy better opportunities.

Moving to Australia can enable you to work fewer hours, earn more money and buy a nice house or flat, which isn’t possible for many young people in the UK. Australia is a great country to work, rest and play, which explains why more than 1.1m UK-born people now call Australia home. That’s 15% of Australia's overseas-born population and about 5% of its total population. If you’re thinking about moving to Australia, you’ll have many basic questions and want to know whether you’ll pay any UK tax.

Telling HMRC that you’re moving to Australia

You’ll need to tell UK tax authority HMRC if you’re leaving to go and live in Australia permanently or you’re going to work there full-time for at least one full tax year (ie 6 April to 5 April).

  • If you don’t usually complete a Self Assessment tax return and you’re already living in Australia, you need to fill in form P85 online. If you’re still in the UK, fill in form P85 offline and include Parts 2 and 3 of your P45 form (your employer should have these).

  • If you normally complete a Self Assessment tax return, because you’re self-employed, a landlord or report other taxable income, you must also complete the resident supplementary page (form SA109) to report your residence and domicile status, if you’re now living in Australia.

  • You must use commercial filing software for all forms, you won’t be able to do it online via government website GOV.UK (it’s not available to those who live beyond the UK). Your other option is to pay a UK accountant to do it for you, but doing it yourself is simple and much cheaper. HMRC will let you know if you’re owed a tax refund.

  • If you don’t normally submit a tax return, you’ll need to register for Self Assessment by 5 October following the tax year in which you had taxable UK income, otherwise HMRC could charge you a penalty.

Top tip!

You must also tell your local council of your plans to leave the UK to live in Australia, so that you’re not charged Council Tax. Your UK citizenship will not be affected and you can usually vote in UK elections.

Paying tax if you’re non-resident

If you’re “non-resident” in the UK for tax purposes, no UK tax is payable on any income or gains that you earn or make in Australia.

  • For UK tax purposes, you’re normally non-resident if you: spent less than 16 days in the UK within a tax year (or 46 days if you have not been a UK resident for the three previous tax years); worked abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK and no more than 30 of them were spent working.

Double taxation agreement

If you’re non-resident in the UK for tax because you’ve moved to Australia, check out the double taxation agreement (DTA), because UK tax may still be payable on UK income. Looking at the DTA between Australia and the UK:

  • Pension payments are covered in Article 17 and are usually only taxable where you are resident.

  • Rental income is covered in Article 6 and may be taxed in both countries.

  • Savings interest is covered in Article 11 and may be taxed in both countries.

  • Wages from UK employment are covered in Article 14 and are usually only taxable where you’re resident, unless you exercise your duties in that other country or employment is government service.

Need to know! Seek professional guidance if you do not understand how to apply the DTA correctly. Articles, although they may seem simple, can be superseded by a later article, making your situation more complicated.

How much UK Income Tax will you pay?

If you’re eligible for the tax-free Personal Allowance (you don’t get it if your taxable income is more than £125,140 a year), you won’t pay tax on your total UK taxable income until it goes over £12,570 in a tax year (2024/25 figure).

Need to know! Non-resident British nationals are entitled to a personal allowance, when completing their tax return, by ticking Box 16 on form SA109.

You pay tax on your profit, which is the amount of UK income that remains once tax expenses or allowances have been deducted. If you rent out more than one UK property, the profits or losses from them all are added together and you will be taxed on the total.

The Income Tax band into which your total UK taxable income falls determines how much UK Income Tax you pay.

  • The basic rate (20%) is payable on yearly UK taxable income between £12,571 and £50,270.

  • The higher rate (40%) is payable on yearly UK taxable income of between £50,271 to £125,140.

  • The additional rate (45%) is payable on yearly UK taxable income over £125,140.

  • Income tax bands are slightly different in Scotland (2024/25 for all figures quoted).

To help reduce your tax bill, you can claim tax reliefs and allowances. Income Tax is no longer automatically taken from interest on savings and investments, while non-residents do not usually pay UK tax on the UK State Pension or interest from UK government securities.

Australian income tax rates for 2024-25 (residents)

  • 0% Australian Income Tax is payable on income of AUS$0-$18,200.

  • 16% Australian Income Tax is payable on income of AUS$18,201-$45,000.

  • 30% Australian Income Tax is payable on income of AUS$45,001-$135,000.

  • 37% Australian Income Tax is payable on income of AUS$135,001-$190,000.

  • 45% Australian Income Tax is payable on income of AUS$190,001 and over.

  • AUS$2 is currently worth about £1 sterling.

  • In addition, you’ll pay the Medicare levy, which helps to fund Australia’s public health system (called Medicare). The Medicare levy is 2% of your taxable income.

How to report your taxable UK income from Australia

If you live in Australia and have taxable UK income to report to HMRC, you must fill out and file a Self Assessment tax return (SA100), as well as the resident supplementary page (the SA109 form) to report your residence and domicile status.

  • If you earn UK taxable rental income, you’ll also need to complete and file the SA105 form.

  • If you have taxable UK income from self-employment, you’ll also need to fill out and file the SA103 form.

  • You may have to file other supplementary pages, depending on your taxable income sources.

Need to know! You cannot use HMRC’s online services to file your Self Assessment tax return and any supplementary pages if you’re in Australia. You can either fill out your forms by hand and send them by post, pay a UK-based accountant to do it online for you or use commercial Self Assessment filing software, which is cheaper and simple.

  • The UK tax year runs from 6 April until the following 5 April.

  • If you use filing software and choose to file online, the deadline is midnight on 31 January following the end of the tax year to which the tax return refers.

More on paying UK tax on UK rental income

If you earn more than £1,000 from renting out property in the UK, it can be subject to Income Tax, once your taxable income goes over the Personal Allowance (£12,570 a year in 2024/25). Capital Gains Tax can also be payable if you make a “chargeable gain” (ie you get more than the amount you paid for the property or land after selling it).

If you live outside of the UK for six months or more a year, HMRC classes you as a “non-resident landlord”. You can get the full amount of rent from your tenant(s) and pay tax on it via Self Assessment. If so, you must apply by filling out the NRL1i form and sending it to HMRC.

Alternatively, the tax you owe can be deducted by your letting agent or tenant, who must pay it to HMRC. They will deduct the basic rate of tax from the monthly rent (minus their expenses if an agency) and give you a certificate at the end of the tax year showing the tax that they’ve deducted.

You must keep accurate records of your rental income and tax expenses, because HMRC can ask for proof of the tax figures you report. You must keep your income and expense records for at least five years after the filing deadline for each tax year.

Need to know! As a landlord, you can claim “allowable expenses” to cover things you pay for to rent out your property. This can reduce your UK tax bill significantly. Visit GOV.UK for official guidance on paying UK tax on UK property rental income.

More information about moving to Australia

Do summer businesses pay tax?

Summer’s here and the time is right for – making hay while the sun (hopefully) shines. This year perhaps you’re among the very many people in the UK who start or restart their own summer business.

Many summer-only businesses are of course linked to tourism or the great outdoors. And because they’re enabled by warmer, dryer seasonal weather, such businesses aren’t viable throughout the year. However, many summer businesses are lucrative “side hustles”. Some owners actually earn enough in the summer to last them the whole year, they can be highly profitable.

When is summer business income taxable?

Summer business income is taxable if it goes over certain thresholds. Most people operate as a sole trader, rather than register their summer business as a limited company. Sole traders can earn up to £1,000 of tax-free income (this is their “trading allowance”). As soon as their gross income (ie total sales or income before deductions) goes over £1,000, tax can be payable.

To operate as a sole trader, you must register for Self Assessment, which is the system UK tax authority HMRC uses to collect tax. You must register before 5 October following the end of the tax year in which you earned taxable income. The UK tax year lasts from 6 April until 5 April. Even if you’ve registered for Self Assessment in the past, if you didn’t file a tax return in the previous tax year, you must register again.

Need to know! If you plan to claim tax expenses, you cannot claim your trading allowance. So work out which option better suits you.  

How much tax will you pay as a sole trader?

  • Income Tax may be payable on your summer business sole trader “net profit”, which is your gross profit (ie total sales) minus allowable tax expenses that HMRC allows you to deduct. You may also be able to claim tax allowances that further reduce your tax bill.

  • The Income Tax band into which your total taxable net income falls determines your sole trader tax bill. Your total taxable net income can include income from employment (a full-time or part-time job, although you will have already paid tax on this via your employer’s payroll), shares, savings interest, pension payments, property rental income, etc.

  • You don’t pay tax on your first £12,570 of income, because this is your tax-free Personal Allowance.

  • You fall into the basic rate of Income Tax if your total taxable income is between £12,571 and £50,270. You’ll pay 20% Income Tax.

  • You fall into the higher rate of Income Tax if your total taxable income is between £50,271and £125,140. You’ll pay 40% Income Tax.

  • You fall into the additional rate of Income Tax if your total taxable income is more than £125,140. You’ll pay 45% Income Tax.    

  • *2024/25 for all figures above, England, Wales and Northern Ireland. Income Tax bands and rates are different in Scotland.

Is National Insurance payable on summer business income?

If your summer business profits are £6,725 or more within a tax year, Class 2 National Insurance contributions (NICs) are no longer payable. If they’re more than £12,570, you must pay Class 4 NICs (for 2024/25 they’re 6% on profits between £12,570 and £50,270, then 2% thereafter).

If your profits are less than £6,725 a year, no NICs are payable, but you may choose to pay voluntary Class 2 NICs (£3.45 a week in 2024/25) to safeguard your State Pension and qualify for other benefits.

What tax expenses can your summer business claim?

When running your own sole trader summer business, you can claim for many tax expenses, which will help to minimise your tax bill. These are called “allowable expenses” and you detail them in your business accounts and summarise them in your annual Self Assessment tax return.

Summer business allowable expenses include:

  • stock or raw materials

  • packaging and printing

  • mobile phone and broadband

  • travel (eg fuel, parking, taxis, train or bus fares)

  • premises costs (eg rent, heating, lighting, business rates, etc)

  • office stationery and postage

  • business marketing/advertising costs

  • insurance and bank charges

  • accounting and solicitor fees

  • training and professional membership fees

  • wages paid to people who work for you

  • safety clothes and business-branded workwear.

You can only claim allowable expenses for things you use wholly and exclusively for your summer business. If you use something for business and personal reasons (eg your mobile phone), you must work out the business use proportion and only claim for this. HMRC can ask for proof of any allowable expense that you claim.

If you run your summer business from home, you can claim for a proportion of your domestic heating, electricity and water costs, Council Tax, mortgage interest or rent, broadband and telephone use. Again, you’ll need to reliably work out how much you can justifiably claim, because HMRC can investigate.

Need to know! To save time and effort, rather than working out your actual business expenses, you can claim flat-rate simplified expenses for vehicle use and running your business from home. You can’t claim any tax expenses or capital allowances if you claim the £1,000 tax-free Trading Allowance.

Keeping tax records and filing your tax return

Sole traders must maintain accurate, up-to-date records of their sales and expenses, detailing dates and exact figures. You’ll need them when completing your annual Self Assessment tax return, so using accounting software is recommended. You must retain copies of all invoices you send out, as well as receipts and invoices to support your tax expense claims. Keep a detailed mileage log if you plan to claim for fuel/vehicle expenses.

Need to know! HMRC can fine you if your records are not accurate, complete and readable. You must keep your records for at least five years.

Each year, you report your taxable income, expenses and allowances to HMRC by completing a Self Assessment tax return (SA100) and the SA103 supplementary tax return pages, which summarise your summer business income, expenses and allowances. If you have more than one summer business, you must complete an SA103 for each. You may have to file other supplementary pages to report other sources of income (eg SA105 for rental property income).

Need to know! The annual deadline for filing your Self Assessment tax return online is midnight on 31 January, although you can file any time after the tax year finishes on 5 April. Miss the filing deadline and a £100 fine is immediately payable. Once HMRC receives your tax return, they’ll work out your tax bill and tell you how much you owe.

• This blog was written for GoSimpleTax, market-leading provider of tax return filing software.

  

Why does the barefoot accountant love Coconut?

Few things about the barefoot accountant are typical. For a start, it’s a highly unconventional name for an accountancy firm. “I’d worked in industry for 20 years and qualified as an accountant in 2006, but I just never fitted the ‘traditional accountant’ mould,” remembers founder Ele Stevens.   

“In my professional life, I never encountered the things I love – music, the arts, creativity – and I didn’t feel I was doing good things in the world. So I founded the barefoot accountant in 2015. One day I was working away with my laptop in a cafe, with my shoes off, which is how I like to work and who I am. So, I suddenly thought – ‘the barefoot accountant’ – that would be the perfect name for my new business. It had to be authentically ‘me’.”

Ele also realised that thinking differently and not being a “typical accountant” gave her a strong USP. She also decided to specialise in working for creative-sector businesses. “Most of my friends and family are creative, plus, if you’re going to set up your own business, do something that you love, right?”.

Ele Stevens – founder of barefoot accounting

“Most of my friends and family are creative, plus, if you’re going to set up your own business, do something that you love, right?”

Typically untypical

HQ for the barefoot accountant five-strong team is a former shop on Redbourn High Street in Hertfordshire. In typically untypical fashion, they’re not your usual accountancy firm offices. Venture inside and you’ll see fake grass covering the floors, plants, art and quirky objects everywhere, with beautiful bespoke meeting chairs made by a local designer. “No one actually thinks we’re accountants,” Ele laughs.

The business now has more than 400 clients, explains another team member, Joanna Roe, who provides accountancy services to self-employed clients. “They include musicians, yoga teachers, artists, photographers, authors, screenwriters and actors,” she reveals. They sign up to an annual package that includes tax advice and having the barefoot accountant take care of their Self Assessment tax return.

Simple but effective

The barefoot accountant’s sole trader clients use Coconut accounting software, which is also available in handy app form. “It benefits them in many ways, but especially when it comes to managing their expenses, which may otherwise be chaotic,” Joanna says. “We started using Coconut three years ago. We viewed it as a simple but effective way to get sole trader clients ready for Making Tax Digital requirements.

“The last thing creative people and other sole traders want is overly complicated accounting software. We considered other options, but Coconut offered everything we needed. We tried it with a few clients and they really liked it. A lot of other accounting software comes with features that sole traders don’t need and would never use.”

The barefoot accountant’s sole traders clients get Coconut as part of their onboarding. “Most particularly like being able to see how much tax they owe, so they can better prepare for paying their tax bill. This provides peace of mind,” says Ele. “Coconut is half the price of some other options, which is a big saving. Our clients genuinely love Coconut – we’ve actually had some rave about it. I’ve never heard that about software before,” she laughs.

Joanna Roe of the barefoot accountant

“We do love to see our clients, but people turning up with shoe boxes or bags full of expense receipts doesn’t happen, thanks to Coconut,”

Hellish January

Coconut also greatly benefits the barefoot accountant. It’s certainly helped to create a much less stressful working environment. “Before we started using Coconut, we had a hellish January a few years ago,” Ele recalls. “It was a nightmare and we were all very nearly broken, because it was such a struggle to get the information we needed to complete some client tax returns. We couldn’t let that happen again.”

Joanna adds: “Coconut provided the perfect readymade solution. It saves us time when completing Self Assessment tax returns, because the information we need is much more immediate. This has enabled us to process more tax returns and help more clients, which has helped us to grow as a business. Coconut does make it easier for sole traders to do their own tax returns, but our clients like the peace of mind and added expertise that we offer.”

Saving time and effort

The barefoot accountant uses other accounting software for its limited company and VAT-registered clients, but Ele says it’s not suitable for sole traders. “Coconut offers everything they need. It also saves us time, because if we’re advising a client and need to find out about their income, we can quickly and easily get that information, we don’t have to wait for clients to come back to us with it.

“Sole traders can learn how to use Coconut very quickly, because it’s very intuitive. We don’t find that we have to spend much time teaching clients how to use it, although we do offer an introductory session as part of our service, but often our clients don’t find that they need to take us up on it. Coconut also has a great chat option that clients can use to speak directly to someone at Coconut to solve any software issues.

“Coconut is so easy to use that our clients don’t need to be local for us to provide them with a fantastic service. We have sole trader clients up and down the country. We do love to see our clients, but people turning up with shoe boxes or bags full of expense receipts doesn’t happen, thanks to Coconut,” she smiles.

• Blog produced originally for Coconut Accounting Software/Accounting Web.