Blogs in this series

Life in Culebrón is personal view of Spain and Spanish life as seen by a Briton living in a small village in Alicante province.
The other tabs link to similar blogs when I have lived in other places. The TIM magazine is an English language magazine I write articles for.

Wednesday, April 05, 2017

Tax burden

Today is the first day that we Spanish tax payers have been able to sort out either under or over payments in the 2016 tax year. The Spanish tax year is the calendar year.

Everyone, resident in Spain, who earns over 22,000€ or has more than one source of income, has to make a tax declaration. If you earn money from more than one source you don't need to make a declaration if you earn less than 12,000€. The declaration is on worldwide income. What happens is that the tax office, Hacienda to you and me, sends out a thing called a borrador, a draft assessment. Once you are on the website you can check if the borrador looks fair enough. If you have just one job with one salary and things are pretty much as they were last year you may have to tweak a few things but, chances are, that the borrador will be close to the truth. For quite a few years all I did was to have a quick scan and press the accept button because Hacienda usually sent me back a few euros.

If your situation is a bit more complicated you can, of course, buy yourself the services of an accountant to help you fill out the form. I had a short period of being self employed and so I used an accountant, un asesor, for a couple of the declarations. The other option is to book an appointment at the tax office and go and get them to help you fill in your tax declaration. I did that at the beginning when the online version didn't exist. I also did it when I first had problems with the tax on my UK pensions. I reckoned that if a civil servant filled in the form it was much less likely that I would get a late night visit from some heavily armed tax officials keen to check my deductions.

My pension has been a right pain tax wise. It's paid in the UK. Part of it is a Government pension (the sort that police officers, the military, civil servants, teachers and the like get) and part of it is private. The Government Pension, under EU arrangements, has to be taxed in the UK. In the past the Government Pension didn't have to be declared in Spain. The amount was less than the UK tax threshold so, although it was in the UK tax system, I didn't actually have to pay any tax on it. The private bit, and that amounts to less than £400 per year, comes from AVCs. Although I nominally pay UK tax on that income too I have always known that it should be declared in Spain as part of my worldwide income. I didn't think though that even the meanest of mean tax officials would be worried about a piddling £400 earned and taxed miles away. I didn't bother to sort it out. It was pure, one hundred percent, sloth. I don't even have my usual excuse of worrying about speaking Spanish. The UK tax people must have grassed me up to the Spanish Hacienda and the Spaniards came looking for their unpaid tax. I was actually able to take advantage of a tax armistice to pay the back taxes I owed without any penalty but I did need to pay an accountant to sort it out.

Then some Spanish tax laws changed. Although Government Pensions remain taxable in the UK they now have to be declared as a part of my income or that of anyone in a similiar situation living in Spain. Were the situation to be that tax was due on that pension in the UK then Hacienda would knock the amount paid in the UK off any amount due in Spain. The system still avoids double taxation but it also did away with advantage that UK residents in Spain got from both the UK tax threshold and the reduced rates for people on low incomes in Spain.

So the borrador was available online today. Hacienda has a new computer programme this year and it has been widely billed as being easier to use. I agree. It was a lot slicker and a lot easier to understand than the older system. As soon as the system fired up it asked me how much I'd earned on my UK pension. I told it. I boldly clicked, I wasn't worried because I thought I was pretty well sorted, tax wise, nowadays. I insisted on legal contracts for both my teaching jobs and, without doing the sums on the tax deductions, I presumed that I was paying my tax bill every month from my salary much as people do in the UK with the PAYE system. I was wrong. For some reason one of my two employers appears to have paid none of my tax and the other seems to have paid at some discounted 2% rate. The lowest Spanish tax band is 19%. Basically then I've only paid a tiny fraction of the tax bill on my teaching work and none of the tax bill on the two UK pensions. When I pressed the button the shiny new computer system told me that I owed the difference. I felt nauseous as they say in Hollywood.

I'm not going to say how much the tax bill is because it would be dead easy to work out how little I get paid and that would be embarrassing. Suffice it to say that it would take me two months of teaching to earn enough to pay my outstanding tax. It was a bit of a shock to the old system I tell you.

No comments: