People, living in Spain, with an income below 22,000€ from just one source, and paying tax on that income, don't need to file a tax return. If the income is below 15,000€ the income can come from two sources but the second income can't be more than about 2,000€. These figures change each year, but they are roughly accurate for now.
So, it’s not easy to avoid doing a declaración. It's not a particularly onerous, difficult or expensive process if the money comes from wages, pensions, investments, rent and the like but it's always a bit of a hassle. Lots of people pay an accountant to avoid the faff. If you’re self-employed, you’ll almost certainly need an accountant.
I’m not an accountant, so I’ll just talk about my own tax return. When I worked, my employers took tax off my pay each month. At the end of the tax year (31st December), the tax office—Agencia Estatal de Administración Tributaria, most frequently called Hacienda —starts to do the sums. It takes them a while to sort out the figures but come April they are ready and that's when the declaration period for the last full tax year begins. Declarations have to be submitted by the last day of June. If you miss the deadline, you get fined.
The Spanish tax office creates a borrador, or draft, of your declaración. You need to check it's right and fix any mistakes. When the form is complete, ready to submit, the final page tells you if you owe Hacienda money or if they owe you. For most people most of the info that Hacienda uses to work out the draft comes from the banks, employers, pension providers etc. In the case of we foreigners they rely on us to tell them about overseas sources of income. There are other details that Hacienda may not know about, things like charitable donations (which reduce your tax) or extra income you've had from selling things or winning prizes (which increases your tax). It’s up to you to include everything. If you decide to be naughty then the tax people have four years to catch up with you - after that you're in the clear, at least for that particular year.
If you have overpaid, Hacienda sends the money back quickly. If you owe money, you can pay in one or two instalments—the first at the end of June, the second in November.
I forget how that whole process of raising the borrador to paying money out or getting it back were done the first few years we were here, but it’s been sent via the internet for years now. In those early years I never saw the borrador. I used to make an appointment and go to the tax office. They’d ask me a series of questions. I’d answer, they'd fill in the various boxes for me and hand me a finished version to sign. Nowadays it's much more often submitted electronically but you can still go to the tax office and get Hacienda to fill in the form for you.
When the only money I earned in Spain was taxed at source I did my own tax returns, online. After a few years here I started to get a pension paid in the UK which was worth just £468 per year. To do it right I needed to do something with the tax people in the UK and include the income on my borrador in Spain. To be honest I wasn't quite sure how to do that so I rationalised it as being such a small amount that nobody would care. I was wrong. HMRC (the UK tax office) told Hacienda. He's on the fiddle, they said, and Hacienda came a calling. Luckily, there was an amnesty for overseas pensions, so I was able to sort it out. But they marked my card.
That experience decided me that I needed to use an accountant, especially when another couple of UK pensions kicked in. That didn't stop me having another round with Hacienda.
The second time was much nastier than the first. Right at the end of the four year period Hacienda queried an old declaración. To be honest I was a bit vague about even where I'd been working at the time. For some reason Hacienda had decided that my Teacher’s Pension was not a Government Pension. I asked the accountant, in Molina de Segura, who'd prepared the original documentation, to help me with my "defence". He wasn't at all helpful. Instead I used the accountant I'd been using in Pinoso for a couple of years.
The accountant suggested, strongly, that the UK tax people should prepare a letter for me to say that the pension was a Government one. I rang them, I asked. But the UK tax people weren't having it; they dug their heels in and said that the Spaniards should get off their fat arses and read their double taxation manual, which covers all the agreements on taxation between the UK and Spain. In the manual every document about the agreement is available in both languages. HMRC also sent me a copy of the page from the manual which listed the Teacher's Pension as a Government one. My accountant, brimming over with national pride, and forgetting that he was working for me, said that the Spanish tax people were better than the British tax people and that the Spaniards would be right. In the middle of this, and completely innocent, I had to pay for all sorts of documents to be translated. I remember being particularly aggrieved that I had to do that for the P60—a certificate which says how much income you’ve got from any particular UK source. The translation had to be done by an official (read expensive) translator. The British tax year runs from April to April so to provide the information for a single, Spanish, calendar, tax year, I had to pay for two P60s to be translated. They had exactly the same words on both, apart from the tax year and the income figure. The accountant might not have been happy to represent me but he raised an invoice quickly enough. A few months later Hacienda came back and said that everything was in order. There was no compensation though for the money or time spent. It just went away.
Now, I don’t worry too much. Every April, my accountant asks for my income. I add it all up, including small things like prizes or vouchers, and send him the figures. He puts them into the borrador and, one day, tells me how much I owe. I always owe, because my income isn’t taxed at source. It's not a day I relish.
