Can I work for a Canadian company while living in the UK?

Question

I'm a Canadian citizen going to the UK on a Tier 5 YMS visa in a few weeks. When I put my notice in, my boss surprised me by asking me if I'd be willing to work remotely for the company while I'm living in the UK. The company is under the impression that they could pay me as an hourly employee, take off deductions for Canadian taxes as they would normally do and deposit my pay into my Canadian bank account. The company does not have offices in the UK (or any other country).

But how does this work with UK taxes, then? I do not want to avoid taxes wherever they're due, and I know that Canada and the UK have a tax treaty so I shouldn't be double-taxed if I do my taxes right. If I'm working as an employee (not a contractor, not a freelancer) for my Canadian employer, do I have to register as self-employed in the UK to file taxes that way, or is this sort of thing simply not allowed?

Answer 1

I give you several links to official sources:

1. https://travel.gc.ca/travelling/living-abroad/taxation

2. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/non-residents-canada.html

3. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/special-situations/employment-outside-canada.html

4. https://www.gov.uk/tax-foreign-income

5. https://www.gov.uk/tax-foreign-income/paying-tax

Below is my understanding, but I am not a lawyer, so don't rely on this without verifying it. So, my understanding is that while living in the UK you will be considered a non-resident of Canada for income tax purposes. The employment such as you described seems to be allowed (at least I don't see anything that would prohibit it). But the impression of your company that they would do all deductions as for a regular Canadian employee seems to be wrong. From the third link that I gave above, it seems that the company should not deduct EI premiums and pension contributions. As for the taxes, it seems that you should declare your income from that employment in your tax returns in both countries, but pay the income tax only in one country according to a tax treaty (in which country, I am not sure; I suspect the UK, but not sure).

Answer 2

Most countries have the rule that you are working where your body is physically present. Therefore:

You need to have the right to work in the UK, and you need to pay income tax and National Insurance in the UK.

Your Canadian compAny should not pay income tax in Canada.

The easiest and financially best is to start a company in the UK, and your company sending a bill to Canada every month which gets paid by your old company. Your Canadian company will most likely not have to pay anything but the bill. You negotiate what the bill should be. Get a tax advisor who will tell you how to get more money than you would as an employee (by paying £1000 a month salary, plus the rest as dividends).