Is this legal? taxation change

[getitupya]

Looking for advice/opinions please.

I was contracting to an oil major in Italy, through an agency, who paid me through an umbrella company.

I was paid a "Net Salary" where I got the same day rate, and my employers paid the local taxes. In the first year they paid Italian tax at 43% which left me with no UK liability, however in the second year they changed the amount of Italian tax paid to 30% leaving me owing uk tax at the difference of 10%

I have only found this out when I went to submit my tax return (through the umbrella companies accountants), as they never informed me of the change in how much tax they were paying on my behalf.

To complicate matters my pay slips show deductions of over 40% for tax, they claim that this was only as a "worse case scenario" and I should ignore what is on the payslips.

So, what is the opinion...is this legal, and where do I stand in paying my deficit?

Thanks

[Eric Mc]

What tax return are we talking about?

[getitupya]

My 2009/2010 self assessment.

[Eric Mc]

Did your employer pay you less the Italian tax of over 40%?

[getitupya]

I was paid the same "net rate" per day worked, the tax was paid locally (in Italy) and I received X days @ net day rate. As far as I was aware, Italian tax at 43% was greater than UK tax at 40% so therefore I would not be liable for any further taxation in the UK.

thanks

[Eric Mc]

That should be the case. There is a Double Taxation Agreement (DTA) between the UK and Italy. The essence of DTAs is that a person should not pay tax twice on the same piece of income.

In you case, the Italian tax exceeds what the UK tax would be, therefore the UK would not ask you to pay any tax on that income.

[LC23]

As you were on a net pay arrangement were you tax equalised or tax protected at all? Did it mention either of these in any agreement you had?

[getitupya]

Eric - Yes that was the case, but my point is that they lowered the tax paid in Italy without telling me to 30% thus leaving me with a deficit of 10% in the UK.

LC23 - I cant remember there being mention of either, to be honest the contract was pretty generic and had little reflection of the actual situation.

[Nick M]

Have you got a copy of the Italian filings which were made ? It could just be that your liability in the second year (was it a partial year ?) was lower than the previous one, hence the apparent shortfall.

Guess it depends on the wording and whether they just guaranteed you an amount net of Italian tax, rather than all taxes, but perhaps one solution is to invoice the Italian company on the basis that you've not achieved your proper net pay and have the UK return to back that up.