If you’re considering relocating to Spain using the Digital Nomad Visa (DNV) and operating through a UK limited company, you might be thinking about applying as an employee with an A1 certificate from HMRC. This approach has been pretty common so far, but it’s now believed to come with some significant risks and considerations that make it less ideal for most UK business owners. In this guide, we’ll break down why, highlight alternative options, and help you make the best decision for your move.
Understanding the UK and Spanish Employee Rules
It might be a cliché, but it’s true—Spain really is different. Especially when it comes to the definition of an employee.
What Does It Mean to Be an “Employee” in the UK?
The UK has a flexible definition of the word "employee" when compared to Spain. Small company owners—those with more than 25% of the company shares, officially called Persons with Significant Control (PSC)—usually pay themselves a mix of salary up to the NIC primary threshold and the rest through dividends. While they can invoice the company in certain situations (explained in bottom section below), UK company law doesn’t require a PSC to register as self-employed.
The Spanish Perspective: Key Differences
In Spain, employee classification is governed by the Workers’ Statute (Estatuto de los Trabajadores), offering a more rigid and structured framework compared to the UK. Spain uses a straightforward system with two categories: employees (trabajadores por cuenta ajena), who work under someone else’s direction, and self-employed individuals (autónomos), who manage their own business risks and work independently.
Spanish Social Security rules usually require company owners to register as self-employed corporate administrators (autónomo societario) under the RETA system as follows:
- 25%+ ownership & management duties: Must register as self-employed.
- 33% - 49% ownership, no management duties: May avoid self-employment under certain circumstances.
- 50%+ ownership: Almost always must register as self-employed.
Risks of Applying as an Employee: Why You Should Be Cautious
You’re probably thinking, “Hang on, I’m a UK business owner, not a Spanish one. Why does this matter to me?”
While the future remains uncertain, one thing is clear: Spanish tax authorities have a reputation for being thorough and assertive in their inspections. It’s still unclear whether they will apply UK or Spanish criteria when determining the requirement to register as self-employed. With this in mind, exercising caution is undoubtedly a wise approach.
Some other factors to keep in mind:
- Information Sharing: As part of the Digital Nomad Residency application process, the UGE may require sensitive documents, including contracts and tax returns, which could be shared with tax authorities.
- Increased Scrunity: Before the Digital Nomad Visa was introduced in 2023, it was less common for business owners to relocate, and when they did, it was usually done quietly. With the introduction of the DNV scheme, the influx of thousands of UK PSCs traveling to Spain annually, and increasing media scrutiny on the challenges of immigration, these applications may now be receiving greater attention—or could in the future.
What Are The Main Risks?
The tax risk:
If you’re running a limited company in Spain but paying corporation tax in the UK and keeping all the profits there, this could raise concerns with the Spanish authorities down the line. Essentially, if your business is operating in Spain under what’s known as "permanent establishment," Spain might argue that they’re entitled to a share of the profits since the business is operating locally. If they decide your activities meet the criteria for a permanent establishment, they could claim the right to tax your company profits in Spain, which might leave you with unexpected tax bills, interest, and fines.
The social security risk:
For very small companies, the risk of permanent establishment may be low—mainly because there’s not much tax to collect and less motivation for Spanish tax authorities to pursue it. However, don’t forget about the risk of misclassification when it comes to social security. If you spend two years in Spain working under an A1 certificate and the authorities later decide you should have been registered as self-employed (based on the Spanish definition), they could ask you to pay back two years of Spanish social security contributions, plus interest and fines.
Why Most UK Company Owners Prefer To Use the Employee Route
- Lower Social Security Costs: With an A1 certificate, you stick with UK National Insurance for up to two years and avoid Spain’s higher social security contributions.
- Simplified Tax Payments: Employees in Spain can pay income tax with a single annual filing, avoiding quarterly payments.
- Maintain UK Pension Contributions: Some prefer to keep building their UK state pension, although the Spanish system may be more beneficial if you stay long term.
- Less Administrative Hassle: Avoiding Spanish self-employment spares you from quarterly tax filings and hiring a gestor (accountant).
What if You Have Already Applied as an Employee with an A1 Certificate as a Business Owner?
This blog post is here to help guide those weighing their options right now—it’s not meant to worry anyone who’s already submitted an employee application with an A1 certificate. The reality is, no one can say for sure how Spanish tax or social security authorities will handle these situations down the line. As mentioned earlier, if your company has minimal profits, it seems pretty unlikely that tax authorities would spend time looking into it. When it comes to social security, it’s still unclear whether Spanish authorities will let UK company owners stick to UK rules, allowing them to avoid registering as self-employed.
Remember, it’s not your immigration specialist’s job to flag these specific tax or social security issues for you. International mobility, especially with new visa options like the Digital Nomad Visa, is a niche area that’s constantly changing. This is still new territory, where the legal definition of "employee" can clash between two countries.
If you are a Person with Significant Control (PSC) as described above and your intention is to remain in Spain for the long run, our advice is to switch your status to self-employed as soon as possible to minimize potential risks. Making this change now usually won’t increase the total number of applications you need to submit in order to achieve permanent residency and may help you avoid complications down the line.
Benefits of Applying as Self-Employed (Autónomo)
- Full Legal Compliance: Meet Spain’s tax and social security obligations from day one.
- No A1 Certificate Needed: Start the process immediately—no waiting for HMRC paperwork.
- Access to Spanish Benefits: Enjoy public healthcare (from day 1) and contribute to Spain’s generous pension system (if you stay long enough). The first year’s social security fee is just €87/month.
- Cost Certainty for High Earners: Social security payments are capped after the first year at €590/month.
- Simpler Path to Permanent Residency: You can achieve five continuous years’ residency (required for permanent residency status) with just one application and one renewal as a self-employed person. The employee/A1 path requires multiple applications and interruptions.
Challenges of Self-Employment
- Increased Paperwork: Quarterly tax returns and VAT filings are required (usually handled by a gestor for around €80/month).
- Quarterly Tax Payments: Taxes are not deferred to year-end; plan to set aside at least 20% of profits each quarter.
- Social Security Increases After Year One: Payments start low but will rise, so budgeting is crucial.
Action Plan: Set Yourself Up for Success
- Confirm Your Ownership and Role: Understand your shareholding percentage and director responsibilities. If there’s an opportunity to make adjustments, it’s best to do so before applying for the Digital Nomad Residency.
- Evaluate Costs vs. Risks: Assess the tax and social security implications of each option, and carefully balance these against the associated risks and your personal risk tolerance.
- Consult an Expert: Get tailored advice from a Spanish tax or immigration specialist such as Move To Spain Guide to protect yourself from costly mistakes.
Final Thoughts: Choose the Smoother Path
Opting for self-employment in Spain under the Digital Nomad Visa sets you up for long-term legal compliance, easier access to benefits, and a clear path to residency. While paperwork does increase, the trade-off is peace of mind and fewer headaches with the authorities.
If you want to make your move to Spain as smooth as possible, don’t hesitate to get expert help. With the right support, you’ll be ready to enjoy everything Spain has to offer with confidence.
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Definition of Employee in UK Vs. Spain
UK: Flexible Approach to Employment Status for Company Owners
The UK’s employment law framework is highly flexible, shaped by the Employment Rights Act 1996 and case law, including Ready Mixed Concrete (1968) and Autoclenz Ltd v Belcher (2011). This flexibility is supported by the UK’s three-tier classification system, distinguishing between employees (full statutory rights), workers (limited rights like minimum wage), and self-employed individuals (minimal protections). Employment status is assessed based on the actual working relationship, not just contractual labels or ownership status.
In the UK, a company owner—whether a sole trader, shareholder, or director—can be classified as an employee if their role meets criteria from case law: personal service (working personally without delegating), control (the company directs how, when, and where work is done), and mutuality of obligation (the company provides work, and the owner is obligated to perform it). For example, a majority or minority shareholder with an employment contract for operational duties—such as a managing director with a fixed salary, set hours, and adherence to company policies—may qualify as an employee. Courts, as highlighted in Autoclenz, focus on the reality of the role over contractual wording to prevent misclassification. Ready Mixed Concrete also emphasizes assessing business risk and independence, which can exclude employee status if they are significant.
Unlike Spain, the UK does not presume self-employment for owners with control (e.g., majority shareholders). Instead, courts and HM Revenue and Customs (HMRC) review the specifics. For example, a majority shareholder who receives a salary, works under company oversight, and has minimal financial risk may qualify as an employee, gaining rights like unfair dismissal protection, statutory sick pay, and pension contributions. HMRC’s IR35 rules ensure owners working through their own companies are taxed as employees if their role mirrors employment. This allows owners to structure their roles to access employee benefits while maintaining ownership, particularly in small businesses where they take on operational duties.
Spain: Stricter Statutory Framework and Presumption of Autonomy
In Spain, employment status for company owners is governed by the Workers’ Statute (Estatuto de los Trabajadores) and related labor laws, which take a stricter, more rigid approach. Spain uses a binary classification system: employees (trabajadores por cuenta ajena), who work under subordination and dependency, and self-employed individuals (autónomos), who operate independently and bear their own business risks. Unlike the UK, Spain has no intermediate “worker” category, creating a clearer but less flexible system.
Company owners in Spain are generally classified as autónomos, particularly if they hold significant control, such as a majority shareholding (>25%) in a limited company (e.g., Sociedad Limitada, SL). This presumption stems from their authority and financial risk. The Workers’ Statute defines employees by subordination (working under someone’s direction), dependency (relying on the employer for pay and integration), and personal performance (working without delegation). Controlling shareholders rarely meet these criteria, aligning them with autónomo status.
However, a company owner can be considered an employee if they hold a minority share (e.g., <25%) and work under a formal employment contract with clear subordination and dependency. For instance, a minority shareholder employed as a salaried manager, working under company direction with fixed hours, may qualify as an employee under the General Social Security Regime, gaining benefits like paid leave, sick pay, and unemployment protection. Spain’s strict rules against false self-employment (falsos autónomos), reinforced by measures like the 2021 Rider Law, aim to reclassify individuals as employees when their work involves subordination, regardless of contractual language.
The presumption of self-employment for controlling shareholders reflects Spain’s focus on ensuring social security contributions and preventing labor violations. Owners registered as autónomos pay their own social contributions (e.g., around €294/month minimum in 2025) and are taxed under the personal income tax system (IRPF), without access to benefits like paid leave or unemployment. In contrast, the UK’s lack of presumption offers greater flexibility for owners to qualify as employees if their role aligns with employment criteria.
Key Contrasts and Implications
The UK’s flexible, case-law-driven approach allows company owners to be classified as employees if they meet tests for control, personal service, and mutuality of obligation, regardless of ownership stake. This enables owners, especially in small businesses, to combine ownership with employee status, gaining statutory rights while managing tax obligations under IR35. Spain’s stricter framework assumes controlling owners are autónomos unless they clearly demonstrate subordination and dependency, which is uncommon given their authority. This focus on social security contributions and labor compliance limits flexibility but ensures robust worker protections.
Example:
- UK: A majority shareholder of a Ltd company working as a salaried operations manager with a contract specifying fixed hours and oversight can qualify as an employee, gaining rights like holiday pay. HMRC may apply IR35 for appropriate tax treatment, but employee status is viable.
- Spain: The same owner, if holding >25% of an SL, would likely be classified as an autónomo, paying their social contributions and lacking employee rights unless they have a minority stake and subordinate role with an employment contract.
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