For UK limited company owners contemplating a move to Spain on the Digital Nomad Visa, deciding between applying as an employee or self-employed (autónomo) can significantly impact your financial and administrative responsibilities. This guide provides an overview of both options to help you make an informed decision tailored to your circumstances.
Applying as an Employee
If your limited company has employed you for at least one month (28 days), you can apply for the A1 certificate from HMRC. This certificate allows you to continue paying UK national insurance for up to two years minus one day, instead of paying into the Spanish social security system.
What are the key benefits to applying as an employee?
Tax Management: You will pay tax once a year in Spain (once you become a Spanish tax resident) rather than quarterly. You can fill out P85 and get a NT tax code so no tax is taken off your salary payments (optional – if you don’t, you can use the double taxation agreement and deduct the tax paid in the UK). Although you won’t pay less tax, this means that what you pay will be sitting in your bank account for the whole year and can earn interest.
Lower Costs: Avoid monthly Spanish social security payments, which can be a relief for lower earners (minimum contribution is €230.15 a month from year two onwards).
Healthcare Access: With an S1 certificate, you, your spouse, and your children won’t need private healthcare, easing your transition.
What Are the Key Disadvantages to Applying as an Employee?
Certificate Duration: The A1 certificate is typically valid for a maximum of two years minus one day and is until now (May 2024) believed to be non-renewable, which might necessitate a switch to self-employed status or a return to the UK once it runs out.
Application Process: Obtaining the A1 certificate can take about three months, which may delay your relocation process.
Renewal is earlier: The cost and hassle of reapplication is a year earlier (as self-employment approvals are usually for 3 years).
Applying as Self-Employed (Autónomo)
Opting for self-employed status as a limited company owner involves a commitment to contribute to Spanish social security, which provides healthcare for you and your family and eligibility for other benefits like unemployment and pension.
What Are the Key Benefits to Applying as Self-Employed?
Extended Approval: The approval for self-employed status usually lasts for three years (provided you don’t have any time-limiting contracts such as a 12-month rolling or project-based contract), compared to two years for those with an A1 certificate.
Healthcare Coverage: Social security is only 80 euros a month for the first year (in some areas, you can claim this back at the end of the year so it is almost free). It's only the main applicant that pays this, and the whole family can be covered for healthcare (with the exception of some civil partners).
Cap on Social Security: From year 2 onwards, the social security payment can be limited to 542.13 euros per month, no matter how high your net earnings are. This means, for very high earners, the percentage can be very small (e.g. if you earn €6,000 net a month, you can pay €542.13 – if you earn €20,000 net a month, you can also pay €542.13). Note that you can opt to pay more than this if you wanted a higher state pension in the future.
What Are the Key Disadvantages to Applying as Self-Employed?
Frequent Tax Returns: The self-employed in Spain have to do numerous quarterly and annual returns (e.g. VAT, Income tax, withheld payments to suppliers, all of which a gestor can do for you).
Higher Initial Costs: It’s very difficult to file your own taxes in Spain so you need to factor in the cost of a Gestor (advisor/accountant). The services of a gestor typically start from around 50 euros per month.
Inspections: The tax authorities are much more aggressive than in the UK about what expenses they will disallow and fine you for. Add to this the additional general stress of not knowing if you are doing things correctly (or if your gestor is) and it’s not particularly relaxing being self-employed in Spain.
Tax: You have to pay 20% income tax every quarter as a payment on account, and then you pay the difference at the year end.
Unfair contributions for lower earners: For lower earners, the social security payments are expensive (€230.15 is the minimum payment from year 2 onwards).
Tax Considerations
Whether you choose to apply as an employee or self-employed, understanding your tax liability is crucial. Use the tax calculator at AutonomoInfo to estimate your taxes based on annual net revenues. This tool provides a useful comparison, as the overall tax burden remains the same across both employment statuses.
There is no calculator for those paying National Insurance or dividends, so this is the closest you will get unless you pay for a full estimate by a tax specialist.
Conclusion
Each option offers distinct advantages as well as challenges. Your choice between applying as an employee or as self-employed in Spain should consider your financial situation, tolerance for administrative tasks, and long-term residency plans. As always, consulting with a tax professional can provide personalised advice and help navigate the complexities of cross-border taxation and benefits.
All facts and figures are accurate as of the time of writing on 08/05/2024 and are subject to changes with inflation.
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