Offshore company - emotionally detached responses only please

[nathanwa1]

OK, I'm sure I'm risking the wrath of many by asking this but here goes. I am at present with an Umbrella company who I have fallen out with. Doing some research I came across the concept of offshore companies with offshore bank accounts. Before I switch companies I would like to find out what the legal consequences of the following plan are:

I am a UK resident and want to avoid tax (a legal manouvre) by setting up an offshore based company (for example in Panama or Dubai).

Such countries require very little to no book keeping, monitoring or filing - advantage no.1. I would also be liable for very little to no tax in those countries - of course, another advantage.

I plan to continue contracting in the UK/Europe trading under this company. I plan on never bringing more than the minimum wage to this country thus I shall be paying tax on this minimum wage only. Question then, is there anything illegal about this? I.e. Am I commiting an offence by not paying tax on 20% of my companies revenue?

Before anyone asks, I eventually wish to leave the UK therefore this plan ties up with my future plans of withdrawing as much of my company funds as possible.

Thanks

[Hector]

If you are UK resident then you are obliged to pay tax to HMRC on the whole of your worldwide income. There are double taxation agreements in place with many countries so that the total tax you pay combining the overseas tax and the UK tax will be the same as the UK tax, but it wont be less.

People have tried the "keep the money offshore and never bring it into the UK" approach before, but they are being found out as we speak.

[ASB]

If you are not uk domiciled you position is stronger.

If you are then you - as an individual - will be liable for uk taxes on your worldwide income. The offshore companies income is not necessarily your own. Of course the IR might use this as their first line of attack - you would have to disprove it.

A company also has residence, in the circumstance you describe (even if you are not a director) then it is likely to be considered UK resident by HMRC and taxed accordingly. Again you might be able to win the case.

They could still go for IR35 as well.

You will also find most companies are very wary of doing business with non UK based companies when it comes to contracting.

Of course HMRC have to find out about it first. It may well be that you can do it for a few years, leave etc.

If HMRCX come knocking before then you can expect penalties , interest and quite possibly criminal charges. You'll have a hard time convincing them it was a genuine mistake.

[nathanwa1]

Thanks for that guys.

I genuinely aim to keep 80% of my offshore company's yearly income within the company books - no two ways about that. The 20% or so that will be my salary will be declared in the most honest way to HMRC, thus fulfilling my moral obligation.

Once I have expatriated myself (to a far away non European, non-antipideon country), I will be legally allowed to (as a resident of my new country) to withdraw all of my foriegn company's funds and not pay a single cent in local taxes. Even with my intentions clearly laid out, can anyone still actually say I am commiting tax EVASION? That's all I require an answer to.

[ASB]

can anyone still actually say I am commiting tax EVASION? That's all I require an answer to.

I cannot say with 100% certainty yes. However in the circumstances you have described I can say that with >99% certainty the answer is yes.

With respect, what you need to do is speak to a specialist with regard to what you want to achieve and your exact situation. This needs to be a UK based specialist who understands the rules related to the UK not just the rules related to the destination tax haven.

[simondolan]

Thanks for that guys.

I genuinely aim to keep 80% of my offshore company's yearly income within the company books - no two ways about that. The 20% or so that will be my salary will be declared in the most honest way to HMRC, thus fulfilling my moral obligation.

Once I have expatriated myself (to a far away non European, non-antipideon country), I will be legally allowed to (as a resident of my new country) to withdraw all of my foriegn company's funds and not pay a single cent in local taxes. Even with my intentions clearly laid out, can anyone still actually say I am commiting tax EVASION? That's all I require an answer to.

Two things:

1. No UK agency that I know of will pay an offshore Company;

2. The Company will be deemed resident wherever the central management and control of the Company is, so regardless of where it was incorporated it will take your residency (unless you or your associates have no control over the Company or the bank account - obviously not a good idea).

Why not just set up a UK Ltd, pay the 20% corporation tax, leave anything other than your basic rate income in the company and distribute the balance when you leave the UK permanently. All legal, above board, no fear of reprisals.

[ElectricChair]

why have you chosen not to receive private messages?

[meridian]

can anyone still actually say I am commiting tax EVASION? That's all I require an answer to.

No-one here will be able to state that. Not even Hector It'll have to go to the courts before it will definitively be shown to be tax evasion....

What it is though is tax avoidance, specifically a scheme set up for the sole purpose of avoiding tax and not apparently for any other business related purpose. As such, you're supposed to disclose it to HMRC, and when you do so you can expect a visit and lengthy chat with an inspector.

Who knows, it may pass inspection after a lengthy and costly examination.

Why not follow Simon's advice and pay 20% tax instead of tax on 20% of your earnings?

[NotAllThere]

You need to find out whether an offshore company with an onshore employee is "deemed" tax resident in the UK. IIRC, a tax resident company is obliged to pay tax on all profits generated in the UK. These profits may be offset against losses elsewhere.

You might find this helpful http://www.hmrc.gov.uk/manuals/intmanual/INTM262040.htm

Not All There

[THEPUMA]

nathanwa1

If you are intending to set up an offshore company yourself with a view to not paying tax in the UK then I would echo Simon's comments. It will be UK resident if it is centrally managed and controlled in the UK and hence subject to UK corporation tax.

The alternative is that you go for one of the offshore schemes on offer. There are many based in the Isle of Man due to its helpful double tax treaty. This then effectively supersedes UK legislation and it is possible to pay a very low rate of tax.

However, once you pay the scheme provider's fees, you usually end up paying a total of 10-20% of your turnover so they particularly suit people who want to take every penny they earn on an arising basis.

Those that can afford to leave a large proportion of their earnings in a company will usually end up only paying 28% at the margin and therefore the scheme is not usually worthwhile, given the inherent risk of challenge and possible penalties and interest.

HTH