UK Ltd from Canada with a USA client

[karlc]

having been following this website for a while now and finally feel time to jump in and why not start with a complex question

i've been reading through a few of the threads on here and seems that contracting cross border can be tricky and all threads whilst useful dont seem to fully cover my senerio

I've for past 1.5 year run my UK Ltd company - currently got a USA client for past 9months that looks like they could stick around for at least another year due to work level and rate is decent - hence asking the question.

My current setup is me director with 51% shares and my wife employee with 49% shares, pay the PA rate and then dividend the rest as per normal routine.

i would like to work for my UK Ltd company from Canada so have a number of questions and if i havent covered something would love for you to feel free to point it out too

1. Can i legally do this work from Canada for my own UK ltd company?
2. Can I be a non-resident director?
3. where does the tax get paid assuming same model, all salary and dividends getting paid into UK personal accounts and then transferred across to Canada accounts?

Corp Tax and HMRC Filling
Being the company is a seperate entity with accountant providing UK registered address - then corporation tax and annual filling remains a UK matter??

Income Tax
If i was technically working for my UK company remotely does the tax need paid locally i.e. Canada??

Dividends
Would it be treated the same as salary?

NIC
Im making a big presumption that with NIC and not being the country is not UK paid anymore - however NIC payment is low so not a such a big deal if i need to pay it

Im sure im missing loads, but im keen to get opinions from the very smart people on here

Many Thanks Everyone for even looking!

[Louisa@InTouch]

Hi Karl,

Lots of questions and a number of variables, depending on the specifics. But general responses:

1. There is nothing that stops you working overseas as an employee of your UK company

2. Yes there is no requirement for a director to be UK resident either literally or for tax purposes.

3. Where the money is paid is not the issue. Your personal tax position is determined by reference to your tax residency, whether UK, Canadian or both.

This is where it will get really complicated. Your tax position will depend on where you are tax resident and that will depend on the periods of time that you are in the UK, US and / or Canada. In the UK there is now a statutory residency test that will determine this based on the facts in the UK, there is probably a similar test for the US / Canada.

So far as Canada is concerned then you would need to understand their residency rules. They are likely to be very similar to the UK’s.

If you remained UK bound then your company would be able to claim the costs of you working abroad, and that’s just about all your costs of living and accommodation, travelling etc. Your suggested contract duration looks like you won’t have to consider the 24 month rule. You may want to look at the overseas benchmark scale rates as these can be generous.

Canada and the UK have tax agreements (called double tax treaties) these are intended to determine where income is taxable and normally avoid double taxation. You would need to consider your split of salary and dividends based on this and based upon the respective tax rates.

You have not said whether your wife is going to. If she is remaining in the UK making her a director will stop any discussion over Canadian residency for the company. You can also divert income to her to keep it wholly UK if that’s desirable.

Corp Tax and HMRC Filling

The company wont be effected and you will still be require to comply with all the normal UK filing issues. However there is the possibility that if you were Canadian Tax Resident and managed and controlled the company from Canada that the UK company could be considered tax resident in Canada. This is easily planned and managed.

Income Tax

Potentially yes. The UK company could be considered as operating in Canada and be required to comply with Canadian employment taxes.

Dividends

No. Dividends are just that dividends (although IR35 remains an issue to consider).

NIC

You may not be liable for UK NI. Your company will probably still be liable but at the level of salary and with the employers allowance its unlikely to be material to be worried about.

You may have NI issues (or a similar tax) in Canada. You most certainly will need to consider extensive medical insurance cover.

The point you are missing is that you need advice from a Canadian tax expert who can look at your position from the Canadian point of view and advise on what you and your company would need to consider. Only then will you have the full picture.

There are many issues to consider, how this affects you, your wife and your company and not just from a tax point of view. Your costs of travelling may be a real cost to you and make it financially not worth it, unless of course your costs are recharged to the client, or this is more a lifestyle choice and not entirely commercial.

Having a US client may make this more complicated, especially if you start spending time in the US. The IRS are a scary bunch, if you think HMRC are bad they are fairy god mothers by comparison.