LLP for non-residents

[stek]

Dodgy...don't make me laugh I explained in the first post - IT contractors. In the UK we have no business whatsoever and I just want to cover our bases - what kind of taxes and/or NICs we are liable to as non-residents. Hence my question whether we need to put ourselves on payroll. Hence my thoughts about corporate and dividend tax. I'm not worried about any of those things. I just want to do the math so that I can figure whether it's more profitable to move our business to the UK or keep it where it is. If I want to do something dodgy UK is on the bottom of the list of jurisdictions I'd do it in.

Ok then, what's the plan? Don't drip feed us, let's have it chapter and verse.

[TheGrave]

Ok then, what's the plan? Don't drip feed us, let's have it chapter and verse.

I thought it's clear already but let me brief it:

1) Register an LLP with 2 designated members.

2) Each of us gets his own contracts and brings profit to the company.

3) Each of us claiming its own expenses - hotels, travel, etc.

4) At the end of the year we draw the line and distribute dividends in a proportion that corresponds to our real contribution (minus the individual expenses made). Question - how do we draw this up in an LLP agreement? Do we need to draw it at all? Can you distribute dividends as you like at the end of the tax year in an LLP or you need some legal basis to do that?

5) Based on what we discussed so far profits are free of corporation and dividend tax as we are non-residents.

The only thing we need to pay as a corporation is VAT but in reality this can only happen if we get a contract through a UK agency (highly likely). In such a case it might be more beneficial if we register for flat-rate but I'm not sure whether an LLP can register under the flat-rate scheme as the list of activities is not limited like when you are an LTD company (and you have different VAT rates based on your business area).

6) As individuals the UK taxation is unclear to me in this case. Do we need to get on payroll and pay the relevant income tax + NICs as salaried employees? If it's not required we obviously wouldn't do it. Not to mention that if you get yourself on payroll you satisfy one of the conditions mentioned above by HMRC for treating you as an employed person instead of a LLP member and force you to pay Class 1 NICs.

7) We declare the dividends in the countries we are tax residents in and pay dividend tax there.

Does it make sense now?

[stek]

I thought it's clear already but let me brief it:

1) Register an LLP with 2 designated members.

2) Each of us gets his own contracts and brings profit to the company.

3) Each of us claiming its own expenses - hotels, travel, etc.

4) At the end of the year we draw the line and distribute dividends in a proportion that corresponds to our real contribution (minus the individual expenses made). Question - how do we draw this up in an LLP agreement? Do we need to draw it at all? Can you distribute dividends as you like at the end of the tax year in an LLP or you need some legal basis to do that?

5) Based on what we discussed so far profits are free of corporation and dividend tax as we are non-residents.

The only thing we need to pay as a corporation is VAT but in reality this can only happen if we get a contract through a UK agency (highly likely). In such a case it might be more beneficial if we register for flat-rate but I'm not sure whether an LLP can register under the flat-rate scheme as the list of activities is not limited like when you are an LTD company (and you have different VAT rates based on your business area).

6) As individuals the UK taxation is unclear to me in this case. Do we need to get on payroll and pay the relevant income tax + NICs as salaried employees? If it's not required we obviously wouldn't do it. Not to mention that if you get yourself on payroll you satisfy one of the conditions mentioned above by HMRC for treating you as an employed person instead of a LLP member and force you to pay Class 1 NICs.

7) We declare the dividends in the countries we are tax residents in and pay dividend tax there.

Does it make sense now?

I'll let the accountants answer the specific points but:

1. Ok

2. Will that be acceptable to the agent/client? LLP in a foreign country?

3. Ok

4. There are no dividends in LLP's, it's all drawn as income tax.

5. Wouldn't be so sure here. 9 out 10 UK agencies would baulk at anything other than a brolly or Ltd.

6. Dunno

7. No divvies, only PAYE, guess you need to look into DTA and engage an international tax accountant.

[SueEllen]

No it still doesn't make sense.

Depending where you are resident and/or working then that taxman will come after you regardless of corporate structure you use to get the personal taxes they claim you owe.

Also some structures that are common and tax efficient n one jurisdiction are uncommon and tax inefficient in another jurisdiction.

[AtW]

Avoid LLPs, especially if you are foreign - you'd have to register as self-employed in UK and submit UK tax return. All partners will also be jointly and severally liable (even in LLP) for submitting tax returns to HMRC - if one of the partners fails to do it then LLP gets a fine multiple by number of partners.

Unless you've taken very good legal and tax advice and it said that LLP is great for your circumstances then stay away from it.

Having said that, there is a Scottish version of LLP which foreigners can register and apparently for some very strange historic reason there is no need to file regular info into Companies House, lots of stuff that applies to English LLPs does not appear to apply to Scottish versions, dunno why.

[TheGrave]

2. Will that be acceptable to the agent/client? LLP in a foreign country?

Already discussed with them - they don't care. They are dealing with an LTD in a foreign country already so no difference to them. Not to mention UK is a highly reputable jurisdiction.

4. There are no dividends in LLP's, it's all drawn as income tax.

Don't forget we are NON-residents in the UK hence no income tax See here for example:

UK Limited Liability Partnerships - International - Sectors - S H Landes LLP Chartered Accountants

There are no restrictions on the residence or nationality of the members of an LLP and therefore, if the members of the LLP are non-resident and the income of the LLP is non-UK source, the LLP will not be subject to UK taxation. It is therefore possible to have an LLP set up in such a way as to not be liable to any UK taxation.

Now, as I read it again question is: what is considered UK-sourced income? If I'm paid by a UK agency for a job done in Portugal does this make it UK-sourced when the ultimate client is not UK-based?

5. Wouldn't be so sure here. 9 out 10 UK agencies would baulk at anything other than a brolly or Ltd.

They normally mind UK self-employed persons but this is when you do business within the UK because of historical HMRC bullying. When they do business abroad they don't care so much who they are dealing with as they know the risk they get in trouble is negligible.

7. No divvies, only PAYE, guess you need to look into DTA and engage an international tax accountant.

DTA will kick in if PAYE has to come into play, this we have already checked. PAYE's cost, even in worst case scenario (Class 1 NICs) is comparable to what we pay at the moment so no big deal.

[TheGrave]

Avoid LLPs, especially if you are foreign - you'd have to register as self-employed in UK and submit UK tax return. All partners will also be jointly and severally liable (even in LLP) for submitting tax returns to HMRC - if one of the partners fails to do it then LLP gets a fine multiple by number of partners.

Unless you've taken very good legal and tax advice and it said that LLP is great for your circumstances then stay away from it.

Having said that, there is a Scottish version of LLP which foreigners can register and apparently for some very strange historic reason there is no need to file regular info into Companies House, lots of stuff that applies to English LLPs does not appear to apply to Scottish versions, dunno why.

I have experience with accountants that are happy to do all this work for me for a fair price Just want to cover my bases before I get in touch with them. I hate to engage in serious conversations without being prepared.

I read about Scottish LLPs but they are much more expensive to incorporate and seem to bring no real benefit over UK. I already have experience with the UK banking system, accountants, and HMRC so I feel very comfortable doing business there.

No it still doesn't make sense.

Depending where you are resident and/or working then that taxman will come after you regardless of corporate structure you use to get the personal taxes they claim you owe.

Also some structures that are common and tax efficient n one jurisdiction are uncommon and tax inefficient in another jurisdiction.

No, they won't come after me and they've stated it black on white:

https://www.gov.uk/tax-foreign-income/residence

Non-residents only pay tax on their UK income - they don’t pay UK tax on their foreign income.

On tons of UK law firms' websites you can find this confirmed. Also here for example:

UK LLP Taxation, UK LLP Tax Advantages, 0% Tax for Foreign Partners

[Iliketax]

I thought it's clear already but let me brief it:

1) Register an LLP with 2 designated members.

2) Each of us gets his own contracts and brings profit to the company.

3) Each of us claiming its own expenses - hotels, travel, etc.

4) At the end of the year we draw the line and distribute dividends in a proportion that corresponds to our real contribution (minus the individual expenses made). Question - how do we draw this up in an LLP agreement? Do we need to draw it at all? Can you distribute dividends as you like at the end of the tax year in an LLP or you need some legal basis to do that?

5) Based on what we discussed so far profits are free of corporation and dividend tax as we are non-residents.

The only thing we need to pay as a corporation is VAT but in reality this can only happen if we get a contract through a UK agency (highly likely). In such a case it might be more beneficial if we register for flat-rate but I'm not sure whether an LLP can register under the flat-rate scheme as the list of activities is not limited like when you are an LTD company (and you have different VAT rates based on your business area).

6) As individuals the UK taxation is unclear to me in this case. Do we need to get on payroll and pay the relevant income tax + NICs as salaried employees? If it's not required we obviously wouldn't do it. Not to mention that if you get yourself on payroll you satisfy one of the conditions mentioned above by HMRC for treating you as an employed person instead of a LLP member and force you to pay Class 1 NICs.

7) We declare the dividends in the countries we are tax residents in and pay dividend tax there.

Does it make sense now?

1. OK. But who will the two members? Will they be you and your mate? Will they be someone else?

2. OK. Will these contracts be in the scope of IR35? I guess you will say no. But just because it is an LLP does not mean that it is outside IR35. Out of interest, an LLP is not a company.

3. OK.

4. You write it down as "At the end of the year we draw the line and distribute dividends in a proportion that corresponds to our real contribution (minus the individual expenses made)". As LLPs don't pay dividends, it would be worth referring to drawing profits rather than distributing dividends but nobody will care if you leave it. Or you could make it a bit more complex, it's up to you. You can draw your profit share from the LLP whenever you like. You don't need formality (although it is worth knowing what profits you have made and that the LLP is solvent).

5. Profits of an LLP allocated to an individual partner are free of corporation tax. Profits of an LLP allocated to a corporate partner are subject to corporation tax. An LLP does not pay dividends. If a non-resident individual has profits allocated to them then they will pay UK income tax on profits of the trade carried on in the UK. The fact that the customers are overseas does not mean that there is no trade in the UK. A DTA is unlikely to help with that.

I know nothing about VAT.

6. If there is no UK income tax due because the you are not resident in the UK and the trade is not carried on in the UK then the salaried members rules cannot apply. Otherwise, assuming that both of you have a significant influence on the LLP as a whole then you won't be subject to PAYE/NIC on your drawings as you will fail Condition B. Your last sentence is wrong.

7. No dividends are paid by an LLP. It would be unusual for an overseas tax tax authority to treat an LLP as opaque and so you are likely to just pay overseas income tax / social security on your profits as they arise rather than as they are drawn.

Does it make sense? No. Why not just do what you are planning to do as two sole traders? There would potentially be two VAT registrations but you don't have to trust the other person or take on their risk (e.g. you work hard and make a lot of money, they work hard, spend a lot of money of fancy hotel rooms and but the client goes bust and pays nothing).

[AtW]

I read about Scottish LLPs but they are much more expensive to incorporate and seem to bring no real benefit over UK.

Not having to register as self-employed and not having to submit tax return every year is no benefit?

No requirement for any PUBLIC annual returns to be made in Companies House?

i don't know how much Scottish LLP costs but overheads of running English LLP are not low and things will certainly get worse.

[Iliketax]

I read about Scottish LLPs but they are much more expensive to incorporate and seem to bring no real benefit over UK.

I think you may have mis-read. LLPs are the same in Scotland and England.