Non-UK Resident Director of UK Ltd Company - All work performed outside the UK

[BoaContractor]

Hi Everyone

I've done some searching on this subject and still don't have a clear answer. Unfortunately some people who have also asked similar questions (not identical) have had the mick taken out of them for some reason - being accused of coming up with tax evasion ideas.

So now I can say that I'm in this exact position without the intention of avoiding tax. I've just been out of the UK for over a year, call it a career break if you like, and now I've landed a contract through my ltd company of which I am one of the two directors. The contract is remote and so all the work will be performed outside of the UK.

So this is clearly not a "stupid tax evasion idea". It's a genuine question so let's simplify the question by laying out the scenario briefly as follows:

Updated scenario after considering below responses:

[BEGIN EDIT]

• Joe Bloggs is a Director of ABC Ltd company incorporated in the UK.
• Joe Bloggs is a UK citizen currently holding non-UK resident status according to RDR3 SRT (currently living in Dubai).
• All of the work that Joe Bloggs does for ABC Ltd is performed outside of the UK.
• ABC Ltd Bills UK based companies for the services it provides.
• ABC Ltd will pay Joe Bloggs into his UK personal bank account. (the money can just sit there - there is no requirement to transfer it abroad)

1. What's the most tax efficient way for Joe Bloggs to money into his UK personal bank account?
2. What's the most tax efficient model for the ABC Ltd (thinking about corp tax here)?

[END EDIT]

Feel free to ask questions that might fill in any gaps in the scenario.

Cheers guys.

[NotAllThere]

You bill, they pay. Nothing to see. Move along. You're not resident, the work isn't resident. The former means no personal tax liability, the latter no corporate tax liability. In the UK.

Tricky points. Establising that you're not resident in the UK. If the other director is your spouse that might be problematic. Also if you go back in within a certain time frame. You see, if you're tax resident in the UK, that means you're liable to pay tax on worldwide income - allowing for dual taxation treaties.

I am not an international tax lawyer. But that's how I see it. World wide tax is due where you are tax resident. You can be tax resident in more than one country. Tax is due where the work is performed. Citizenship is and always has been, entirely immaterial. You could be a native Australian. It makes no difference. (Unless you're American or North Korean - then tax is always due on worldwide income. Nice hey?).

[ContractorPL]

I would start by asking your client if it's possible that you charge them via the company resident in the country in which you stay. That would be the simplest way.
But since you're asking, I assume you experienced what 95% of people in similar circumstances did - UK clients don't want and don't accept such set-ups. Only UK LTD fullstop.

You'll sort out your personal tax residency, as this is mostly based on where you stay for how many days (it also includes your ties with a country such as family, home)

It's your UK LTD residency that's tricky. UK LTD is UK tax-resident if it's incorporated in the UK or the seat of control is there. Yours probably isn't.

You will probably be advised to set up an 'international vehicle' - a UK LTD and a company in the country you reside, than use the one to charge another.
Just bear in mind:
1) You'll need very good accountants both sides to handle this. Most of accounting firms for contractors don't have expertise to help. I used one of the 'most popular and award winnings' ones (its name being quoted often in this forum), they strongly dissuaded from the idea as they claimed HMRC might regard is as tax evasion because taxes in my country are lower.
2) Transfer prices. Most of the double taxation agreements state that if a company has a permanent establishment overseas it should be taxed there. But it's not as simple as that, you need to take into account differences in prices. If your work is worth, say 500 GBP per day in the UK and 200 GBP in your country, you must somhow manage this (I have no idea if this is 'as simple' as paying local tax for 200 and UK tax for 300.)
3) Covid. OECD has published 'Updated guidance on tax treaties and the impact of covid'. If the work carried outside of UK can be justified by the pandemic travel restrictions, there's a chance your local tax authority will accept that you pay corporate tax in the UK. In this document I have seen examples that remote home working or management meetings carried out in a different countries might not be treated as residence if caused by covid. But this is probably short term.

Hope this helps

[BoaContractor]

Thanks for your response.

You bill, they pay. Nothing to see. Move along. You're not resident, the work isn't resident. The former means no personal tax liability, the latter no corporate tax liability. In the UK.

This is what I thought would be the case but my accountant is saying this:
"Your residency does not matter if you are providing services through your UK limited company to either UK based clients or overseas.

As you invoice your clients through your UK based company, it will be chargeable to UK corporation tax.

Wages and dividends you will take out from your UK company needs to be disclosed on your UK self assessment tax return and you will pay income tax to HMRC as the source of income is based in the UK. You will not disclose any income earned outside the UK e.g. if you have another employment income in Dubai which does not need to be disclosed on your UK tax return. However, if you are a UK resident, you are supposed to include all sources of your incomes including overseas."

Hence my asking here because I feel there's definitely confusion around this issue.

Tricky points. Establising that you're not resident in the UK. If the other director is your spouse that might be problematic. Also if you go back in within a certain time frame. You see, if you're tax resident in the UK, that means you're liable to pay tax on worldwide income - allowing for dual taxation treaties.

As per the RDR3SRT), my status is non-UK resident. According to this Automatic Overseas Test:
"You’ll be non-UK resident for the tax year if you were resident in the UK for one or more of the 3 tax years before the current tax year, and you spend fewer than 16 days in the UK in the tax year."

The only thing that needs clarifying here is the last 4 words "in the tax year." Is it referring to the current tax year or one of the previous 3 tax years?

I am not an international tax lawyer. But that's how I see it. World wide tax is due where you are tax resident. You can be tax resident in more than one country. Tax is due where the work is performed. Citizenship is and always has been, entirely immaterial. You could be a native Australian. It makes no difference. (Unless you're American or North Korean - then tax is always due on worldwide income. Nice hey?).

I think we can simplify this by saying I'm in Dubai where there is no income tax at all.

[BoaContractor]

I would start by asking your client if it's possible that you charge them via the company resident in the country in which you stay. That would be the simplest way.
But since you're asking, I assume you experienced what 95% of people in similar circumstances did - UK clients don't want and don't accept such set-ups. Only UK LTD fullstop.

You're absolutely right, that's the situation.

You'll sort out your personal tax residency, as this is mostly based on where you stay for how many days (it also includes your ties with a country such as family, home)

I just mentioned in my reply to NotAllThere that I satisfy the non-UK resident according to RDR3 SRT so I think that's clear now.

It's your UK LTD residency that's tricky. UK LTD is UK tax-resident if it's incorporated in the UK or the seat of control is there. Yours probably isn't.

My UK Ltd Company is registered in the UK with a UK address and both directors are UK citizens and both directors are in Dubai at the moment. I didn't understand why you thought mine probably doesn't have seat of control in the UK and I don't even know what means anyway lol sorry!

You will probably be advised to set up an 'international vehicle' - a UK LTD and a company in the country you reside, than use the one to charge another.

Yes I've heard about this method. That could work. But I think I will revise the scenario in the next post to say that the money just needs to be paid into the Director's personal UK bank account and just sit there. It doesn't have to reach Dubai.

Just bear in mind:
1) You'll need very good accountants both sides to handle this. Most of accounting firms for contractors don't have expertise to help. I used one of the 'most popular and award winnings' ones (its name being quoted often in this forum), they strongly dissuaded from the idea as they claimed HMRC might regard is as tax evasion because taxes in my country are lower.
2) Transfer prices. Most of the double taxation agreements state that if a company has a permanent establishment overseas it should be taxed there. But it's not as simple as that, you need to take into account differences in prices. If your work is worth, say 500 GBP per day in the UK and 200 GBP in your country, you must somhow manage this (I have no idea if this is 'as simple' as paying local tax for 200 and UK tax for 300.)
3) Covid. OECD has published 'Updated guidance on tax treaties and the impact of covid'. If the work carried outside of UK can be justified by the pandemic travel restrictions, there's a chance your local tax authority will accept that you pay corporate tax in the UK. In this document I have seen examples that remote home working or management meetings carried out in a different countries might not be treated as residence if caused by covid. But this is probably short term.
Hope this helps

Since it's Dubai I don't think we have to worry about double taxation.
The work done outside is not due to covid travel restrictions

But these are useful bits of information for those in such situations, thanks for bringing them out.

I'll go and revise the scenario now.

[BoaContractor]

So here's the updated Scenario to address the gaps causing uncertainty. I'll update the original post too.

• Joe Bloggs is a Director of ABC Ltd company incorporated in the UK.
• Joe Bloggs is a UK citizen currently holding non-UK resident status according to RDR3 SRT (currently living in Dubai).
• All of the work that Joe Bloggs does for ABC Ltd is performed outside of the UK.
• ABC Ltd Bills UK based companies for the services it provides.
• ABC Ltd will pay Joe Bloggs into his UK personal bank account. (the money can just sit there - there is no requirement to transfer it abroad)

What's the most tax efficient way for Joe Bloggs to money into his UK personal bank account?
What's the most tax efficient model for the ABC Ltd (thinking about corp tax here)?

[NowPermOutsideUK]

I looked into this carefully

Answer is:

Take a 12.5K UK salary OR
Take as much as like you like in dividends (not taxed in UK if you are non resident) but you lose your personal allownace

Plenty on this topic here https://www.accountingweb.co.uk/any-...n-uk-residents

For me i ended up taking the personal allownace and no dividend but that was because of rental income

[NotAllThere]

Yes, you're accountant is right. I missed that the ltd co is UK. Even though it's right there in the title. Corporation tax is due in the UK.

Wages and dividends you will take out from your UK company needs to be disclosed on your UK self assessment tax return and you will pay income tax to HMRC as the source of income is based in the UK. You will not disclose any income earned outside the UK e.g. if you have another employment income in Dubai which does not need to be disclosed on your UK tax return. However, if you are a UK resident, you are supposed to include all sources of your incomes including overseas.

I'd get a second opinion on that. Certainly dividends are not taxed. I own shares in UK companies. I pay no tax in the UK on them. Maybe there's different rules for small companies or large (percentage) shareholdings. For employment... maybe, but it looks wrong. But you and your company should not be liable for NI, as you're an overseas worker.

Bear in mind the complexities of residency if you return to the UK in the nearish future. You have to be out for a certain number of years.

Maybe set up a company in Dubai, and have that company bill your UK company. If that works, it should massively reduce your tax liability and the corporation tax.

[lecyclist]

I looked into this carefully

Answer is:

Take a 12.5K UK salary OR
Take as much as like you like in dividends (not taxed in UK if you are non resident) but you lose your personal allowance

^^^
THIS.

If you take the dividends (only worth considering > £100K), note there is a good chance that HMRC will review your entry/ exits to the UK (and your residency status for the 5 years around the drawdown) and any other evidence of your presence in the UK, to confirm you haven't been under-declaring your days in the UK. A real pain for planning purposes.

[lecyclist]

Maybe set up a company in Dubai, and have that company bill your UK company. If that works, it should massively reduce your tax liability and the corporation tax.

OP. Your accountant will no doubt have informed you of transfer pricing/ withholding tax rules between UK and low tax jurisdictions.