Hello everyone,
I am writing to ask for advice, if possible, regarding an opportunity that I have.
I work as a full-time employee (software developer) for a UK company. I am currently considering co-founding a startup (a US C-corp) with a friend of mine (he is a US citizen and resident). I tried to gather as much information on this as possible but it is still unclear to me what the tax implications would be for me as a UK resident. I would be grateful if anyone could help me with my understanding of this matter. My main concern is that I may be committing to something that causes me problems later on (e.g. having to pay tax bills or penalties that I cannot afford).
The facts are:
Thank you very much for your help!
I am writing to ask for advice, if possible, regarding an opportunity that I have.
I work as a full-time employee (software developer) for a UK company. I am currently considering co-founding a startup (a US C-corp) with a friend of mine (he is a US citizen and resident). I tried to gather as much information on this as possible but it is still unclear to me what the tax implications would be for me as a UK resident. I would be grateful if anyone could help me with my understanding of this matter. My main concern is that I may be committing to something that causes me problems later on (e.g. having to pay tax bills or penalties that I cannot afford).
The facts are:
- As co-founder, I will be purchasing 45% of the Company shares for their par value (the Company has no funding, no clients, no MVP, etc. so, I presume, null "fair market value"). The shares are restricted and subject to vesting according to a predefined schedule.
- No dividends will be paid by the Company in the foreseeable future, so I would probably postpone any consideration on dividends, for the time being.
- I would be working as a contractor for the Company, I would work without fixed working hours (nor benefits, holidays, etc.), in parallel with my UK employment. For my contributions to the Company, initially I would get only the vesting of the shares over time as compensation; later on, if sufficient funding will be raised by the Company, monetary compensation may be provided too, depending on the workload (this would likely require me to switch from full-time to part-time employment with my current UK employer).
- The Company will be based exclusively in the US and will have no presence in the UK. On the other hand, I would keep residing in the UK for the foreseeable future and would expect my personal tax affairs to remain entirely within the UK.
- I would expect to pay income tax to HMRC for any monetary compensation, as a sole trader (I do not have nor plan to start a Ltd company);
- I would expect not to pay income tax to HMRC for any share that vests, provided that I file correctly my s431 election. Nonetheless, it is not clear to me if the s431 election would apply to a contractor or if it's exclusively for employees of the Company. If s431 does not apply to contractors, I think I should understand what my tax liabilities would be when the shares vest.
- I would expect to pay capital gain tax to HMRC if and when I sell the shares that I own (after they vest).
- The applicability of s431 to me as a contractor.
- Any other obvious tax liability that I missed in the list above.
Thank you very much for your help!
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