UK tax advice on founding and contracting for a US C-corp

[alpe19]

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:

• 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.

Based on my limited understanding of this subject:

• 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).

I would be looking for help with:

• The applicability of s431 to me as a contractor.
• Any other obvious tax liability that I missed in the list above.

Of course, if you have any other comments or suggestions, I will be happy to listen.
Thank you very much for your help!

[Fred Bloggs]

No idea, this is a UK contractor forum. It doesn't sound much like a UK contractor's issue to me? You might get lucky and someone can help.....

[Paralytic]

If this were me, i'd be paying for proper advice - things can get very messy with cross-country taxes, particularly with the US.

I'd not be assuming that taxes are only due to HMRC when shares are sold, as opposed to when they vest. You are working in the UK and HMRC will expect (at some point) to be paid tax on the effective value of the work you're doing at the point you were doing it.

[courtg9000]

Ok you need a pro on board with you.
If I were in your boots I would be getting in touch with a lovely lady by the Name of Liz Zitzow.
Liz and I were members of a former large business network and often attended the same networking events.
She is excellent with Anglo US - USA stuff and personally I wouldn't do anything in this area without consultation with her.
Her website is here: https://www.britishamericantax.com/about-us/
Just my 2p worth

[alpe19]

Thank you for the feedback so far. I am trying to get proper advice as well, but I am struggling to find someone with the right expertise and that can provide some initial guidance without charging £1500+.

Concerning the fact that this is a UK contractor forum, my hope was that my situation would be the same as any other UK contractor working for a US company and receiving shares restricted and subject to vesting as part of their compensation (something like this: https://forums.contractoruk.com/acco...startup-2.html ). Is that not the case?

Thank you very much again!

[alpe19]

Ok you need a pro on board with you.
If I were in your boots I would be getting in touch with a lovely lady by the Name of Liz Zitzow.
Liz and I were members of a former large business network and often attended the same networking events.
She is excellent with Anglo US - USA stuff and personally I wouldn't do anything in this area without consultation with her.
Her website is here: https://www.britishamericantax.com/about-us/
Just my 2p worth

Thank you very much for the recommendation, I will definitely get in touch with her.

[courtg9000]

Thank you for the feedback so far. I am trying to get proper advice as well, but I am struggling to find someone with the right expertise and that can provide some initial guidance without charging £1500+.

Concerning the fact that this is a UK contractor forum, my hope was that my situation would be the same as any other UK contractor working for a US company and receiving shares restricted and subject to vesting as part of their compensation (something like this: https://forums.contractoruk.com/repl...us-c-corp.html). Is that not the case?

Thank you very much again!

This advice will not be cheap no matter who you talk to, it is very complex stuff. It is far more complex than your initial post and understanding might lead you to believe. When I have looked at deals like yours in the past in the US, the cost and complexity has put me off even after chatting to the lady I referred you to.

[Paralytic]

Thank you for the feedback so far. I am trying to get proper advice as well, but I am struggling to find someone with the right expertise and that can provide some initial guidance without charging £1500+.

Concerning the fact that this is a UK contractor forum, my hope was that my situation would be the same as any other UK contractor working for a US company and receiving shares restricted and subject to vesting as part of their compensation (something like this: https://forums.contractoruk.com/repl...us-c-corp.html). Is that not the case?

Thank you very much again!

Your link is pointing back to this thread.

[alpe19]

Your link is pointing back to this thread.

My apologies, I have now fixed the link.

[Paralytic]

My apologies, I have now fixed the link.

No you haven't - you've only fixed the link text - the link still goes back to this thread

But, those that want to can copy and paste the link: https://forums.contractoruk.com/acco...startup-2.html

This contains some good details, but also lots of questions, the details of which you have not provided: https://forums.contractoruk.com/acco...ml#post2689717

You need to get into the specifics of how shares will be allocated, how/when they will vest, what types of shares they are (common stock, RSUs, RSA) etc etc, and, reading that thread, you should realise this is not a simple area where someone on here will be able to give you an answer based on the very high level details you've provided. I doubt you can even answer the questions as of yet. Part of what a paid advisor will do is ensure things are set up properly/most tax efficient at the outset.