Working abroad and tax

[chrisl]

Mr A will be starting a new contract soon working in Sauba Arabia for two years.

He will therefore be non-residient from the date he leaves the UK and not subject to UK taxes.

Now can Mr A still use his UK limited company to process his pay, he would still like to and if he does, i take it UK tax rules will still apply to his company, corp tax etc.

If he does this, will he still need to report the salary and dividends he gets from the UK Comapny on the UK Tax Return or will it be exempt as the actual income is not taxable in the UK based on the fact the work is carried out abroad?

[Fred Bloggs]

99% certain he will be an employee in Saudi. The UK Ltd Co will be useless to you unless you use it for something else.

[ASB]

In this sort of situation it is entirely possibly to use the UK company to pay the contractor a large salary which they then lend back to the company. This means the company makes a thumping great lost and has to reclaim a load of CT - which is a shame.

It's very important to do it exactly right in order for it to be effective. It's also important of course to be in a regime where the contractor is not going to be taxed on the UK sourced income. But there are circumstances where it can be effective.

Your accountant ought to be able to put you in touch with an appropriate international specialist.

[Little'Old Me]

In this sort of situation it is entirely possibly to use the UK company to pay the contractor a large salary which they then lend back to the company. This means the company makes a thumping great loss and has to reclaim a load of CT - which is a shame.

It's very important to do it exactly right in order for it to be effective. It's also important of course to be in a regime where the contractor is not going to be taxed on the UK sourced income. But there are circumstances where it can be effective.

Your accountant ought to be able to put you in touch with an appropriate international specialist.

ASB is correct - it is possible to take the income under PAYE through your company without paying income tax or NIC (you have to complete a SA to declare it and your none residency) etc... but you need to be careful. There is one catch - you must be out of the UK for a least one full tax year (6 Apr to 5 Apr). I had a client who left on 15 Apr, stayed out nearly 2 years, but returned 10 March! Even though he was out of the UK working for nearly 2 years, he was not out for a least 1 tax year (6 Apr to 5 Apr), so everything was taxable in the UK. It was too late when I found out, nearly 3 months later. He did not read my e-mails properly. Had he left the UK 10 days earlier, or moved back 22 days later - none of it would have been taxable in the UK.

I have a couple a non-resident clients who run UK Ltd companies. They don't take dividends - they don't need to, as all the PAYE salaries are NIC & IT free.

[pzz76077]

Based on experience of my last two contracts in Saudi, I would imagine that you will be paid locally in Riyals or USD, so why one earth would you want to involve your UK company in this loop??

As other posts have suggested, keep you money offshore for the entire period of your contract, or risk having to give a large chunk of it to the UK tax man that could be easily (and legally) avoided.

PZZ

[pzz76077]

Also bear in mind that 2 years is a promise at the moment and anything could happen to cut the contract short and you return to the UK earlier thatn expected. If this is the case then HMRC will bugger you as you have not been out of the country long enough to fend off a claim.

Also think about the substantive control aspect of the involvement of your UK company. HMRC could easily argue that although you have been outside the UK for tax purposes, your company has not and send you a wacking great bill for 2 years company tax that you could avoid if you structure things correctly.

Ive known so many people that have worked for years and years and have ended up with nothing because they failed to structure their affairs in the most tax efficient way before they left. Its very difficult to pop back from Saudi for a few days to sort out you affairs once you are there, you quite often need new visas etc and many employers will keep your passport while you are there (this is the norm) let alone the cost of flights etc that you can not claim for etc.

PZZ

[Fred Bloggs]

There's more than one catch though. Typically, you will be an ermployee in Saudi and paid in US$ to yourself personally. As far as I can see, there's no simple, effective route to get this into your Ltd Co and out again without a big risk. I'm not saying it's impossible, just risky when there's no need to do it at all if you're out of the UK for 2 years. HMRC's website is quite clear on all this stuff. There's pdf's to download.

[tim123]

There's more than one catch though. Typically, you will be an ermployee in Saudi and paid in US$ to yourself personally. As far as I can see, there's no simple, effective route to get this into your Ltd Co and out again without a big risk. I'm not saying it's impossible, just risky when there's no need to do it at all if you're out of the UK for 2 years. HMRC's website is quite clear on all this stuff. There's pdf's to download.

why would someone need a tax saving fiddle when they are already being paid "tax free"?

tim

[Fred Bloggs]

why would someone need a tax saving fiddle when they are already being paid "tax free"?

tim

My point exactly.