Offshore umbrealla legal and moral requirements?

[chucklz]

Hi,

Looking for some advice on tax arrangements, as I currently negotiating IT contracts after a sabatical overseas.

I am UK citizen, have not worked, paid tax or claimed refunds for over two years.

I have been overseas on holiday, zero earnings in UK or abroad.

I plan to work in UK for up to six months, currently negotiating 3 month initial period. One of the
contracts is based in EU, outside UK, the other is in London.

I plan to marry in Australia in June 2011, and therefore hope to be out of the country by April, though am waiting for visas for permission to re-enter Australia on that basis.

I have recently started claiming Jobseekers allowance as I am genuinely broke and needed support while searching for work.

I have no objection to paying some tax/NI while I am here, but as I have paid NI contributions on high wages on and off over 25 years, but then given minimum payments from DWP due to not paying NI for two years, I feel a bit miffed about paying full rate!

I have worked in the past as a Ltd Co, but it is now wrapped up, and I have worked for umbrellas when not planning to stay long term previously (I have worked permanently and on contract in Australia at various times during my career).

Really I am interested in what is the best option for me to take in regards to working in my next contract...

As I will only be working for up to 6 months of the tax year, is there any benefit to offshore ltd/umbrellas?

Are there tax/NI benefits I can apply regardless of offshore/onshore arrangements?

My fiance is Australian, visiting as a tourist, and currently has no resource to public funds, so my JS Benefit is limited to single persons claim. As I will be supporting her here, will I still be able to claim tax-free allowance for a couple?

I know I need to see an accountant or international lawyer to get the nitty gritty sorted out, but just wondered if anyone has any experience of a similar situation, or can recommend such an accountant/lawyer?

Thanks for any advice/replies,
Charlie

[SueEllen]

Do a search on these boards about using off-shore umbrellas and limited companies. If you do you will find out that very few agencies will touch you as they do not want HMRC coming after them if you don't pay your tax and NI.

In addition the fact that you are claiming JSA means that you are a British resident which means you can't escape paying tax and NI in the UK. The only thing you can do if you leave part way during the tax year is if you haven't reached your tax allowance you can claim the amount back.

BTW The rules on benefits are the same for everyone which is why a lot of people are now shocked that they are entitled to so little when they have worked continuously for 20/30/40 years.

There is no tax allowance for a married couple unless you were born before around 1935.

Of course there is nothing stopping you using a loan scheme but then you need to be sure you are never going to work in the UK again and fully investigate the relationship between HMRC and the Australian tax office. I've been told by a few Australians that they have a good relationship but others will know different.

[LisaContractorUmbrella]

Totally agree with SueEllen - if you haven't given up UK tax residency you will be liable to pay tax on your earnings. If you spend either in excess of 183 days in the UK in any tax year or average over 90 days in the UK on average over four tax years you will be classed as UK resident. The fact that you may be moving to Australia will have little bearing on the matter until you have established residency over there.

[chucklz]

Totally agree with SueEllen - if you haven't given up UK tax residency you will be liable to pay tax on your earnings. If you spend either in excess of 183 days in the UK in any tax year or average over 90 days in the UK on average over four tax years you will be classed as UK resident. The fact that you may be moving to Australia will have little bearing on the matter until you have established residency over there.

Hi Lisa,

Do you know more details of this.

I have spent alot of time overseas in the past few years, and may not fit into those categories.

I certainly haven't spent, and can potentially avoid spending, more than 183 days in UK this tax year, if I only stay 5 of the remaining months before April. Would being in another EU country satisfy this? I plan to take a couple of weeks over Christmas in the Alps, and could easily take 2-3 weeks more before April as holidays or out of contract time.

I did work a full tax year ending 5/4/2008, but am a little miffed that my NI conts were apparently ignored or overlooked when making my benefit claim.

I am not trying to avoid tax altogether, and the thread subject mentioned 'moral' requirements intending to imply this. I actually believe most contractors already spend too much time avoiding liability and paying too little, and have been careful of not being a hypocrite on that matter when I have been earning in the UK in the past.

I am finding the rules of the various departments very contradictory in terms of not being able to claim any discounts or benefit for my partner on one hand, but losing benefits if I can't prove she cannot support me. Then finding I cannot get any reduction in tax, etc. It all seems very one way, when I have always paid my dues.

[BlasterBates]

It isn't just a matter of whether you are personally tax resident, it's also a matter of the company that takes the contract on should be UK registered, and hence pay UK tax and have UK employees.

You'll be able to avoid any worldwide income non-UK earnings being taxable but the hurdles for avoiding UK tax on contracting in the UK are higher.

For example if you work as an employee for 3 months in the UK and then leave they won't give you the tax back, but they won't count any other worldwide income in your tax calc so your tax will be low.

It's complicated, and if you do everything through a foreign company you risk HMRC wanting their tax.

My recomendation pay tax where you work and then there are no issues.

If you go through an offshore brolly you'll get 85% take home, if you go legit Ltd with a good accountant I would have thought you'd get 70%, and if you're are there only a few months I would imagine possibly a higher take home because your annual income will be low, being officially non tax resident would mean they would only tax you on your UK income. Now if you do get caught it will be very expensive so you would be writing off everything you earned. So is a 15% gain (or maybe less) worth losing all your earnings worst case?

[ASB]

It's also a matter of the company that takes the contract on should be UK registered, and hence pay UK tax and have UK employees.

Not at all. It doesn't matter where the company is registered at all (of course whether anyone will do business with it if it isn't UK registered is a different matter). It is entirely possible that the company undertaking the contract will become UK resident. It may be taxed on its local income or its worldwide income depending upon where it is registered, where its economic interests lie and where it is managed from (and potentially the status of the individuals managing it).

The same is true of the employees. It doesn't matter where they are from, whether they are UK based or not. The status of the employees and what income from the UK (if any) is assessable to UK taxes - and also potentially what NON UK income will be assessable to UK taxes.

Edit: From the OP's description it would appear they may still be UK tax resident and I can't see any indication to suggest they are not ordinarily resident. As such the individual is going to be liable for UK taxes on their worldwide income not just anything produced in the UK (subject of course to any DTA's that apply to them).

[BlasterBates]

Not at all. It doesn't matter where the company is registered at all (of course whether anyone will do business with it if it isn't UK registered is a different matter). It is entirely possible that the company undertaking the contract will become UK resident. It may be taxed on its local income or its worldwide income depending upon where it is registered, where its economic interests lie and where it is managed from (and potentially the status of the individuals managing it).

The same is true of the employees. It doesn't matter where they are from, whether they are UK based or not. The status of the employees and what income from the UK (if any) is assessable to UK taxes - and also potentially what NON UK income will be assessable to UK taxes.

Edit: From the OP's description it would appear they may still be UK tax resident and I can't see any indication to suggest they are not ordinarily resident. As such the individual is going to be liable for UK taxes on their worldwide income not just anything produced in the UK (subject of course to any DTA's that apply to them).

I agree with that, the point is the definition "where its economic interests lie and where it is managed from (and potentially the status of the individuals managing it)", can be easily applied (but obviously not always) to contractors working on their own account, so it is safer just to go native.

I just see no advantage in taking a risk with a woolly definition to save a bit of tax.

[BlasterBates]

Not at all. It doesn't matter where the company is registered at all (of course whether anyone will do business with it if it isn't UK registered is a different matter). It is entirely possible that the company undertaking the contract will become UK resident. It may be taxed on its local income or its worldwide income depending upon where it is registered, where its economic interests lie and where it is managed from (and potentially the status of the individuals managing it).

The same is true of the employees. It doesn't matter where they are from, whether they are UK based or not. The status of the employees and what income from the UK (if any) is assessable to UK taxes - and also potentially what NON UK income will be assessable to UK taxes.

Edit: From the OP's description it would appear they may still be UK tax resident and I can't see any indication to suggest they are not ordinarily resident. As such the individual is going to be liable for UK taxes on their worldwide income not just anything produced in the UK (subject of course to any DTA's that apply to them).

I agree with that, the point is the definition "where its economic interests lie and where it is managed from (and potentially the status of the individuals managing it)", can be easily applied (but obviously not always) to contractors working on their own account, so it is safer just to go native.

I just see no advantage in taking a risk with a woolly definition to save a bit of tax.

HMRC or the Finanzamt or the Belgium authorities will always expect contractors working there to register and pay tax there, and OK you can use the 183 rule as an argument that you weren't really there and some clever offshore arrangement which show your economic interests lie elsewhere, and it might wash, and then again it might not.

I really think contractors should err a little bit on the side of caution than having to rely clever legal arguments to save a few grand. Yes you might be right, but do you really want a huge argument with a tax inspector.