Continuing UK contract with UK Limited Company whilst living overseas

[gdingwall]

Hello

I am currently about to start a 6 month contract in the UK. I operate my own UK based Limited Company. In a couple of months time I plan to move overseas to Peru and could continue this contract working remotely. There could even be extension to this contract and I could live in Latin America for 2-3 years.

My question is around the legality and tax of this arrangement?

1. Could I continue to work on the same contract although not being physically present in the UK?
2. I expect my tax status would change at some point but initially I would continue to pay UK tax as if I were still in the UK, correct?
3. At what point would my tax status change in the UK (if ever) and I pay different UK tax? Would it indeed be better to form an overseas company and invoice the UK client through that company?
4. There is no double taxation treaty between the UK and Peru at present so I believe I would need to pay tax in Peru on my UK income.

Many thanks in advance for any responses.

[jamesbrown]

1. Could I continue to work on the same contract although not being physically present in the UK?

Your contract will tell you that.

2. I expect my tax status would change at some point

Yes, as in immediately. File a P85. The rules are applied retrospectively (full time work overseas for one full tax year, 183 days or fewer in the UK per year or no more than 91 days averaged over 4 years etc.), but your status changes immediately. Be aware that the rules on this are scheduled to become *much* stricter in future (2013 IIRC), with many fewer days in the UK leading to residency in the UK for tax purposes.

3. At what point would my tax status change in the UK (if ever) and I pay different UK tax? Would it indeed be better to form an overseas company and invoice the UK client through that company?

Personal taxation is based on residency. The main concern I would have in working through a UK-based company would be the complexity of your personal tax situation as a Director of a foreign corporation. I'm not sure about the laws in Peru, but this is a major headache in some countries. Certainly, I wouldn't base this sort of decision on a single contract because a contract can be terminated, but tax liabilities cannot :-)

4. There is no double taxation treaty between the UK and Peru at present so I believe I would need to pay tax in Peru on my UK income.

Yes. You'd definitely need local advice on this though. I can understand you wanting to get an insight here, but you'll really need professional advice on this one. International taxation is a very difficult area.

[Gonzo]

Yes. You'd definitely need local advice on this though. I can understand you wanting to get an insight here, but you'll really need professional advice on this one. International taxation is a very difficult area.

Indeed. International taxation is complicated.

You will need advice from someone that understands both the UK and Peruvian tax regimes.

Some countries will decide that a UK registered Limited Company becomes tax resident in their jurisdiction the moment that the majority of the control is exercised from their country (this would mean the day that you arrive there if you are the only director).

Other countries don't care and are not interested.

I can't tell you which category Peru falls into.

[BlasterBates]

If you work remotely you will be working in Peru not the UK. You will need to setup a company there. You will be subject to Peruvian taxation rules. What you can do is sell your services from your Peruvian company to your UK company and then sell on. I suspect a UK company wouldn't want a contract with a Peruvian company. Thus your UK company will be taxed in the UK on the earnings, but you will be charging out from Peru.

You probably need an accountant in Peru and an accountant in the UK to help you. You probably won't find a single accountant who can do this, you'll have to co-ordinate it. If you could persuade your customer to be billed from Peru that would be easier for you, as you could dispense with the UK co.

Complicated I'm afraid.

[privateeye]

Two questions you need answerring from tax authorities in both countries. Which country is corporation tax payable, and which is income tax payable. If either question is answered both then it will be a costly way to operate. If the answer is one country for each question then there may be further tax efficiency i.e. divis because they give you a tax credit may not require any more tax in your country of residence because of local rate etc. Divis are classed as income in your country of residence if you draw them down when non-resident. Its a complicated area to find the information and most accountants/HMRC are not very clued up on it unless they specialise in major international companies.