Setting a company abroad.Outsourcing to it and UK taxman

[garnet]

Hi all,

I am have a UK LTD working for one client here. The work is such that it is time consuming, but can be done by someone with above basic databasing/data entry skills.
Currently I am doing this, and it is going to be so in the next 12 months or so, before I move to the 2nd stage of the project which will be a better rate for me.

My questions are:
Can I set up a new ltd (in my name) in another country and outsource this specific activity there?

This is provided my current contract allows me to do my project as I see fit as long as the end result is high quality.

My concerns are:

1. Can I use some of my current turnover to cover the cost of setting up the overseas company i.e claim this as my UK ltd expense?

2. If I am to pay my overseas ltd to do some work for my UK ltd, is this going to cause problems with the tax man here?

Any suggestion with that setup before I go and speak to my UK accountant.

[northernladuk]

Why do you need to set up another company?

Can't you either employ someone over there under your current company or just pay another company over their to do it for you?

If they get a sniff that you are setting a company up to avoid paying taxes then yes the taxman would be very interested. If you run it like a proper business he won't bat an eyelid.

Another question. If you outsource the job you are supposed to be doing what will you do in the meantime?

[Wanderer]

2. If I am to pay my overseas ltd to do some work for my UK ltd, is this going to cause problems with the tax man here?

Probably won't cause problems for the tax man but it will complicate your tax affairs no end. The bottom line is that if you live in the UK then you will most likely be tax resident in the UK and you will have to pay tax on your worldwide income to the UK government.

So, in short, it's not going to work.

[northernladuk]

Ahh hang on... Is this a follow on from you trying to set up a company in the EU and second yourself to the UK to avoid tax?

http://forums.contractoruk.com/accou...ompany-uk.html

You are not from the UK, want to set up a company back home and charge your UK client and pay yourself in your home country I would guess.....

[garnet]

Ahh hang on... Is this a follow on from you trying to set up a company in the EU and second yourself to the UK to avoid tax?

http://forums.contractoruk.com/accou...ompany-uk.html

You are not from the UK, want to set up a company back home and charge your UK client and pay yourself in your home country I would guess.....

Yes and no.

I am tax liable in the UK both as person and as a company.
The reason I want to outsource is that the quicker I finish 1st stage of my project, the sooner I will get to the second stage (better paid). So if I outsource to 5 people abroad I can start very soon.

I guess there is a clear differentiation between the legal entities in the uk for tax purposes: a person (me) != my ltd != an EU ltd, although the UK LTD and EU LTD are owned by me. Am I wrong?

As such the EU LTD will be tax liable in its own country. I will not have any income from it as a uk resident.
Nevertheless, and that is why am sking, this whole thing looks like it is tax avoidance. The question is is it all legal (like starbucks paying 90% of their UK profit to its own company in luxemburg for name franchise.)

[northernladuk]

As such the EU LTD will be tax liable in its own country. I will not have any income from it as a uk resident.
Nevertheless, and that is why am sking, this whole thing looks like it is tax avoidance. The question is is it all legal (like starbucks paying 90% of their UK profit to its own company in luxemburg for name franchise.)

Surely you will? Your client will still pay your LTD. It is up to your LTD to subcontract the work. I really don't think your client will be best pleased if you suddenly tell them to start paying an Indian company. What does your agent say all about this?

[Jessica@WhiteFieldTax]

If you control your offshore co from the UK, then expect to have it taxed in the UK.

You'ld need to stuff it full of nominee directors and give them teeth to cut the nexus with the UK.

Probably one for the "nice idea, but..." pile.

Other than that, subbing the work out to a on or offshore contractor presents no insurmountable issues, other than practicalities of control, and what your contract lets you do.

[BlasterBates]

The easiest way is for you to use someone who is self-employed so you don´t have the hassle of settting up and running a foreign company. i.e. just agree a price with someone and charge out as an expense in your Ltd company. Since you are involved in managing this and doing work in the UK this you should run this through your UK Ltd. In other words while you have involvement and you are in the UK you can´t simply have all the profits taxed in some offshore location.

[Jessica@WhiteFieldTax]

True, but it's all a question of degree, and double taxation - on OPs scenario I'ld expect an interest from UK tax authorities.

[BlasterBates]

True, but it's all a question of degree, and double taxation - on OPs scenario I'ld expect an interest from UK tax authorities.

Yes I agree. I think I was focusing on the possibility of shoving at least some profit into a foreign entity which would be allowed under the Double Taxation treaty, but on the other hand of course you´re quite right that because he´s running this whole thing in the UK, the UK authorities expect tax there.