International Consultant Salary Packaging

[meridian]

I'm from Australia (yeah, I know, "Not another one?!" you're thinking!!!) and looking to contract in the UK.

I've got a salary packaging company offerring the following:
* Pay £38k salary in the UK and pay normal PAYE tax on that

Fine.

* Pay any remainder in Singapore at 15% tax. I will not bring this back into UK and will, in fact, remit this back to Oz.

Okay, this is probably Singapore's Non-resident Withholding Tax Rate

Benefits:
* Effective tax rate of about 22% based on my contract rate
* Australian tax office considers all foreign income as tax-exempt since PAYE tax has already been paid at source.

Not quite true. They won't worry too much about foreign income as long as you're tax-resident elsewhere (183 days in any tax year). If you're still tax-resident in Oz then the double-tax agreements will kick in to ensure all income is declared in Oz but you get credits for tax paid elsewhere.

If you're tax-resident in the UK then as a foreign national you only have to declare income earned in the UK. If your full employment contract relates to solely UK employment, then it doesn't matter where your salary is paid to (UK, Singapore, Isle of Man, Timbuktoo) it is taxable here.

If either yourself or the "salary packaging company" try to hide the true source of your income (i.e. by drawing up two contracts and hiding the one that relates to Singapore) you run a very real risk of jail.

[Spartacus]

I think Meridian underlines the point, BB. His earnings are not legitimate foreign income (which I happily concede would be free of UK tax if they were). He lives in the UK, works in the UK, pays tax in the UK. The source of the money is the UK. You can't just remit everything in excess of £38k in Singapore to avoid paying tax. Well, not legally anyway.

[BlasterBates]

If either yourself or the "salary packaging company" try to hide the true source of your income (i.e. by drawing up two contracts and hiding the one that relates to Singapore) you run a very real risk of jail.

It is interesting how easy would it for the IR to prove that ?

So for example you are employed as a consultant, you are paid £40,000 the company makes £60000 (not uncommon at Accenture for example). So then the company asks you to do some marketing in Singapore, and sets up a contract for $20,000. Now admittedly the profit from activities in the UK needs to be taxed but once that is done the second contract is perfectly legal. For the IR to prove otherwise they would need to send somebody to Singapore (which they can't do ) to prove it was a bogus job or get a signed confession from the consultant or a manager from the salary management company.

[Spartacus]

But the second contract isn't legal, BB. He's not doing anything in Singapore.

[BlasterBates]

I now have to confess to doing something similar not in the UK but in Luxembourg. The trick there was to have a few plane tickets and fill out a marketing questionaire every month, so in the highly unlikely event of British officials raiding the offices on behalf of the Luxembourgian authorities that they could point to physical evidence of my "marketing" activities.

[meridian]

It is interesting how easy would it for the IR to prove that ?

It depends on where the "salary packaging company" is. From the sounds of it they're just another type of agency, and would hold the employment contracts. If they're offshore, and none of the payments originate from an entity that the Revenue can examine, then it would be very difficult for them to prove it. Which begs the question, of course: why Singapore? Why not Jersey or IOM etc, where the second payment would be tax-free?

So for example you are employed as a consultant, you are paid £40,000 the company makes £60000 (not uncommon at Accenture for example). So then the company asks you to do some marketing in Singapore, and sets up a contract for $20,000. Now admittedly the profit from activities in the UK needs to be taxed but once that is done the second contract is perfectly legal. For the IR to prove otherwise they would need to send somebody to Singapore (which they can't do ) to prove it was a bogus job or get a signed confession from the consultant or a manager from the salary management company.

The ideal situation for a non-UK national (or UK national for that matter) would be to have no tax residence at all. All payments made to an operating company in a tax haven, no legal requirement to file a tax return anywhere.....

[Spartacus]

Which begs the question, of course: why Singapore? Why not Jersey or IOM etc, where the second payment would be tax-free?

Those were my exact thoughts. Given that all agree this is an illegal, but unlikely to be caught, activity*, why not go the whole hog and remit in a tax haven? In for a penny, in for a pound.

However, if you can't do the time, don't do the crime.


* A bit like mugging an old lady.

[BlasterBates]

Now the thing is, what would cause the IR to investigate?

If the consultant were earning £4000 a year there's no doubt they'd look into it. The other thing would be money appearing from nowhere, but because he's a foreigner and this money comes from overseas, the IR will ignore it. So I think it is highly unlikely.

[Spartacus]

Now the thing is, what would cause the IR to investigate?

If the consultant were earning £4000 a year there's no doubt they'd look into it. The other thing would be money appearing from nowhere, but because he's a foreigner and this money comes from overseas, the IR will ignore it. So I think it is highly unlikely.

Agreed BB, but it's a long way from "illegal but unlikely to be caught as long as you don't get too greedy" to "grey area". The guy is going to commit a tax fraud and he needs to know that so that he can be prepared to leave the country if the knock on the door does come.

[BlasterBates]

But that is the point, as with my Luxembourg experience, this was considered "grey", in fact it is common practice for foreigners. I don't see any difference. The fact is even if you do a bit of work for this Singapore company, it is perfectly legal.

The point I'm making is even if the IR decided to follow through on it, what would a judge decide if the consultant can point some physical evidence of work. The guy would be able to get references, a manager to vouch that he did work etc etc, and if it has been done properly, possibily even a couple of plane tickets.

It is no different to Ltd's employing their wives as "secretaries".