International Consultant Salary Packaging

[its_ying]

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
* 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.

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.

Cons:
* The salary pkg co. wants about 6% fee for this service!! This fee is deducted before tax, however.

Still, 6% sounds like a lot!!! I suppose I can haggle since my pay is at the higher end of most of their employees but....

Can anyone tell me if a better deal can be found elsewhere for similar/identical service?

[Spartacus]

The UK operates a mondiale tax system, i.e. if you are resident in the UK you pay UK tax on your worldwide income. Where allowable you can then claim a tax credit with any overseas country the UK has a bilateral tax arrangement with.

[BlasterBates]

Unless you're a foreign national, in which case you're exempt from tax on worldwide earnings. Basically a sop to attract international "City" types.

However, your earnings actually result from work in the UK so this looks like grey area stuff. Still I could see how this might be legal.

[Spartacus]

A bit more than a grey area, BB. You can't work in the UK, live in the UK, earn in the UK and then just say, "oh, I've got an Aussie passport so I'm going to pay a portion of my income in Singapore to avoid tax".

Of course, people with Aussie passports are better placed to engage in this form of tax evasion because when the knock on the door comes they can just up sticks and move back home, sound in the knowledge the taxman is unlikely to pursue them unless there's millions at stake.

[Pondlife]

Of course, people with Aussie passports are better placed to engage in this form of tax evasion because when the knock on the door comes they can just up sticks and move back home, sound in the knowledge the taxman is unlikely to pursue them unless there's millions at stake.

Isn't the a reciprocal tax agreement between the UK and Oz that states if money is owed to the UK tax man, the Aussie authorities will chase it up.

[BlasterBates]

Well it is grey, but the point the people are missing here, is that any bonafide foreign income of a foreigner (unlike a Brit) is exempt from tax. That would mean that even if the IR knew this guy was getting paid in Singapore they would probably ignore it, and it would be very difficult for them to find out that this company was paying someone for services in the UK, as the original contract is quite separate. In fact I would see this as a loophole that would be difficult for the IR to win in a test case, if they bothered to try. This loophole only applies to foreigners, nor to Brits.

[Spartacus]

Isn't the a reciprocal tax agreement between the UK and Oz that states if money is owed to the UK tax man, the Aussie authorities will chase it up.

Yes, but in practice rarely (if ever) used if it's only a few hundred or thousand at stake. HMCR inspectors have targets to meet and chasing people who've fled overseas is more hassle than it's worth just for one tick on the end of term report when they could get a hundred ticks by hassling a domestic composite just as easily.

[Spartacus]

Well it is grey, but the point is any bonafide foreign income of a foreigner (unlike a Brit) is exempt from tax. That would mean that even if the IR knew this guy was getting paid in Singapore they would probably ignore it, and it would be very difficult for them to find out that this company was paying someone for services in the UK, as the original contract is quite separate. In fact I would see this as a loophole that would be difficult for the IR to win in a test case, if they bothered to try.

That's the whole point, BB, it isn't bonafide foreign income. The guy has no connection whatsoever with Singapore. There really is no grey area - this is illegal tax evasion. However, he is unlikely to get caught and given his salary is very low unlikely to be pursued if he did get caught and then did a bunk. On the other hand, he is unlikely to get caught if he burgles someone's house. Doesn't make it right though.

[BlasterBates]

I disagree Spartacus.

If the IR were to investigate, they would find the consultant being paid a fair salary (no different to any other under paid permie). That profit is taxed and then repatriated to Australia. The profit is transferred Singapore company. The consultant has a contract with the Singapore company, and I have no doubt a legal contract will be concluded. These earnings are legally quite separate. I think for the IR to prove otherwise would be very difficult indeed, though I would accept not completely impossible. For a Brit it wouldn't be worth it because he would be taxed anyway on any foreign income, hence why it is a loophole for foreigners.

[meridian]

Isn't the a reciprocal tax agreement between the UK and Oz that states if money is owed to the UK tax man, the Aussie authorities will chase it up.

No.