Moved abroad, close UkCo now?

[zerosum]

I've moved away from the UK. 2y now (measured in tax residence).

I still have a UK company. Have withdrawn almost all funds as dividends. The DTA between the UK and my new country gives taxing rights on dividends to the new country. (Took paid advice to go over the SATR and ensure this would be legit).

I am very tempted to close the UK company, as this kinda sorta draws a line under the possibility of IR35 investigation (reading through threads on this forum, HMRC are technically able to reopen companies to investigate them, but in practise they tend to go for lower-hanging fruit). I feel confident about the outside-IR35 nature of my contracts, associated working practises, documentation, but that does not mean I would welcome an enquiry.

I could open another UK company within 2 years of closing this one. I have not needed to use BADR/entrepreneur's relief, and I should not be caught by TAAR because I'm paying tax on the dividends in the new country, thus no tax avoidance. However, my accountant suggested that while this would be technically possible/not fall foul of the rules, it's a bit unusual and could encourage HMRC to take a closer look.

Nb., the reason I'm thinking of clinging on to a UK company in some form is that UK agencies are increasingly inclined to only want to work with UK companies.

So TL;DR would appreciate any views on which seems less risky: close the UkCo#1 ASAP and begin the clock ticking on its liabilities but potentially open a UkCo#2 in less than 2 years, or just keep UkCo#1 going and potentially use it for any contracting needs (with the downside that all the IR35 history lingers on).

[jamesbrown]

Bear in mind that, if you return to the UK within 5 years of your departure, you will be taxable in the UK on all dividends extracted from profits earned in the UK prior to your departure in the year of your return.

[NotAllThere]

Bear in mind that, if you return to the UK within 5 years of your departure, you will be taxable in the UK on all dividends extracted from profits earned in the UK prior to your departure in the year of your return.

...less the tax already paid abroad.

[zerosum]

Bear in mind that, if you return to the UK within 5 years of your departure, you will be taxable in the UK on all dividends extracted from profits earned in the UK prior to your departure in the year of your return.

...unless there is a DTA with the UK which gives taxing rights on dividends to the adopted country (there is).

[jamesbrown]

...unless there is a DTA with the UK which gives taxing rights on dividends to the adopted country (there is).

Nope. It’s anti-avoidance legislation so that you don’t move overseas for, say, one tax year where the dividend or capital gains tax rates are lower. However, the DTA will allow you to avoid double taxation more generally, which means you pay the higher of the rates across the jurisdictions, not the aggregate of the two.

[zerosum]

Nope. It’s anti-avoidance legislation so that you don’t move overseas for, say, one tax year where the dividend or capital gains tax rates are lower. However, the DTA will allow you to avoid double taxation more generally, which means you pay the higher of the rates across the jurisdictions, not the aggregate of the two.

If a DTA specifically gives taxing rights to a country in which you are tax resident at the time when you make the relevant distribution, the UK does not get the right to tax it again, despite the 5-year disregarded income clause to which you refer. There is a categorical exemption.

So if you did not benefit from such a DTA when making the distribution, you fall foul of the 5-year disregarded income rule, but if you do benefit, the UK can't pop up and tax it again.

Got paid advice on this from a firm which has defended such matters. PM me if you're interested I don't particularly want to go further into it here.

Anyway, I notice you have posted a variation of this point many times (I expected you to pop up on this thread, indeed) so we'll probably have to agree to disagree, but it's somewhat peripheral to my main question.

[jamesbrown]

If a DTA specifically gives taxing rights to a country in which you are tax resident at the time when you make the relevant distribution, the UK does not get the right to tax it again, despite the 5-year disregarded income clause to which you refer. There is a categorical exemption.

So if you did not benefit from such a DTA when making the distribution, you fall foul of the 5-year disregarded income rule, but if you do benefit, the UK can't pop up and tax it again.

Got paid advice on this from a firm which has defended such matters. PM me if you're interested I don't particularly want to go further into it here.

Anyway, I notice you have posted a variation of this point many times (I expected you to pop up on this thread, indeed) so we'll probably have to agree to disagree, but it's somewhat peripheral to my main question.

Interesting but, if you were confident about that advice, you'd surely be willing to share it openly here. There are no special circumstances here in relation to your own situation or risk of compromising that position.

Here is my understanding, based on my reading of the legislation and the commentary surrounding it. The general situation is that you'd fall within the temporary non-resident rules for CGT and dividend taxes with respect of gains or profits made before your year of departure and crystalised while temporarily non-resident (TRN). Any tax-treaty benefits may serve to offset the taxes paid in the overseas jurisdiction when you were TRN in the UK, but they would not avoid a UK charge in your year of return. Obviously, this does not apply to dividends received from profits accrued post-departure. Again, this is an explicit anti-avoidance provision. See here (from FA 2013):

https://www.legislation.gov.uk/ukpga...-companies-etc

Notably:

(1)This section applies if—

(a)an individual is temporarily non-resident,

(b)a relevant distribution is made or treated as made to the individual in the temporary period of non-residence,

(c)the tax year in which it is made or treated as made (“the distribution year”) is a tax year for which the individual is UK resident, and

(d)the amount of income tax charged on the distribution under this Chapter is less than it would have been if the existence of double taxation relief arrangements were disregarded.

And:

(5)If the distribution year is the year of return, the tax charged under this Chapter in respect of the relevant distribution is to be charged and assessed without regard to the existence of double taxation relief arrangements.

I would be curious to see the advice you've received in relation to (1)(d) and (5), for example. If you cannot defend this convincingly, then my earlier opinion stands. If you can, then I'll accept it and adjust my opinion accordingly.

[zerosum]

Interesting but, if you were confident about that advice, you'd surely be willing to share it openly here. There are no special circumstances here in relation to your own situation or risk of compromising that position.

Here is my understanding, based on my reading of the legislation and the commentary surrounding it. The general situation is that you'd fall within the temporary non-resident rules for CGT and dividend taxes with respect of gains or profits made before your year of departure and crystalised while temporarily non-resident (TRN). Any tax-treaty benefits may serve to offset the taxes paid in the overseas jurisdiction when you were TRN in the UK, but they would not avoid a UK charge in your year of return. Obviously, this does not apply to dividends received from profits accrued post-departure. Again, this is an explicit anti-avoidance provision. See here (from FA 2013):

https://www.legislation.gov.uk/ukpga...-companies-etc

Notably:



And:



I would be curious to see the advice you've received in relation to (1)(d) and (5), for example. If you cannot defend this convincingly, then my earlier opinion stands. If you can, then I'll accept it and adjust my opinion accordingly.

As I mentioned, I think we should just agree to disagree. You're welcome to your earlier opinion, as I am to mine. I reserve my right not to share my paid advice publicly for reasons of privacy but the invitation by PM stands.

For the purposes of my earlier question, let's just say you're right and I'd better keep clear of the UK for 5 years. OK.

I'm still interested in the perceived risk of keeping UkCo#1 kicking around a bit longer vs opening UkCo#2 < 2 years.*

*(sigh, if you are correct, then that would fall foul of TAAR, which is why I have a preference for not litigating each one of these rabbit holes. I'm just trying to isolate the perceived 'IR35-riskiness' of an option A vs option B).

[jamesbrown]

As I mentioned, I think we should just agree to disagree. You're welcome to your earlier opinion, as I am to mine. I reserve my right not to share my paid advice publicly for reasons of privacy but the invitation by PM stands.

For the purposes of my earlier question, let's just say you're right and I'd better keep clear of the UK for 5 years. OK.

I'm still interested in the perceived risk of keeping UkCo#1 kicking around a bit longer vs opening UkCo#2 < 2 years.*

*(sigh, if you are correct, then that would fall foul of TAAR, which is why I have a preference for not litigating each one of these rabbit holes. I'm just trying to isolate the perceived 'IR35-riskiness' of an option A vs option B).

For what it's worth, the TAAR rules are untested in even simple cases, let alone cases involving the pursuit of a "same or a similar trade or activity" overseas or even with a new UK company when non-UK tax resident or TNR. This is super complex/uncertain, IMHO.

It depends on your attitude to risk, I suppose. Personally, I would not be going anywhere near the same or a similar trade or activity in any jurisdiction within two years of the last distribution, but I am fairly risk averse.

To some extent, you do reduce risk by closing your company, because it's fairly difficult to transfer an IR35 tax debt to a director under the PAYE regs and similar NICs legislation (MSC is another matter). You would need to have acted fraudulently. Also, it seems to me that keeping your UK company open carries other risks too.

If it were me, I would close the company and either be done with UK contracting or not work through UK agencies, rather directly with UK clients through my overseas company (but I also wouldn't open an overseas company doing the same thing within two years of an MVL). YMMV.

[zerosum]

Very useful, thanks.

Also, it seems to me that keeping your UK company open carries other risks too.

Can you say more?