Contracting with UK LTD abroad: Agency or subcontracting

[northernladyuk]

Hello,

I am a non UK resident / national etc (with no previous links to the UK). I have an LTD for consulting with other non UK companies (eg European). Currently a significant part of the work is carried in countries with no income tax.

To manage offshore expenses and pay employees abroad we are considering:

a) Setup an offshore IBC with an Agency contract with the LTD, the LTD keeps 10% of turnover and passes over 90%. From there the IBC can pay the employees. If employees on a taxable country IBC takes care of withholding taxes or hires through a local umbrella in destination country for the duration of engagement.

b) Setup the offshore IBC as a sub-contractor umbrella, invoicing the LTD on an hourly rate for the hours used on the projects. IBC then pays the employees. If employees on a taxable country IBC takes care of withholding taxes or hires through a local umbrella in destination country for the duration of engagement.

c) Pay directly the employees out of the UK payroll on gross basis either as employees or self-employeed. But there seem to be different views on this as seems HRMC is not definitive on process and lack of NIC etc and seems somehow of a fuzyy method (eg. payment to foreign directors)

In all cases the company will not be trading with UK entities nor will employ any UK resident/nationals.

The (a) scheme is discussed a lot, suggesting a min of 10% profit for the agency company. Is that scheme better than (b) in any way? Better than (c)

Thanks for your support!

You need proper professional advice, not some opinions from us lot. I mean this in a helpful way as your business model is more complex than most of ours.

[WTFH]

Technically both schemes work and are legit. But asking whats the experience with HRMC if any around here on inspections etc. Trying to minimize admin burden.

Using a scheme ind getting involved with HMRC is a bad idea. No ifs, no buts.

The "admin burden" might be marginally less on your setup, but the longer term pain won't be worth it.
You might want to get professional help from an accountant, and go through all the facts with them, keeping your mind open that the idea of using the UK as a tax dodge is most likely not a smart one.

[yannis]

Just be aware of that that perception might change post March 2019.

You might want to look at setting up a company in Estonia, owned by your IBC or by yourself. There is a 20% corporation tax, but it is only levied when the company declares a dividend. Working capital is not taxed. You will have a proper limited company in an EU country in the eurozone and the Schengen area.

https://e-resident.gov.ee

0
thanks for the suggestion. Indeed I am looking at alternatives for the future post Brexit if it happens

For now though we are mostly settled into the UK path.

The basic issue though is the following: does HRMC question outsourced work to offshore companies? Meaning that we will have to be having invoices, evtl get individual invoices questioned etc. Possible to do but the admin! Or does this work without issues?

If not then it would be better a blanket agency agreement, 10% is kept in the UK, taxes are paid on it and all the overhead costs of management the construct are gone. Unless those agreement are often put into question again, then it would be "easier" to justify the payments based on actual invoices and hourly rates...

Technically both schemes work and are legit. But asking whats the experience with HRMC if any around here on inspections etc. Trying to minimize admin burden.

[m0n1k3r]

It is much faster and simple to setup and European customers are quite pleased to work with a UK company for their market research in third world countries (vs. some african or arab one or even an IBC in an offshore location).

Just be aware of that that perception might change post March 2019.

You might want to look at setting up a company in Estonia, owned by your IBC or by yourself. There is a 20% corporation tax, but it is only levied when the company declares a dividend. Working capital is not taxed. You will have a proper limited company in an EU country in the eurozone and the Schengen area.

https://e-resident.gov.ee

[m0n1k3r]

Being very blunt.

You are unlikely to get the advice you need on this forum.

You are not a contractor, and this forum is made up of contractors.
You are setting up a small (very small) consultancy with a complex (very complex) international profile.
You need professional advice. And whilst you may get many opinions on here, most will be wrong or only partially correct. That won't help you.

Correct for the most part but not entirely. I'm a certified accountant (both in the UK and a few other EU countries) and one of the founders of a pan-EU consultancy (a group, not a single company) that has been running since the '90s and that have a decent number of employees now. i'm here mainly in the capacity of a freelancer in a quite different business area (commercial photography for advertising). That doesn't mean I "forget" about my other knowledge when I post here.

I suspect I'm not alone.

[Fred Bloggs]

But....... For the OP's purpose he/she may wish to look at an Isle of Man Ltd company. It could suit him/her very well including, if required VAT registration to trade in the EU.

[eek]

Being very blunt.

You are unlikely to get the advice you need on this forum.

You are not a contractor, and this forum is made up of contractors.
You are setting up a small (very small) consultancy with a complex (very complex) international profile.
You need professional advice. And whilst you may get many opinions on here, most will be wrong or only partially correct. That won't help you.

+1 - you are asking about the creation of a UK limited company to act as a more prestigious front end to your existing foreign company. That isn't something many can help you with here as its not something we need to worry about...

[cojak]

Being very blunt.

You are unlikely to get the advice you need on this forum.

You are not a contractor, and this forum is made up of contractors.
You are setting up a small (very small) consultancy with a complex (very complex) international profile.
You need professional advice. And whilst you may get many opinions on here, most will be wrong or only partially correct. That won't help you.

Thank you Lance, you've nailed the answer.

We only have experience with 1 person Ltds. You won't find the help you need here.

Sorry.

[Lance]

Being very blunt.

You are unlikely to get the advice you need on this forum.

You are not a contractor, and this forum is made up of contractors.
You are setting up a small (very small) consultancy with a complex (very complex) international profile.
You need professional advice. And whilst you may get many opinions on here, most will be wrong or only partially correct. That won't help you.

[yannis]

How many employees do you have?
Have you asked your accountant?

Not many, up to 5 depending on the project size. No permanent employees but on temporary basis for duration of project.

Current accountant is not good with offshore issues (changing it) and thought collective wisdom here could help.

[WTFH]

How many employees do you have?
Have you asked your accountant?

[yannis]

If you have no connection with the UK why are you looking at using a UK company?

It is much faster and simple to setup and European customers are quite pleased to work with a UK company for their market research in third world countries (vs. some african or arab one or even an IBC in an offshore location).

[cojak]

If you have no connection with the UK why are you looking at using a UK company?

[yannis]

Hello,

I am a non UK resident / national etc (with no previous links to the UK). I have an LTD for consulting with other non UK companies (eg European). Currently a significant part of the work is carried in countries with no income tax.

To manage offshore expenses and pay employees abroad we are considering:

a) Setup an offshore IBC with an Agency contract with the LTD, the LTD keeps 10% of turnover and passes over 90%. From there the IBC can pay the employees. If employees on a taxable country IBC takes care of withholding taxes or hires through a local umbrella in destination country for the duration of engagement.

b) Setup the offshore IBC as a sub-contractor umbrella, invoicing the LTD on an hourly rate for the hours used on the projects. IBC then pays the employees. If employees on a taxable country IBC takes care of withholding taxes or hires through a local umbrella in destination country for the duration of engagement.

c) Pay directly the employees out of the UK payroll on gross basis either as employees or self-employeed. But there seem to be different views on this as seems HRMC is not definitive on process and lack of NIC etc and seems somehow of a fuzyy method (eg. payment to foreign directors)

In all cases the company will not be trading with UK entities nor will employ any UK resident/nationals.

The (a) scheme is discussed a lot, suggesting a min of 10% profit for the agency company. Is that scheme better than (b) in any way? Better than (c)

Thanks for your support!