Reply to: Changing tax residency and charging own UK LTD

[jamesbrown]

Incidentally, there was quite a lot of noise about corporate tax residency towards the start of the pandemic where concern grew that companies might establish a tax residency or permanent establishment in a foreign jurisdiction because directors had started to work remotely, overseas.

[jamesbrown]

Thank you for this jamesbrown. I am doing some background reading to try understand what I dont know. Do you know roughly please what conditions move and what dont cause the move (apart from my move)? Is this an aspect of Controlled Foreign Corporation ?

No, that's something different. Many jurisdictions have CFC legislation, but the goal there is to prevent tax avoidance by registering a company in a low-tax jurisdiction.

The point I am making is about corporate tax residency more generally. The rules on corporate tax residency vary depending on jurisdiction, but the general pattern is that a company is treated as tax resident in its jurisdiction of incorporation OR the jurisdiction from which it is "centrally managed and controlled" or "effectively controlled" or the "place of effective management" or some similar combination of words. Thus, if a sole director moves overseas, then the company is effectively managed in that overseas territory. In the UK, these rules mean that a company registered in a foreign jurisdiction that is "centrally managed and controlled" in the UK is UK tax resident. The words "centrally managed and controlled" mean, for example, that the director/s live in the UK and hold meetings in the UK.

[twickenkam]

But if you actually want to move overseas and work, then why not set yourself up properly there rather than invoicing through a UK company (you should be able to retain the UK company, if you want, although bear in mind that its corporate residence will probably move with you).

Thank you for this jamesbrown. I am doing some background reading to try understand what I dont know. Do you know roughly please what conditions move and what dont cause the move (apart from my move)? Is this an aspect of Controlled Foreign Corporation ?

[Eirikur]

Other countries have their version of IR35 as well and sometimes much stricter

[northernladuk]

If you move to and work in a foreign country it is not tax evasion. It's only tax evasion if you remain in the UK but work through a foreign company.

If done properly yes. The posts we have been having recently are just nonsensical ideas to save a quick buck.

[BlasterBates]

What is with the raft of stupid tax evading ideas recently?

If you move to and work in a foreign country it is not tax evasion. It's only tax evasion if you remain in the UK but work through a foreign company.

[BlasterBates]

If you are resident in another country you will need to register yourself there. You can bill through your UK but not work for it. i.e.
self-employed in foreign country->bill UK Ltd -> bill client

There will probably a bit of profit in your UK Ltd, taxed in the UK but most of what you earn will be in the foreign country. You'll need to consult your accountant.

It would be best obviously to bill directly from the foreign country. In that case there should be no tax to pay in the UK, other than perhaps VAT.

[Lance]

What is with the raft of stupid tax evading ideas recently?

Cos it's perceived as easier than actually running a proper business.
I don't know where they get the time to think of these wheezes.
One would have thought that for the extra 20, 25, 30% of cash in the hand that effort would be better used upskilling, or finding some better customers.

And they wonder why the 'tax man is out to get them'.

If dividend tax goes up to 32.5%, or even 40%, across the board, that's just life.
It's not likely to change much other than inside IR35 jobs become less to whinge about. It's not going to change what I do, or how I do it.

[Fred Bloggs]

What is with the raft of stupid tax evading ideas recently?

Possibly because the "fully compliant HMRC approved tax avoidance schemes that have QC opinion" that folks used are unravelling?

[Fred Bloggs]

Thank you for this, it indeed requires quite a commitment and strict count of days out of the UK as well as working and non-working days in the UK. Following:
RDR3: Statutory Residence Test (SRT) notes - GOV.UK

2.3 Third automatic overseas test
You’ll be non-UK resident for the tax year if you work full-time overseas over the tax year and:

you spend fewer than 91 days in the UK in the tax year
the number of days on which you work for more than 3 hours in the UK is less than 31
there is no significant break from your overseas work

You should be aware that you can quite easily be tax resident in multiple countries at the same time. For example I was tax resident in three countries for 2017 to 19. Then I was tax resident in two countries despite meeting automatic overseas test number 1. I paid UK tax on UK income arising during my absence. And I paid overseas tax in those jurisdictions too on overseas income. The various tax treaties in place ensure you only pay tax once on each pot of income. But it's complex and bad timing can cost you very dearly indeed.

[twickenkam]

Read RDR3. You must be out of the UK for a full tax year before you can be considered as non-UK tax resident. You can apply for split year treatment in the year of leaving and returning. You must pass one of the non-resident tests in RDR3 or it gets very complex.

Thank you for this, it indeed requires quite a commitment and strict count of days out of the UK as well as working and non-working days in the UK. Following:
RDR3: Statutory Residence Test (SRT) notes - GOV.UK

2.3 Third automatic overseas test
You’ll be non-UK resident for the tax year if you work full-time overseas over the tax year and:

you spend fewer than 91 days in the UK in the tax year
the number of days on which you work for more than 3 hours in the UK is less than 31
there is no significant break from your overseas work

[zerosum]

Agree with jamesbrown. There are many good reasons to move tax residency away from the UK, but it’s a long-term play.

[northernladuk]

What is with the raft of stupid tax evading ideas recently?

[jamesbrown]

"For a year-ish".

Well, just be aware that HMRC are wise to "temporary non-residence" (defined in legislation).

So you can expect to be taxed on any dividends or capital gains associated with UK profits/gains (i.e., profits or gains accrued while UK tax resident) in the year you return, if you return within five years.

Also be aware that it's harder to lose residency than you might expect, depending on your ties to the UK and how often you return.

So if this is a tax wheeze.... don't bother.

But if you actually want to move overseas and work, then why not set yourself up properly there rather than invoicing through a UK company (you should be able to retain the UK company, if you want, although bear in mind that its corporate residence will probably move with you).

[Fred Bloggs]

Read RDR3. You must be out of the UK for a full tax year before you can be considered as non-UK tax resident. You can apply for split year treatment in the year of leaving and returning. You must pass one of the non-resident tests in RDR3 or it gets very complex.