Reply to: empty Ltd account while living tax free

[Sally BFCA]

This is HMRC document that may help.

[THEPUMA]

You used to be able to get away with it if the company was still trading - i.e. the overseas contract was billed from the company and you were still in the UK long enough to have the day to day management run from here, but you were able not to become resident. The salary needed to be affordable - i.e not exceeding the gross billings plus the retained profit. Obviously you had to be resident in a regime which was not operating a mondiale tax system (and there are precious few of those). [The benefit wasn't so much being able to get at the cash tax free but being able to create a somewhat artificial loss to carry forward for CT purposes]

Whether or not you still can is a different thing (and your belief would appear to be that it is unlikely).

The point really is that exactly what the OP is doing and their arrangements will govern what may, or may not, be achievable.

We have looked at this a couple of times in the context of substantial benefits being paid to directors as part of a tax mitigation scheme or pension planning and counsel's opinion tends to be that it is aggressive to declare anything exceeding the company's profitability for the year in question.

But I guess in this particular case, there is little risk of interest or penalties if it is successfully challenged as they will have to challenge the losses before they are utilised.

[Gonzo]

If become tax resident in Saudi Arabi for example where there is no income tax (I believe) can I just pay myself everything left in my Ltd as salary with no tax?

You need professional advice. A quick google suggests that your tax position would be more complicated than that. Saudi Arabia is not completely tax free on everything.

Believe it or not, sometimes the UK CGT with allowances and entrepreneurs' relief really does work out to be the best option.

[ASB]

so I'd have to reclaim money from HMRC ...eeeeeeeek

THEPUMA (who is generally right) is extremely sceptical as to whether this would work under current rules. However the fact is you wouldn't actually be reclaiming as such. You would be offsetting going forward. Not quite the same thing.

Edit: Of course. If the Saudi contract is lucrative enough ensure you find yourself resident (for tax) in Monaco. Then just pay the lot of dividends since Monaco is one of the places that doesn't tax investment income from overseas.

[ASB]

In these circumstances, HMRC may deny tax relief for the salary on the grounds that it was not incurred for the purposes of the trade.

You used to be able to get away with it if the company was still trading - i.e. the overseas contract was billed from the company and you were still in the UK long enough to have the day to day management run from here, but you were able not to become resident. The salary needed to be affordable - i.e not exceeding the gross billings plus the retained profit. Obviously you had to be resident in a regime which was not operating a mondiale tax system (and there are precious few of those). [The benefit wasn't so much being able to get at the cash tax free but being able to create a somewhat artificial loss to carry forward for CT purposes]

Whether or not you still can is a different thing (and your belief would appear to be that it is unlikely).

The point really is that exactly what the OP is doing and their arrangements will govern what may, or may not, be achievable.

[THEPUMA]

If you can cease to be UK resident and ordinarily resident for tax purposes, you simply pay yourself a dividend while you are abroad and there should be no UK tax. If there is no income tax on dividends in the juridiction in which you reside, then obviously that is ideal.

If you are trying to get a corporation tax refund, then your salary will need to exceed your income in the period in question. In these circumstances, HMRC may deny tax relief for the salary on the grounds that it was not incurred for the purposes of the trade.

I seem to recall that Phil@BFCA bloke did quite a handy summary of your options when going abroad on his website. Alternatively, feel free to give me a call and I'll talk you through the issues.

[TykeMerc]

so I'd have to reclaim money from HMRC ...eeeeeeeek

That bit's surprisingly good fun, try it odds are you will like it

[Olly]

so I'd have to reclaim money from HMRC ...eeeeeeeek

[hugebrain]

well it wouldn't be 21% corp tax unfortunately...because that year's money from saudi probably wouldn't be through the ltd (peeps often go direct there)
It would (could) only save the 10% capital gains(ish) tax(ish) I'm guessing

Any retained funds in the company could be paid out as salary leading to a loss. This could be set against the previous (two?) years corporation tax, or carried forward to offset against future profits. Paying out as salary would mean he would get 40-50% more money compared to treating it as capital gains (IANAA).

[Olly]

well it wouldn't be 21% corp tax unfortunately...because that year's money from saudi probably wouldn't be through the ltd (peeps often go direct there)
It would (could) only save the 10% capital gains(ish) tax(ish) I'm guessing

[hugebrain]

close it anyway - pay 10% CG tax on what is left

Startup a new one when you return

My co is closing down on the first day I get a contract where I am unable to work through it (e.g. Belgium / holland )

So your advice is pay 10% tax instead of receiving a twenty-something percent refund of corporation tax?

I'd say find out how to do this legally and let the company make a loss and get back some of your hard-earned cash.

Sounds fairly straightforward - you just need a 1 year contract to work abroad. (obviously it's likely to work better in Saudi than in Belgium).

[Fred Bloggs]

no I plan on coming back...saudi is one of the few places that's worse than the UK

Fair enough. Must be a close run thing I guess.

[ASB]

If:-

You are coming back
You cease to be UK resident
Your company maintains UK residency
You individually cease to be UK tax resident

Then you may want to consider paying yourself a huge salary say 500,000. You then lend this back to the company through the DCA - though the money needs to physically move around. It is possible to ensure you produce a nice loss to carry forward in the company.

Be prepared for a huge fight with HMRC.
Ensure that this income is not taxable in your destination wherever it happens to be.

However if you do it absolutely right, and you specific circumstances allow it you can come back to a huge balance on the DCA to live of for a number of years, a great big tax loss to absolve CT going forwards (and sometimes even going back for 1 year). But you do need to find a very competent (i.e. expensive) accountant.

If you don't get it exactly right then you will be very very deep in the dung.

[Billy Pilgrim]

no I plan on coming back...saudi is one of the few places that's worse than the UK

close it anyway - pay 10% CG tax on what is left

Startup a new one when you return

My co is closing down on the first day I get a contract where I am unable to work through it (e.g. Belgium / holland )

[Gonzo]

In theory you might be able to do something but you should take professional advice.

You have to get right:

1. Convincing HMRC that you are no longer tax resident in the UK. I don't know all the details with this but if you are still being paid salary by a UK company I suspect that that may be more difficult than you realise. Dividends may be a better route.

2. Consider how the authorities in your new country will view your company. Some countries will treat your company as resident in their country along with you. I don't know about Saudi Arabia. They might not be interested but they might be very interested and you need to be aware of any implications.

Residency for tax purposes is complicated.

I am not an accountant.