Limited Company and Tax

[Joe Black]

Oh dear...

...what would happen if I paid no tax whatsoever then declared myself bankrupt? I understand that I would not be able to have loans, bank accounts etc etc if I was declared bankrupt, but as said I wont be working here again so that wont be an issue

Just the excuse GB needs to hammer contractors in the UK with more red-tape and taxes.

"The bankruptcy question was just a query, not really something I want to do" - no thought at all of doing such a thing, just curious were you...

[ASB]

aussieItman:

You might like to do some research on your residency and taxation related to non UK sourced income for people who are not ordinarily resident. Offshore cos can be useful in these circumstances if structured right. Or get you locked up if structured wrong.

Don't forget that it is perfectly possible to be tax resident in more than one country at any given point in time. As a result of this exact timing and the exact details of DTA's between respective countries can become very important.

[malvolio]

As a normal UK Ltd outside IR35, you're looking at around 78% retention if you do the low salary/high divi route. The offshore schemes will go higher than that, but watch the risk/reward ratio.

If you're not staying there are probably better options, but you need a good accountant that understand both UK and Oz - have a word with SJD for a starter.

[aussieItman]

There is an agreement between UK and Oz tax authorities? Didn't know that. Well I definitely want to keep it legal. How much tax do you normally have to pay with a limited company? I know this must vary considerably, but roughly what would I be looking at?

[malvolio]

I couldn't possibly suggest a UK contractor goes this route, not because it's risky (which it is) but because our beloved Chancellor has decreed they will be outlawed since they cost him potential tax income. Since you are not a UK contractor, you could care less about that and the only question is how risky it is and how certain you are that you will get the money back.

Personally, anything that pisses off gay Gordon is OK with me - just be aware that there is a mutuality agreement bewtween Oz and Ukland tax authroities, so whatever you do, keep it legal.

[aussieItman]

Hmm well I found this other scheme. I guess this is what you meant?

Foreign Currency Loans
These are a way of receiving money whilst avoiding tax and National Insurance. A loan is made to an individual in a foreign currency, which can be repaid at a very low rate, resulting in a tax free gain.

Although this is perfectly legal, it can only work in conjunction with an offshore company that would not be taxed on profits. Offshore companies have been scrutinised by the government and all dealings would be challenged and be taxable as income if received by a resident of the UK.

[aussieItman]

I think that loophole has been closed - see below:

Employee Benefit Trusts (EBT)
For many contractors, the Employee Benefit Trust initially seems an extremely attractive option. Individual contractors work under the auspices of a composite company, and are paid a salary – normally worth around 20%-30% of the total contract value. The rest of the money is paid into an offshore trust, from where it is loaned back to the contractor. The loan is in foreign currency so not only avoids IR35 but also all taxation and National Insurance. top

However, the Inland Revenue has already closed the loophole on this scheme. Tax relief is now only permissible on PAYE payments made by the trusts – that is, the lower salary figure – and not on loans. As a result, EBT can no longer operate.

[aussieItman]

Thanks for the constructive reply. I'm not sure I fully understood however. Can I use my limited company with one of these schemes?

[Rebecca Loos]

hey Aussie man
you've just got a dose of the Pommie revenge....

there are ways for people like us to minimise tax paid in the UK

One of the solutions is to ue one of these nice offshore schemes that are technically NOT illegal - yet - but might be in the future (hence no UK contractor on this forum will recommend them, which is quite normal)

look for companies that pay in the form of a minimum wage + a foreign currency loan or something similar. The loan is tax free and then written off so you never have to pay it back. The interest you pay every month is in fact the company's fee for handling your contract with the agency.

I am not saying it's not risky and I am not saying it will be legal next year or even next month..... but it works now with some companies.

Rebecca in antipodean dodger mode

[Mordac]

>Well the only people that seem to be paying honest taxes are the permanent people and PAYE contractors.

All contractors are PAYE, whether it's with a Ltd co or brolly. If you're looking for a job, I hear Walkabout in Shepherds Bush are looking...

[aussieItman]

Well the only people that seem to be paying honest taxes are the permanent people and PAYE contractors. The bankruptcy question was just a query, not really something I want to do. I was quite happy with my Umbrella company prior to this contract, however my new agency said I either had to setup a LTd company or go with one of their Umbrella companies which were not suitable. I didnt mean for my post to sound as though I'm trying to rip anyone off and I dont want to end up with a criminal record or a poster of my face in the tax department. I know lots of people that have Limited comapnies and they all seem to have different ways of avoiding tax or minimising it. Maybe this is legitimate, I dont know. Anyway that is my question, what can I do as a contractor with a limited company to minimise my Tax?

[planetit]

What’s the point of the “declare myself bankrupt” plan? Bankrupt means you haven’t enough money to pay your debts. But you will have the money because you will have nicked it from the taxman. It’s like saying “can I get away with robbing a bank if I declare myself bankrupt?” Of course not.

If you want to clear off back to Aus without paying any tax, then just do it. You might well get away with it, but I don’t see what help you need from us.

And when your fellow travellers complain at how difficult it is to open a bank account etc. in the UK, I hope you will explain that it’s all because of people like you.

[aussieItman]

Ok firstly I have to say that I have been contracting for a few years now, but always with Umbrella companies or PAYE so I don't know too much about Limited Companies and IR35 etc. So if I ask stupid questions I apologise!

My situation is this - I am an Australian contractor working in London. I have a British passport. I have been here since may and will be returning to Oz in june this year. My intention is to make as much money as possible over here, pay as little tax as possible and I porbably wont be working back in the UK again.

I setup a limited company in June last year at the beginning of my contract and I will close this down when I leave. However I do not have an accountant and am not sure what taxes I should be paying, will I get hit by IR35, will I better off PAYE? Also what would happen if I paid no tax whatsoever then declared myself bankrupt? I understand that I would not be able to have loans, bank accounts etc etc if I was declared bankrupt, but as said I wont be working here again so that wont be an issue. Any advice would be great.