Reply to: Setting a company abroad.Outsourcing to it and UK taxman

[northernladuk]

OK, thanks guys. I am starting to get the whole picture.

@NLUK: my current client wont mind subcontracting some of the work, provided they can see the benefits in terms of time saved.

@BB- I meant that if I subcon work to a offshore individual/co this will be paid by my UK ltd and this will be an expense to my ltd (with all tax consequences in the uk).
A
I think the safest way will be to just subcon it to a foreign co/SE and have them bill it to my UK LTD.

I would still pass the exact details of what you are doing past them. You may control it but I am sure they will want to have a say in anything going offshore.

[garnet]

OK, thanks guys. I am starting to get the whole picture.

@NLUK: my current client wont mind subcontracting some of the work, provided they can see the benefits in terms of time saved.

@BB- I meant that if I subcon work to a offshore individual/co this will be paid by my UK ltd and this will be an expense to my ltd (with all tax consequences in the uk).
A
I think the safest way will be to just subcon it to a foreign co/SE and have them bill it to my UK LTD.

[BlasterBates]

I understand. I was thinking about doing it this way. It is the easiest. I can simply subcontract some of the work to a SE person in the foreign country. Yes. My concern was that if ~25% of my UKs LTD turnover goes to a SE subcontractor especially abroad, this will raise more inquiries from the tax man.
Is that is fact true?

Which one is more dangerous (involving ~25% of turnover to SC)
- subcontract to a foreign SE
- subcontract to a foreign LTD owned by me
- subcontract to a foreign LTD owned by someone else

My math works great if I spent ~25% now on SCing I will get 50% increase on my rates for longer period and sooner.

Don´t confuse turnover with profit. If you are involved you really want all the turnover to be in the UK, however the work done in "wherever" will be an expense charged out by the foreign entity.

If you make profits in that other country it will raise eyebrows in the tax office, but it is allowable because there is a business reason, i.e. you are running a foreign subsidiary with a real employee. If you overdo the profits the tax man might decide to look at it much more carefully. If you just pay a self-employed contractor in another country, there would be no question that this is a bonafide expense, there won´t be any profit overseas.

I would get the advice from a UK accountant and an accountant in the country you wish to the work to be done. If you do decide to run a foreign subsidiuary then just do it honestly allowing a reasonable amount of profit but don´t try and diddle the tax man, just make sure it´s all justifiable, i.e. follow the advice of your accountants.

If you extract dividends from a foreign subsiduary you will need to declare these to the UK tax man, and they will take account of tax paid in the other country.

For tax simplicity I would advise getting an independent contractor or foreign company to do your work and get them to bill you. Then declare all income in your Ltd.

[northernladuk]

Don't let the tail wag the dog. If there is a genuine need for your LTD to subcontract work to another company do it. Don't make a tax situation that you can then apply the work to.

Although you say your client gives you free reign to do what you want I am sure offshoring data entry will raise a few eyebrows from a quality and security aspect as well so don't think you can do anything without consulting them first. It's the professional way to do business, not sneak it out the back door to make a quick buck.

[Pondlife]

You don't seem to be clear on what the real goal is here.

Are you trying to get the work done quicker by using a contractor, therefore allowing you to accept more lucrative work sooner?
OR
Reduce your UK taxburden by making a profit in another country?

If it's the former then it's probably better not to have any ownership over the entity that performs this work offshore to avoid it looking like avoidance/evaision. Since you will only be paying for the work done any profit from this stays in YourCo in the UK.

[garnet]

The easiest way is for you to use someone who is self-employed so you don´t have the hassle of settting up and running a foreign company. i.e. just agree a price with someone and charge out as an expense in your Ltd company. Since you are involved in managing this and doing work in the UK this you should run this through your UK Ltd. In other words while you have involvement and you are in the UK you can´t simply have all the profits taxed in some offshore location.

I understand. I was thinking about doing it this way. It is the easiest. I can simply subcontract some of the work to a SE person in the foreign country. Yes. My concern was that if ~25% of my UKs LTD turnover goes to a SE subcontractor especially abroad, this will raise more inquiries from the tax man.
Is that is fact true?

Which one is more dangerous (involving ~25% of turnover to SC)
- subcontract to a foreign SE
- subcontract to a foreign LTD owned by me
- subcontract to a foreign LTD owned by someone else

My math works great if I spent ~25% now on SCing I will get 50% increase on my rates for longer period and sooner.

[LisaContractorUmbrella]

FTFY

Thanks Faqqer

[TheFaQQer]

It is avoidance which is not illegal but then again you are not Starbucks and I assume do not have access to the type of extremely expensive politicians and HMRC employees that they do

FTFY

[LisaContractorUmbrella]

Yes and no.

I am tax liable in the UK both as person and as a company.
The reason I want to outsource is that the quicker I finish 1st stage of my project, the sooner I will get to the second stage (better paid). So if I outsource to 5 people abroad I can start very soon.

I guess there is a clear differentiation between the legal entities in the uk for tax purposes: a person (me) != my ltd != an EU ltd, although the UK LTD and EU LTD are owned by me. Am I wrong?

As such the EU LTD will be tax liable in its own country. I will not have any income from it as a uk resident.
Nevertheless, and that is why am sking, this whole thing looks like it is tax avoidance. The question is is it all legal (like starbucks paying 90% of their UK profit to its own company in luxemburg for name franchise.)

It is avoidance which is not illegal but then again you are not Starbucks and I assume do not have access to the type of extremely expensive tax lawyers and specialist accountants that they do

[BlasterBates]

True, but it's all a question of degree, and double taxation - on OPs scenario I'ld expect an interest from UK tax authorities.

Yes I agree. I think I was focusing on the possibility of shoving at least some profit into a foreign entity which would be allowed under the Double Taxation treaty, but on the other hand of course you´re quite right that because he´s running this whole thing in the UK, the UK authorities expect tax there.

[Jessica@WhiteFieldTax]

True, but it's all a question of degree, and double taxation - on OPs scenario I'ld expect an interest from UK tax authorities.

[BlasterBates]

The easiest way is for you to use someone who is self-employed so you don´t have the hassle of settting up and running a foreign company. i.e. just agree a price with someone and charge out as an expense in your Ltd company. Since you are involved in managing this and doing work in the UK this you should run this through your UK Ltd. In other words while you have involvement and you are in the UK you can´t simply have all the profits taxed in some offshore location.

[Jessica@WhiteFieldTax]

If you control your offshore co from the UK, then expect to have it taxed in the UK.

You'ld need to stuff it full of nominee directors and give them teeth to cut the nexus with the UK.

Probably one for the "nice idea, but..." pile.

Other than that, subbing the work out to a on or offshore contractor presents no insurmountable issues, other than practicalities of control, and what your contract lets you do.

[northernladuk]

As such the EU LTD will be tax liable in its own country. I will not have any income from it as a uk resident.
Nevertheless, and that is why am sking, this whole thing looks like it is tax avoidance. The question is is it all legal (like starbucks paying 90% of their UK profit to its own company in luxemburg for name franchise.)

Surely you will? Your client will still pay your LTD. It is up to your LTD to subcontract the work. I really don't think your client will be best pleased if you suddenly tell them to start paying an Indian company. What does your agent say all about this?

[garnet]

Ahh hang on... Is this a follow on from you trying to set up a company in the EU and second yourself to the UK to avoid tax?

http://forums.contractoruk.com/accou...ompany-uk.html

You are not from the UK, want to set up a company back home and charge your UK client and pay yourself in your home country I would guess.....

Yes and no.

I am tax liable in the UK both as person and as a company.
The reason I want to outsource is that the quicker I finish 1st stage of my project, the sooner I will get to the second stage (better paid). So if I outsource to 5 people abroad I can start very soon.

I guess there is a clear differentiation between the legal entities in the uk for tax purposes: a person (me) != my ltd != an EU ltd, although the UK LTD and EU LTD are owned by me. Am I wrong?

As such the EU LTD will be tax liable in its own country. I will not have any income from it as a uk resident.
Nevertheless, and that is why am sking, this whole thing looks like it is tax avoidance. The question is is it all legal (like starbucks paying 90% of their UK profit to its own company in luxemburg for name franchise.)