Reply to: IR35 and not being tax-resident in the UK

[jamesbrown]

Oh and, of course, certain capital gains and dividends associated with profits earned in the UK are taxable in their entirety in the year of return for a temporarily non-resident (TRN) person that becomes UK resident again within five years of leaving the UK and realises these gains/profits while overseas, but that also only applies to people that are chargeable to UK tax (the clue is: returns to the UK within five years).

[jamesbrown]

Agreed, all very valid points which I have already covered. Most of the scenario's you refer to are about the company tax residence and the citizenship of the directors. I am not going to comment on companies and non-UK citizens, because that is outside of this scope.

The issue is about a UK citizen (which I assume the OP is) who becomes tax resident of another country, lives and works there. That does not dissolve their liability to taxation from their LtdCo. AFAIAA, having a UK Ltd that is operational, receiving income and you as a UK citizen named director, will require a SATR if you take any money from it, whether from dividends, directors salary or both. If you do so, you automatically become tax resident again, or you remain tax resident before you even set off if you went abroad after you already setup the company and took income from it.

I will clarify these points in the next couple of weeks, plus one other that is more related to foreign dividend income. (In my case, dividend income from another country paid into a UK bank account and then sent on to another country, but that's another issue.)

You are quite confused. There are very few countries in the world that tax on the basis of citizenship and the UK is not one of them. The US is one of them, for example.

If there is no charge to UK tax, there is no requirement to file a SATR and UK anti-avoidance legislation cannot apply, by definition. Being a UK citizen does not make you chargeable to UK tax. Being a director of a UK company does not make you chargeable to UK tax. Performing work in the UK that is non-incidental or "productive" does make you chargeable to UK tax (absent some unusual circumstances, such as working for an international organisation). Being a UK tax resident makes you chargeable to UK tax on your worldwide income. The real problem for NRDs arises when they perform work in the UK. None of this will stop HMRC probing whatever they want, but this is all pretty basic stuff.

[Jolie]

Being a director of a UK company and being UK resident for tax purposes are two entirely different things. Hence the widely understood concept of a "Non-Resident Director" or NRD, of which there are many, of course (including, or even especially, of very big companies).

In fact, it's worth knowing that you don't need to file a SATR for merely being a UK company director, despite what HMRC may suggest (fully understanding the law).

The condition for filing a SATR is, again, that you are personally chargeable to UK tax.

Ultimately, it is the law that matters, but there is obviously hassle involved in being a UK company director and it's hassle that is best avoided entirely if you live and work overseas. There is absolutely no doubt that HMRC will take an interest in you as they so choose, but they cannot operate outside UK tax legislation.

Agreed, all very valid points which I have already covered. Most of the scenario's you refer to are about the company tax residence and the citizenship of the directors. I am not going to comment on companies and non-UK citizens, because that is outside of this scope.

The issue is about a UK citizen (which I assume the OP is) who becomes tax resident of another country, lives and works there. That does not dissolve their liability to taxation from their LtdCo. AFAIAA, having a UK Ltd that is operational, receiving income and you as a UK citizen named director, will require a SATR if you take any money from it, whether from dividends, directors salary or both. If you do so, you automatically become tax resident again, or you remain tax resident before you even set off if you went abroad after you already setup the company and took income from it.

I will clarify these points in the next couple of weeks, plus one other that is more related to foreign dividend income. (In my case, dividend income from another country paid into a UK bank account and then sent on to another country, but that's another issue.)

[jamesbrown]

I agree, and I really wish it was that simple, because a scenario like this would have solved all my problems, but the answer I am expecting is that as a director of a UK company, you immediately become tax resident for the income you receive from LtdCo. You can be tax resident in more than one country.

Then you, as a UK citizen, receiving either dividends or a salary from the UK LtdCo, will have the same IR35 exposure.

If you did a circular reference to yourself out in Bali or Bora Bora, you probably also set off red flags for deliberate avoidance or evasion. But I stress, this is just my opinion.

Being a director of a UK company and being UK resident for tax purposes are two entirely different things. Hence the widely understood concept of a "Non-Resident Director" or NRD, of which there are many, of course (including, or even especially, of very big companies).

In fact, it's worth knowing that you don't need to file a SATR for merely being a UK company director, despite what HMRC may suggest (fully understanding the law).

The condition for filing a SATR is, again, that you are personally chargeable to UK tax.

Ultimately, it is the law that matters, but there is obviously hassle involved in being a UK company director and it's hassle that is best avoided entirely if you live and work overseas. There is absolutely no doubt that HMRC will take an interest in you as they so choose, but they cannot operate outside UK tax legislation.

[Jolie]

It wouldn't. IR35 does not create any new charge to tax. Unless there is a charge to UK tax, then IR35 cannot apply. This is a factual question and, while IR35 is ultimately a company liability, the question of fact surrounds whether the individual is chargeable to UK tax.

I agree, and I really wish it was that simple, because a scenario like this would have solved all my problems, but the answer I am expecting is that as a director of a UK company, you immediately become tax resident for the income you receive from LtdCo. You can be tax resident in more than one country.

Then you, as a UK citizen, receiving either dividends or a salary from the UK LtdCo, will have the same IR35 exposure.

If you did a circular reference to yourself out in Bali or Bora Bora, you probably also set off red flags for deliberate avoidance or evasion. But I stress, this is just my opinion.

[jamesbrown]

it would still fall foul of IR35

It wouldn't. IR35 does not create any new charge to tax. Unless there is a charge to UK tax, then IR35 cannot apply. This is a factual question and, while IR35 is ultimately a company liability, the question of fact surrounds whether the individual is chargeable to UK tax.

[Jolie]

The problem is you're running your contracts through a UK Ltd registered in the UK. So formally it may be classified as UK income and you could get into a wrangle with HMRC.

This is correct. As soon as you get an invoice settled to a UK company, it becomes UK taxable. However, this is a separate issue that relates only to business taxation.

What you should do to make it perfectly clear is register as self-employed in the country where you're working and invoice the UK Ltd. That way IR35 definitely won't apply.

I'm not sure of the legality of this, it would bring up red flags for sure. If anyone could do this, you would have digital nomads setting up Ltd's, getting tax residency in any of a number of countries with digital nomad visa's and/or zero tax, and just going.

This is a question for an experienced accountant in this field, I am back in the UK in just over a week, I am going to pose this question to my accountant and see what they say.

But in my opinion, if you have no ties in the UK (and I am assuming the OP doesn't) but the LtdCo, and are tax resident abroad, being remitted to a UK company with you as a director, and then invoicing that Ltd from abroad with you as a "self employed" worker, it would still fall foul of IR35, and probably other laws. The issue of actually doing the work abroad is irrelevant, and only an issue with double taxation.

If you just remain the UK Director, and don't invoice yourself, then how are you taking the money out of the business? HMRC will still see you as the director and therefore you will be taxable in the UK as a person, again the issue of where the work is done is only important for double taxation.

[lucyclarityumbrella]

Are there any umbrellas who could cope with this scenario?

Not ones who are based in the UK, need to be tax resident for us to process the payroll accordingly.

[zerosum]

The OP may not be revealing all, I don't know. I agree that there are pitfalls for the OP, in practice, even if they are working overseas and the income is not taxable, in principle. So it may not be easy to sort out. But, ultimately, they should not be subject to IR35 unless they are chargeable to UK tax.

All that said, the best way to live and work overseas is to make a clean break and have no significant financial or other interests in the UK, including no UK company. It's asking for hassle otherwise. Obviously, you can't do much about friends/family, but you should avoid visiting the UK very often. Likewise, UK clients are fine if the work is done outside the UK, but it's much better to do this through a company or self-employed arrangement in your resident country.

On the positive side, I fail the first automatic test (<16 days for each of the last three tax years, indeed 0 for 20-21 and 21-22, have tried to keep all boarding passes and have access to receipts or invoices or rental slips for most nights abroad). Fwiw, I also had 0 ties per the SRT definition for each of these years, so in the case of missing or challenged receipts, that's a fallback. I've taken paid advice for most of my big moves (I'm sure this doesn't eliminate the possibility for error, but it should help to show that I've not been negligent). The UK company pays UK corporation tax and VAT. The other country has as USP a low/non-aggressive tax regime and is not indifferent to PE/CFC issues but only for revenue levels far exceeding mine.

That all said, I completely agree that using a foreign company would be vastly preferable, but it tends not to fly with UK clients.

[jamesbrown]

He's working through a UK Ltd registered in the UK, and I get the impression he's being taxed in the UK. So as far as HMRC is concerned it's UK taxable income. I agree it shouldn't be taxed at all, but it will be difficult to sort out. f he were to simply register as self-employed in the country he's working in then he simply won't pay any tax at all.

The OP may not be revealing all, I don't know. I agree that there are pitfalls for the OP, in practice, even if they are working overseas and the income is not taxable, in principle. So it may not be easy to sort out. But, ultimately, they should not be subject to IR35 unless they are chargeable to UK tax.

All that said, the best way to live and work overseas is to make a clean break and have no significant financial or other interests in the UK, including no UK company. It's asking for hassle otherwise. Obviously, you can't do much about friends/family, but you should avoid visiting the UK very often. Likewise, UK clients are fine if the work is done outside the UK, but it's much better to do this through a company or self-employed arrangement in your resident country.

[BlasterBates]

The OP isn't relying on non-residency alone, as I understand it, they are relying on the work being completed overseas (and being non-UK tax resident). Income from work completed overseas as a non-UK tax resident is not chargeable to UK tax. UK anti-avoidance legislation applies to income that is chargeable to UK tax. If the income in question it is not chargeable to UK tax, IR35 cannot apply. As far as UK tax legislation is concerned, the difficulty only arises when (some of) the work is completed in the UK and, in relation to worldwide income, when UK tax resident. There's a separate set of difficulties related to whether all parties in the supply chain are happy and whether it's compliant with the contract(s), but that is unrelated to HMRC.

He's working through a UK Ltd registered in the UK, and I get the impression he's being taxed in the UK. So as far as HMRC is concerned it's UK taxable income. I agree it shouldn't be taxed at all, but it will be difficult to sort out. f he were to simply register as self-employed in the country he's working in then he simply won't pay any tax at all.

[jamesbrown]

And, somewhat oddly (but nonetheless definitely), it's the status of the individual and where the work is completed that matters w/r to IR35, not whether a UK company is used. I say oddly because the resulting liability is nominally a company liability when IR35 is breached (i.e., a Reg 80 determination will be issued to the company).

[jamesbrown]

The OP isn't relying on non-residency alone, as I understand it, they are relying on the work being completed overseas (and being non-UK tax resident). Income from work completed overseas as a non-UK tax resident is not chargeable to UK tax. UK anti-avoidance legislation applies to income that is chargeable to UK tax. If the income in question it is not chargeable to UK tax, IR35 cannot apply. As far as UK tax legislation is concerned, the difficulty only arises when (some of) the work is completed in the UK and, in relation to worldwide income, when UK tax resident. There's a separate set of difficulties related to whether all parties in the supply chain are happy and whether it's compliant with the contract(s), but that is unrelated to HMRC.

[BlasterBates]

Non-residency doesn't help, what matters is whether this is classified as UK income. Non-residents pay tax on UK income. How is your employment/income registered?

The problem is you're running your contracts through a UK Ltd registered in the UK. So formally it may be classified as UK income and you could get into a wrangle with HMRC. Can you prove you weren't in the UK? Does the UK Ltd have an office in the country you work in (sure but is it registered)? Really you need to ensure you have the paperwork from the country you live in to demonstrate it is income from that country and not the UK.

What you should do to make it perfectly clear is register as self-employed in the country where you're working and invoice the UK Ltd. That way IR35 definitely won't apply.

[eek]

Yes, I should have clarified this point.

Have had some discussions about inside-IR35 roles, but when I introduce the topic of not being UK-resident, needing to apply an NT tax code, and so on, discussions tend to dry up at that point.

Hardly surprising because you instantly move into the top complex, move on to the next candidate box

now someone like 6cats will be able to deal with the complexities of cross border wages but most (all) agents will have run away well before then.