Legalities of setting up business offshore but living in UK

danwednesday

Hi,

Not sure if anyone can help with this, but I'm a bit stuck knowing where to get advice.

Basically I used to live offshore, but moved away to begin freelancing on UK mainland about 4 years ago. I still do about 10% of my work on the island, and have relatives and an address over there. It is also likely that one day I will move back.

After some pretty high tax bills of late I've been looking to set up a limited company so I can make savings by drawing a salary/dividends as opposed to paying income tax on all of my freelance earnings.

It crossed my mind that still having strong connections with the Isle of Man, I could perhaps benefit from their zero percent corporation tax by setting the company up there and being paid as an employee (subject to standard UK income taxation) in the UK, whilst having registered offices and local directors on the island.

However, after several meetings with accountants and financial advisers, no-one is able to offer any experience or advice on the legality of this. I certainly don't want to break any laws, but would like to benefit from potential savings if this were at all possible.

Does anyone know anything about this, or anyone that specialises in this type of thing?

Any pointers would be much appreciated, thanks...

Graham_Arnott

I can certainly help you "sort out" your tax planning issue. What you are contemplating is not illegal and many people use offshore structures and tax planning to reduce jurisidctional tax liabilities.

The simplest solution is for you to use an offshore company, a local company and you in a tax efficient and fiscally transparent manner. You're at distinct advantage in fact because you haven't resided in England for that long.

Provided you're willing to accept paying some UK tax and NIC's there are a number of ways of protecting the remainder offshore.

silverchamp

I've recently done some research on this area as part of the course I'm doing at the moment.

However you must not take what I'm saying as gospel - I am NOT a qualified solicitor or financial adviser and so you should take further advice before doing anything.

Now the disclaimer is out of the way!!

As you alluded to in your post, the tax for companies is corporation tax. Any company that is resident in the UK (excluding Isle of Man) will be subject to tax, and there are currently two 'tests' for deciphering 'residence.'

The first is straightforward and is called the 'incorporation test' under s66 of the Finance Act 1988 - any company incorporated in the UK will be resident there - easy enough - incorporate on the Isle of Man.

However, the second test is called the 'central management and control' test and this is the one that might catch you out. This is a common law test, and states that the company will be deemed to be resident whereever its central management and control is located, irrespective of where it is legally incorporated.

This means that if you were to make all of your strategic or high level board decisions in the UK, then the company will be resident there and subject to corporation tax in the usual way.

Furthermore, this is a question of fact, and not law. Therefore you cannot evade this by simply holding formal board meetings in the Isle of Man and doing the rest here.

There is a useful statement of practice on the Inland Revenue site which will give you more detailed guidance:

http://www.hmrc.gov.uk/manuals/intmanual/INTM120140.htm

Have a good read of this and find yourself a good corporation/tax solicitor - their fees won't be cheap but if done properly, the long term savings will be more than worth it!!

Cook_County

(Ignoring Graham Arnott's spam) Silverchamp is correct as far as UK corporate residency is concerned.

RIGHT NOW

You are self-employed and therefore taxable at UK income tax rates on worldwide profits. You are howeever still not domiciled within the UK, which should be an advantage.

THE FUTURE

A non-UK controlled company could eliminate the UK tax on earnings for duties outside of the UK, as well as reduce the "headline" tax rate down from income tax to corporate tax rates.

You may need to get the company registered to do business in the UK, but there are many accountants and solicitors who do this kind of structure routinely, so the first thing to do is to find an adviser who knows about these structures. It will then be plain sailing.