Setting up an offshore company

UK Corporation Tax applies to companies resident in the UK - broadly speaking where its central management & control are.

An offshore company does not automatically so qualify.

The OP might be deemed a shadow director, and if resident and ordiarily resident in the UK, the tax implications are obvious.

| The OP might be deemed a shadow director, and if resident and ordiarily | resident in the UK, the tax implications are obvious.

Assuming that I was established as a resident in the UK could I get away with just paying corporation tax or would I also have to pay income tax as well?

Yes

1. The administration costs are generally higher than for UK companies
2. You may have foreign taxes to pay
3. You still have to pay UK corporation tax

Does IR35 apply to you?

If the source of income is UK and the work is performed in the UK, and if the person(s) doing the work is (are) UK-resident (never mind ordinarily resident) then you have (1) a permanent establishment, (2) probably IR35 issues, (3) shadow director issues.

The only conceivable benefits that I could envisage are: (1) deduction for foreign pension, at least foreign state pension (a very arcane area), (2) (perhaps) avoidance of the need to publish accounts (whether you need to register the company as a foreign company doing business in England/Wales and (3) ease of staying below the radar (this verges on tax evasion, be careful).

The issue comes up constantly in France, where (especially in the old days when English companies weren't taxed if they did no business in England) every hairdresser and baker wanted to incorporate a company in England and run his/her shop in France through it. There's a lot of stuff on misc.droit.fr (in French) on the subject.

There may be VAT complications or benefits. If the company is below the VAT threshold that might be a savings. I have not been following the issue of "related companies" and "collapsible corporations" set up by related parties to avoid VAT registration; there must be rules to regulate that and they might be unenforceable against a foreign company. On the other hand, you are not foreign, and they can always assess you for whatever they like.

| If the source of income is UK and the work is performed in the UK, and | if the person(s) doing the work is (are) UK-resident (never mind | ordinarily resident) then you have (1) a permanent establishment, (2) | probably IR35 issues, (3) shadow director issues. |

Thanks for the advice. It seems I'll be safer creating a UK based company and just paying corporation tax.

Are there any good sources of information on how to be tax efficient without committing fraud when setting up UK based companies?

Basically I'm going to be under the VAT threshold and will have not employees as such. Just myself listed as the director performing all the work in a subcontracting capacity.

Thanks!

I should think so, yes.

I don't think there's much in the "setting up" which will affect your tax liability.

One (of many) sites which may give you a few pointers is:-

It sounds as if you could well be caught by IR35 unless you do things right. Doing it right has nothing to do with the company set up but more to do with how you arrange your contracts (wording, actual way or work, etc.), the Shout99 site will give you some intial guidance at least.

The main way in which to make the company as tax efficient as possible is to ensure that the company buys *everything* that is an allowable expense. It's very easy to use your own (paid for after tax) paper, pens, telephone, computer, etc. rather than remembering to charge the company for them. However the amount of money the company can spend on this may be affected by IR35 and other rules if you are caught by these rules. It's a bit of a minefield at the moment, this is one of the major complaints from small companies about all this, it's not so much the tax that one may be liable to pay but the uncertainty due to the opacity of the legislation.

It seems to me (I haven't checked this) that the best avoidance of IR35 at the moment is for the working professional to have zero share ownership. S/he may still be a shadow director, though. The concept of the Inland Revenue being able to say that any person, even one with an adverse interest, is working to your command (and hence you are a shadow director) is scary.

Fortunately the Inland Revenue don't pay much attention to very small enterprises, so if you stay below the threshold, and if you pay very modest salaries (say £4,000-£5,000) to family members, etc. whom you want to establish cheap National Insurance credits for and who will be under, or just above, the tax threshold, it seems to work.

I had an exchange with the Inland Revenue on that twenty years ago, and they assented. There were some policy issues involved.