I often hear it suggested that 'you can set up your own overseas company and avoid UK tax'. I suspect that many people may well be either mislead or disappointed when they learn the truth.
Let me try to clarify the position:
If you are UK resident then, in almost every case, any company that you own and control is DEEMED to also be UK resident - wherever it may be based. This means that your 'offshore' company will have to report its worldwide profits and losses to the UK Revenue (HMRC) each year. UK Corporation tax will be payable on any profits - although there will normally be some offset for any corporation taxes paid in the country where the company is based.
Of course there may be all sorts of fancy things you can do to avoid your company being taxed in the UK. The most common way that you might be advised to do this is to allow someone who is not UK resident to own the shares in YOUR company, and for you to avoid managing and controlling the company. This idea is less appealing than OWNING your own company as it means that someone else owns the company for you. It would need to be someone you can trust implicitly.
If in practice you do consider that you still own the company and are MANAGING and CONTROLLING the company then, whatever the paperwork might say, it's YOUR company and you would be EVADING tax if you told the taxman anything else.
So do watch out for supposedly legitimate and apparently knowledgeable property and 'tax' people, who tell you that you can legally AVOID being liable to UK tax on any profits that YOUR company makes offshore. It just ain't that easy.
Although I have a broad knowledge of the UK tax system and despite reaching, arguably, the top of my profession, I decided last year that I no longer wanted to give tax advice. I revealed the reasons for this apparently strange decision in a leading Comment article in Taxation magazine in July 2008. Instead of giving tax advice I now run the UK's largest network of independent specialist tax advisers. If you want reliable expert tax advice on offshore tax planning - or indeed on any other tax matter, please don't ask me for tax advice. However I'm very happy to recommend members of the Network who, between them, cover the full range of tax issues and problems you may have encountered. You can view their profiles, ratings and testimonials on our website.
Let me try to clarify the position:
If you are UK resident then, in almost every case, any company that you own and control is DEEMED to also be UK resident - wherever it may be based. This means that your 'offshore' company will have to report its worldwide profits and losses to the UK Revenue (HMRC) each year. UK Corporation tax will be payable on any profits - although there will normally be some offset for any corporation taxes paid in the country where the company is based.
Of course there may be all sorts of fancy things you can do to avoid your company being taxed in the UK. The most common way that you might be advised to do this is to allow someone who is not UK resident to own the shares in YOUR company, and for you to avoid managing and controlling the company. This idea is less appealing than OWNING your own company as it means that someone else owns the company for you. It would need to be someone you can trust implicitly.
If in practice you do consider that you still own the company and are MANAGING and CONTROLLING the company then, whatever the paperwork might say, it's YOUR company and you would be EVADING tax if you told the taxman anything else.
So do watch out for supposedly legitimate and apparently knowledgeable property and 'tax' people, who tell you that you can legally AVOID being liable to UK tax on any profits that YOUR company makes offshore. It just ain't that easy.
Although I have a broad knowledge of the UK tax system and despite reaching, arguably, the top of my profession, I decided last year that I no longer wanted to give tax advice. I revealed the reasons for this apparently strange decision in a leading Comment article in Taxation magazine in July 2008. Instead of giving tax advice I now run the UK's largest network of independent specialist tax advisers. If you want reliable expert tax advice on offshore tax planning - or indeed on any other tax matter, please don't ask me for tax advice. However I'm very happy to recommend members of the Network who, between them, cover the full range of tax issues and problems you may have encountered. You can view their profiles, ratings and testimonials on our website.
There is a very thin line between avoidance and evasion and often the only difference is in the Code of Practice that HMRC issue when you get tumbled or your "offshore planning expert" departs offshore after taking the pieces of silver (or gold). You will get COP8 if HMRC do not suspect fraud and alternatively (if you are very lucky) you might get COP9 with its advantages (meaning that they wont be targetting you or your client for prosecution)
ReplyDeleteBill Setevenson