Paying a contractor to an overseas company, ok?

[GuildfordPaul]

Hi,

I own and run a recruitment company which specialises in providing engineers on a contract basis to the oil and gas industry.

We have been approached today by a contractor who has found their own job with one of our clients, and the client has passed them to us as they need an agent.

The individual actually lives in a place called the Norfolk Islands (off the coast of Australia), and has a ltd company which is registered to these islands, where incidentley there is no income tax, company tax etc.

We have always stipulated that contractors operate through a UK registered limited company, however my accountant can't see a problem with paying this individual, as long as they invoice us in GBP through the Norfol Islands company.

I'm just not 100% comfortable with this, and have a niggling that there is something wrong with paying someone in this manor, but can't come up with a reason why, apart from the fact that we are sending money out of the UK where we know it will not be subject to tax etc....

Is there anything wrong with this?

Does anyone know if this is legitimate?

I'm thinking about ringing the inland revenue, but they are usualy hopeless, any comments would be much appreciated.

Thanks,
Paul.

[flyingjase]

Hi Paul

I too run a recruitment company, and the bottom line is if someone lives and works in the UK then they must pay UK tax. That said there are non-domiciled tax rules which have tax advantages for a person as you describe as long as the money is not repatriated to this country.

My personal view is that the low risk strategy is to insist on a UK Ltd company and what he/she does beyond that is their business. However I have made exceptions for non-UK nationals for the first 6 months of their contract, paying an offshore company. Beyond that 6 months I think they’ll find it difficult to argue that they are not living and working in the UK.

There are aggressive accountants that will quote the 183 day rule assuming they fly out of the country each week, but ultimately it is a commercial decision for you. Based on the margin I make, I certainly don't want the chance of a lawsuit further downstream claiming 40% tax on a not unsubstantial day rate, especially in light of the new MSC transfer of third party debt legislation.

Hope this helps

Jason

[Olf]

Surely if it's a limited company and the contract allows for substitution then it's nothing to do with the individual and where he lives all to do with the company? The contractors company and he are responsible for paying his NI/tax not you.

[GuildfordPaul]

flyingjase said:

Hi Paul

I too run a recruitment company, and the bottom line is if someone lives and works in the UK then they must pay UK tax. That said there are non-domiciled tax rules which have tax advantages for a person as you describe as long as the money is not repatriated to this country.

My personal view is that the low risk strategy is to insist on a UK Ltd company and what he/she does beyond that is their business. However I have made exceptions for non-UK nationals for the first 6 months of their contract, paying an offshore company. Beyond that 6 months I think they’ll find it difficult to argue that they are not living and working in the UK.

There are aggressive accountants that will quote the 183 day rule assuming they fly out of the country each week, but ultimately it is a commercial decision for you. Based on the margin I make, I certainly don't want the chance of a lawsuit further downstream claiming 40% tax on a not unsubstantial day rate, especially in light of the new MSC transfer of third party debt legislation.

Hope this helps

Jason

Thanks Jason, that's great.

That is exactly along the lines that I'm thinking, is it really worth the risk of future come back, and the not un substational costs that third party debt transfer could bring.

I think I will stick to my general rule that we only deal with UK registered companies, not worth the worries, especially in the current climate that Gordon has kindly put us in with ltd companies.

Cheers Paul.

[GuildfordPaul]

Olf said:

Surely if it's a limited company and the contract allows for substitution then it's nothing to do with the individual and where he lives all to do with the company? The contractors company and he are responsible for paying his NI/tax not you.

Thanks Olf,

We have to be careful as to where we send the money, and although it doesn't come into play until the start of next year, there is a new ligislation called debt transfer provision, where we can be liable for tax/NI debts created by a contractor if we knowingly pay into a non complient company structure.

[Olf]

GuildfordPaul said:

Olf said:

Surely if it's a limited company and the contract allows for substitution then it's nothing to do with the individual and where he lives all to do with the company? The contractors company and he are responsible for paying his NI/tax not you.

Thanks Olf,

We have to be careful as to where we send the money, and although it doesn't come into play until the start of next year, there is a new ligislation called debt transfer provision, where we can be liable for tax/NI debts created by a contractor if we knowingly pay into a non complient company structure.

Good old gordon - kipper, stiching etc.