Off-shore or not?

[MyNameIsMud]

Hi everyone,

I've been lurking for months and love this forum so thought i'd finally sign-up! Sorry that my first post is one asking for advice, i'll try to give back to the forum somehow in the future.

I run internet companies, which attract enormous international traffic. I'm set to make a great deal of money this year through advertising and need to start a company/bank account etc to collect this. Can anyone advise me as to whether I should run this out of the UK (im a UK citizen) or from abroad, thereby taking advantage of tax advantages? I'm completely stuck at present to the pros and cons of doing this.

Mud.

[PetrolTed]

I'm sure Eric will tell us the facts, but my understanding is that if you're resident in the UK then the decision is made for you - you are a UK resident and therefore subject to a UK tax regime.

Unless you're B2C then you should be able to claim VAT back and so should your clients so it won't concern them.

What tax are you trying to avoid?

[MyNameIsMud]

Thanks Ted, just really wanted to explore this before setting up a Ltd company in the UK. My trouble is I could potentially exceed £100k a year, and obviously I want to keep as much of that as possible!

[Eric Mc]

Having the company REGISTERED offshore offers no tax advantage at all if the company is CONTROLLED and operated mainly within the UK.

[MyNameIsMud]

Thanks Eric, well I would intend to remain in the UK. Although, the company itself being internet based doesn't really sit in any particular region of our fair globe.

Cheers again guys, nice to put my worries to rest. Best to explore all options I suppose.

[tinman0]

As a guess you could run it from the UK as a registered UK business, and have an offshore company that you pay the profits to. Essentially, set up a paper trial eg the IP is owned by the offshore company and the UK company merely licences the IP on a yearly basis.

For it to work, you still need to be paying yourself something through the UK company as the tax authorities will see through you, however the excess can be paid to the offshore company by way of the licence fee.

You then accrue the excess over a period of time in the offshore company.

BUT.

This is only the start of your problems. The money is the property of the offshore company, and therefore its not in your name. The only way to transfer it to your name is to pay UK tax on it. The same goes for control of the money - so if your offshore company bought a new company Porsche - if you get found out by IR then you will be paying tax on that purchase whether you like it or not.

In the past, I believe people had debit/credit cards linked to their offshore company accounts, and used that in the UK, but IR have wised up to that one, so that option is effectively ruled out.

In the end - if you want the money to be yours to do with as you please then you pay the UK taxman whether you like it or not.

However, if you have no ties to this country then simply move somewhere where there is a low taxation policy for a couple of your good years, pay that country's tax and then return to the UK.


Eric will probably tell my that I'm totally wrong.

[Eric Mc]

I would say that a scheme like that borders on Tax EVASION - i.e. a criminal offence.

Once you, as an indivbidual, are resident in the UK, you are liable to Income Tax on your worldwide income. It doesn't matter whether the income is "remitted" into the UK or not.

[fid]

http://news.bbc.co.uk/1/hi/business/4 The weather can't be that bad...?

[tinman0]

Eric Mc said:

I would say that a scheme like that borders on Tax EVASION - i.e. a criminal offence. Once you, as an indivbidual, are resident in the UK, you are liable to Income Tax on your worldwide income. It doesn't matter whether the income is "remitted" into the UK or not.

All hypothetical but my point is that the money remains the property of the company and isn't paid to you personally and nor do you benefit from the money personally either.

Once the money has been paid to you - then you pay tax on it.

Otherwise, if you left money within a company as retained profits (paid corporation tax on it) and then paid it to yourself the following year - by your definition you are tax evading, especially if in the first year you were just under the 40% income tax threshold, kept the excess in the company as retained, and then the following year paid it yourself and again coming just under the 40% income tax threshold. By your definition you just evaded paying tax?

[Eric Mc]

If the money remained within the company and you as an individual never had any access to it - either directly or in the form of company derived benefits, then you would probably not be liable to UK Income Tax. However, what would be the point in having your income sitting untouched in a location where you couldn't access it?

As soon as you pull the income (or benefits) out of the company, Gordon steps in and takes his slice.

[tinman0]

Eric Mc said:

If the money remained within the company and you as an individual never had any access to it - either directly or in the form of company derived benefits, then you would probably not be liable to UK Income Tax. However, what would be the point in having your income sitting untouched in a location where you couldn't access it?

Thats exactly my point (although badly made). As you don't have access to the money you don't pay tax, but then its not benefitting you either. The idea that you had an offshore account and your bought a Porsche or whatever does not let you off the tax - by driving the Porsche you are still liable for tax (although i'm not sure what proportion) as you are receiving a benefit in kind from the company and are therefore liable to tax.

What I was trying to get to was that you can have a whole scheme of not paying tax by using a string of companies - but you are still liable regardlss of where it is once you pay that money to yourself.

Apologies for not making my original post clearer.