I'm self-employed in the UK currently in the 40% income tax bracket. What would you do?

[blackeyes]

Hi there, this is my first post after several days learning from this forum.

Taxes are killing me and I'm wondering, among the vast options that I have considered while reading this forum, what would be the best one considering my situation:

- I have Spanish citizenship, but moved to the UK a year ago.
- I'm currently living in the UK, tax resident here, registered as self employed and paying the 40% income tax bracket + required national insurance contributions.
- I would like to keep living here in the UK but I'm planning to move to Spain again during 2019.
- My income comes from my freelance job as a software developer. My clients are in countries such as Ireland and United States.
- My clients are "reputable" so I don't want to send them invoices from "dubious" addresses such as Seychelles, so incorporating in an EU country which uses the Euro would be ideal.
- For the same reason I need a "reputable" bank account for my company where to receive the payments from my clients. An EU IBAN ideally.
- My income can vary a lot, meaning some years I may make 200,000 euros while other years I may make 20,000 euros.

So, if you were in my situation, what would you do to lower the tax bill of my income, legally?

 

[Nanoo]

What i'm wondering right now is why you did not start your LLC ?
I mean, 19% corporate tax therefore 50% less than sole trader and 17% in 2020 which is for me very fair comparing to the other countries in EU.
It will be only 4.5% more than cyprus.

 

[blackeyes]

What i'm wondering right now is why you did not start your LLC ?
I mean, 19% corporate tax therefore 50% less than sole trader and 17% in 2020 which is for me very fair comparing to the other countries in EU.
It will be only 4.5% more than cyprus.

Well I'm trying to improve my situation now that I'm the 40% bracket, and incorporating in the UK is one of the options of course. However when I take profits out of the company, I'll have to be taxed by personal income tax, so 19% corporate tax + 20-40% income tax is still not very appealing. A mixture of low salary + dividends will probably reduce the tax bill, but just a little bit, so I'll like to consider better options.

 

[Nanoo]

Well I'm trying to improve my situation now that I'm the 40% bracket, and incorporating in the UK is one of the options of course. However when I take profits out of the company, I'll have to be taxed by personal income tax, so 19% corporate tax + 20-40% income tax is still not very appealing. A mixture of low salary + dividends will probably reduce the tax bill, but just a little bit, so I'll like to consider better options.

If you own your company at 100%, it's useless to empty the corporate account to your personnal account, it result to pay more taxes, you can keep the money in your corp account, use it to buy meals daily, a car and pay your rent even. You can deduct on tax in certain cases.

 

[blackeyes]

If you own your company at 100%, it's useless to empty the corporate account to your personnal account, it result to pay more taxes, you can keep the money in your corp account, use it to buy meals daily, a car and pay your rent even. You can deduct on tax in certain cases.

I think I'll have to explain those expenses to UK HMRC and as they are not actually business-related it could cause issues.

 

[sialala]

Hi there, this is my first post after several days learning from this forum.

Taxes are killing me and I'm wondering, among the vast options that I have considered while reading this forum, what would be the best one considering my situation:

- I have Spanish citizenship, but moved to the UK a year ago.
- I'm currently living in the UK, tax resident here, registered as self employed and paying the 40% income tax bracket + required national insurance contributions.
- I would like to keep living here in the UK but I'm planning to move to Spain again during 2019.
- My income comes from my freelance job as a software developer. My clients are in countries such as Ireland and United States.
- My clients are "reputable" so I don't want to send them invoices from "dubious" addresses such as Seychelles, so incorporating in an EU country which uses the Euro would be ideal.
- For the same reason I need a "reputable" bank account for my company where to receive the payments from my clients. An EU IBAN ideally.
- My income can vary a lot, meaning some years I may make 200,000 euros while other years I may make 20,000 euros.

So, if you were in my situation, what would you do to lower the tax bill of my income, legally?

1. Open LTD company
2. incorporate company LTD with tax heaven company than You can safe 95% of incomes.
3. You will make Your services for Your customers as LTD without any doubts.
4. LTD makes invoices for tax heaven company - 95% stay in Seychelles or other country.
5. Dividend for You as a director 11,5 pounds without taxation. You will pay just few % of tax.

ENJOY!

P.S. sorry for my english

 

[jackfrost]

1. Open LTD company
2. incorporate company LTD with tax heaven company than You can safe 95% of incomes.
3. You will make Your services for Your customers as LTD without any doubts.
4. LTD makes invoices for tax heaven company - 95% stay in Seychelles or other country.
5. Dividend for You as a director 11,5 pounds without taxation. You will pay just few % of tax.

ENJOY!

P.S. sorry for my english

Have fun with the audit. UK is not a third world country. Just like all other western EU countries will laugh you out of the door.

 

[Nanoo]

I think I'll have to explain those expenses to UK HMRC and as they are not actually business-related it could cause issues.

Sure thats why you can get a mix of dividends + low salary for that.
wealthy people do that, they own boats, cars and flats through their holdings companies

1. Open LTD company
2. incorporate company LTD with tax heaven company than You can safe 95% of incomes.
3. You will make Your services for Your customers as LTD without any doubts.
4. LTD makes invoices for tax heaven company - 95% stay in Seychelles or other country.
5. Dividend for You as a director 11,5 pounds without taxation. You will pay just few % of tax.

ENJOY!

P.S. sorry for my english

this is perfect to get troubles tbh

 

[blackeyes]

1. Open LTD company
2. incorporate company LTD with tax heaven company than You can safe 95% of incomes.
3. You will make Your services for Your customers as LTD without any doubts.
4. LTD makes invoices for tax heaven company - 95% stay in Seychelles or other country.
5. Dividend for You as a director 11,5 pounds without taxation. You will pay just few % of tax.

ENJOY!

P.S. sorry for my english

Not sure if I understood correctly, you say that my Seychelles company owns my UK company, then my clients pay my UK company, then Seychelles company invoices UK company so UK company pays Seychelles company, so most of the money is now in Seychelles company and I can take it out from whenever I live just paying dividend tax y my residence country?

Have fun with the audit. UK is not a third world country. Just like all other western EU countries will laugh you out of the door.

this is perfect to get troubles tbh

Where in the chain is the problem exactly? Any other alternative you can think about?

 

[jackfrost]

Where in the chain is the problem exactly? Any other alternative you can think about?

That fake invoices are the oldest and dumbest tax evasion scheme known and do not fly in the EU especially not with avoidance legislation.

Also developed countries in the EU tend to reverse "innocent until proven guilty" in tax law. You are the one that has to proof your innocence when they dispute those fake invoices and they will.

Also CFC rules will make that offshore company a CFC and make you liable for its income. You dont declare it -> tax evasion again.

The list goes on.

 

[Martin Everson]

Not sure if I understood correctly, you say that my Seychelles company owns my UK company, then my clients pay my UK company, then Seychelles company invoices UK company so UK company pays Seychelles company, so most of the money is now in Seychelles company and I can take it out from whenever I live just paying dividend tax y my residence country?

This is text book Transfer Pricing you are describing which goes against UK tax legislation. This is not being done at arms length and you are generating a tax advantage for your UK company. Please read HMRC's Internal Manuals on transfer pricing (i.e INTM412000) as this profit shifting is a bad idea. Even the transfer pricing exception given in INTM412070 which covers SME's wont work unless the low tax country has a DTA with an appropriate non-discrimination article .

Basically don't waste your time....lol. The profits you shift from UK to Seychelles will be taxed in UK where the sale was done.

 

[blackeyes]

Makes sense. Thanks a lot for all the feedback to all of you.

So, can you think of any legal alternative? What would you do in my case? Would you simply pay your taxes at 40% like I'm doing now, create a UK LTD, or something else?

 

[Martin Everson]

Makes sense. Thanks a lot for all the feedback to all of you.

So, can you think of any legal alternative? What would you do in my case? Would you simply pay your taxes at 40% like I'm doing now, create a UK LTD, or something else?

Relocate

 

[Martin Everson]

He could relocate to Ireland or Malta and living as a non dom right?

Correct

You can include Portugal and Netherlands where he can also live as a non-dom.

 

[totlori9]

Possible solutions change depending on if you want to receive the income in your name in the end or not. Can you tell us?

Relocation to Malta for example won't help in the case of a self-employed person, because the economic activity will be deemed to be arising in Malta, so in spite of popular misbilief it won't matter if he receives the income to a non-maltese bankaccount, it will be subject to maltese income tax.

 

[blackeyes]

He could relocate to Ireland or Malta and living as a non dom right?

Correct You can include Portugal and Netherlands where he can also live as a non-dom.

Ok I've been learning about non domiciled status and the remittance basis, please correct me if I'm wrong: you are suggesting relocating to one of those countries while having a UK company, and that way I'll only pay 19% corporate tax on the UK company, while not paying income tax as a non-dom in another country (let's say Ireland)? Can I still use my savings and move them to Ireland without paying income tax there?

Possible solutions change depending on if you want to receive the income in your name in the end or not. Can you tell us?

Relocation to Malta for example won't help in the case of a self-employed person, because the economic activity will be deemed to be arising in Malta, so in spite of popular misbilief it won't matter if he receives the income to a non-maltese bankaccount, it will be subject to maltese income tax.

Receiving it in my name is preferable yes, but I'm open to other alternatives. However I can't see how having all the money under my company's name will serve me when I need to use that money for personal matters.

 

[totlori9]

Ok I've been learning about non domiciled status and the remittance basis, please correct me if I'm wrong: you are suggesting relocating to one of those countries while having a UK company, and that way I'll only pay 19% corporate tax on the UK company, while not paying income tax as a non-dom in another country (let's say Ireland)? Can I still use my savings and move them to Ireland without paying income tax there?

Non-dom schemes typically tax on a territorial basis. So any income that arises outside of the country will not be taxed.

Savings are income from a previous year. They have been taxed already and are not subject to income tax. Or did you mean interest on savings?

The problem with the setup you describe where you use an UK LTD, is you have to make sure that by relocating you don't relocate the tax residence of the UK company with you by management and control so you will need a UK resident nominee director at the least. By the way if you plan to relocate it is a lot better if you use a UK LLP (with a UK resident nominee managing member). LLP is not subject to 19% company tax, it's members are taxed instead (which is 0% for you on a non-dom case).

 

[blackeyes]

Another spaniard here....
what about an LLC in Wyoming? 0 % taxes for your sales outside USA and you can live as a not dom in UK !! The only problems are with getting a bank account but you can use an Emi,Paxum bank or Caye bank!!

Getting a reputable bank account is a must, and I also have clients in the USA so in that case it seems that this solution won't be a good fit.

Non-dom schemes typically tax on a territorial basis. So any income that arises outside of the country will not be taxed.

Savings are income from a previous year. They have been taxed already and are not subject to income tax. Or did you mean interest on savings?

The problem with the setup you describe where you use an UK LTD, is you have to make sure that by relocating you don't relocate the tax residence of the UK company with you by management and control so you will need a UK resident nominee director at the least. By the way if you plan to relocate it is a lot better if you use a UK LLP (with a UK resident nominee managing member). LLP is not subject to 19% company tax, it's members are taxed instead (which is 0% for you on a non-dom case).

Ok I think we are leading into something interesting. So the plan could be:

- Form a UK LLP with two members: a UK resident nominee director, and myself.
- Relocate myself to Ireland/Portugal and request non-dom status there.
- The UK LLP will not pay corporate tax, instead both members will be subject to UK income tax, which means:
· The UK resident nominee director will have to pay a small amount of income tax for its small salary.
· I will not have to pay any income tax in neither the UK (because I'm not resident there) nor Ireland/Portugal (because of my non-dom status).
- Tax bill reduced from about 40% to about 0%!

Does this plan sound legal?

 

[totlori9]

Ok I think we are leading into something interesting. So the plan could be:

- Form a UK LLP with two members: a UK resident nominee director, and myself.
- Relocate myself to Ireland/Portugal and request non-dom status there.
- The UK LLP will not pay corporate tax, instead both members will be subject to UK income tax, which means:
· The UK resident nominee director will have to pay a small amount of income tax for its small salary.
· I will not have to pay any income tax in neither the UK (because I'm not resident there) nor Ireland/Portugal (because of my non-dom status).
- Tax bill reduced from about 40% to about 0%!

Does this plan sound legal?

It sounds legal.

I would also recommend a UK bank account, and proper documentation ('minutes') of major managing member (who you called director) deceisons in order to be able to prove UK management and control if challanged by the country you relocate to as a non-dom. You also need to check CFC rules of the country you are planing to relocate to as some countries may treat any foreign entity (your UK LLP) as a CFC and tax you on the income of the company with a tax that is not considered income tax (which you would be free of since non-dom status).

 

[blackeyes]

To anyone interested in this matter, I found this great article about Portugal's Non Habitual Residents (NHR), which I believe is the non-dom status we were talking about:
NHR: residency in Portugal for foreign nationals - live tax-free in Portugal