Question One man consultancy that doubles up as a holding Co (uk resident)

[ajmining]

Hello

I am a UK tax resident however I freelance consult, spending most of my time outside the UK. Currently I charge all of my consultancy through a UK LTD where I am the sole shareholder and sole director. As it stands, this is not tax efficient. So I am looking at a way to become more tax efficient. In addition, for some of my work I receive share-based renumeration as sweat equity so I am also thinking ahead to how to minimise capital gains in the future.

I am considering setting up an offshore company that I can charge the majority of my consulting work through and hold my sweat equity holding in. I would maintain the UK LTD and charge 1 or 2 of my contracts though that (making use of my tax free allowance in the UK) but the rest of my work would go through my offshore account, and I would distribute the offshore funds to me via dividends (taxed in the UK) or if the offshore Co doesn't have any filing requirements, then use the offshore companies accumulated profits for personal expenses too.

Alternatively, keep billing everything through my UK LTD but, then have the offshore company bill management fees to the UK Co thus minimising the taxable income the UK LTD realises (This might be too obvious and raise eyebrows?)

Seychelles, BVI and UAE are the 3 ones I am aware of currently that would work but I would be interested to know of any alternatives or positive/negative experiences.

Extra info: consulting fees will be around 60-100k GBP per year, sweat equity has a market value of £60k (issued to me at around £5k so if I were to liquidate it, capital gains would be quite large).

For clarity, I am not looking to outright evade tax, but rather minimise my UK Tax liability especially as I do not live in the UK for the majority of the time. Also, privacy doesn't faze me.

Happy to elaborate, thank you in advance.

J.

 

[Sols]

If you are UK tax resident, any company that you form will likely end up UK tax resident unless it is tax resident in another jurisdiction and there is a tax treaty you can use. This would typically not include the likes of Seychelles, BVI, UAE, and other tax havens.

Break ties with UK fully and move to a lower-tax jurisdiction if you want to save on taxes legally.

 

[burden]

Break ties with UK fully and move to a lower-tax jurisdiction if you want to save on taxes legally.

that is what most people get suggested lately, don't we have alternatives at all?

 

[ajmining]

If you are UK tax resident, any company that you form will likely end up UK tax resident unless it is tax resident in another jurisdiction and there is a tax treaty you can use. This would typically not include the likes of Seychelles, BVI, UAE, and other tax havens.

Break ties with UK fully and move to a lower-tax jurisdiction if you want to save on taxes legally.

Thanks, although if the offshore company only distributes its retained earnings to me via dividends and there are no dividend withholding taxes, and I pay uk taxes on these foreign dividends, then tax treaty or not, it wouldn't affect me?

I have no issues breaking ties fully with the UK, since I don't intend to be back in the UK for any longer than a few weeks per year, but at the same time, I also would like to avoid having to spending at least a 90/180 etc days per year in the lower tax jurisdiction.

Thanks again

 

[Sols]

that is what most people get suggested lately, don't we have alternatives at all?

None. Not for most people.

If you live in a high-tax jurisdiction that taxes worldwide income then your only options are to relocate or, if you have deep enough pockets and the costs are less than the taxes otherwise would be, set up a full and proper tax residence and permanent establishment elsewhere for the company. But if you are anything more than a passive shareholder in a foreign company — i.e. if you start acting like a director or doing day to day work for the business — most modern tax laws would make the company tax resident where you are.

Thanks, although if the offshore company only distributes its retained earnings to me via dividends and there are no dividend withholding taxes, and I pay uk taxes on these foreign dividends, then tax treaty or not, it wouldn't affect me?

Make sure you run that by a lawyer specialised in tax. Typically, the company becomes tax resident in UK by you managing and/or controlling it from UK and is taxed the same as a UK company.