Payments for "consulting" and "software dev" -- suspicious for banks? How to mitigate it?

[AdvancedGene8320]

I'm from the field of software dev and consulting in this field, freelance.

When we make a deal with a customer, and I want to do it officially, though *my* UK/US (non resident) company,
what documents will I have to prepare, prior or afterwards, to make it all look and be officially proper?

A customer may or may not have his own company - doesn't matter.

A job may be small - for a week or so.
And note that "sofrware development" doesn't mean necessarily creating a website to which I might send a bank link to. But it may be fixing a bug in internal software. Or consulting.



1) Do I have to create a agreement for "custom software development" or "software dev consulting"? Simply an invoice won't do?


2) What will he specify as a note/description when sending a payment to me? Or what's I specify when sending that payment to my personal account?

Namely, "consulting" or "custom sofrware development" are too vague, especially the former. While I don't care, but the banks do and thefore a bank may freeze a payment. Therefore, how do I describe it? And how do I prove it, if a bank insists on it? How can an act of consulting be proven?

 

[John Spectre]

1) Do I have to create a agreement for "custom software development" or "software dev consulting"? Simply an invoice won't do?

Depend on your country residence, but in most cases invoice should be sufficient.
It should have data about your customer which could be validated by the bank.

2) What will he specify as a note/description when sending a payment to me? Or what's I specify when sending that payment to my personal account?

It should specify as much as possible what actual services you are provided (like a bugfixing for some X project in Y module for problem with stability - as an example).
In this case, if you will have agreement that describes your work it would be better for bank.
Because agreement will describe a lot about your work with details: terms, sums, what exact need to be done, information about client, etc.

Namely, "consulting" or "custom sofrware development" are too vague, especially the former. While I don't care, but the banks do and thefore a bank may freeze a payment. Therefore, how do I describe it? And how do I prove it, if a bank insists on it? How can an act of consulting be proven?

- you need provide information how client are found you (freelance site, your site, etc)
- you could provide email/chat transcription where you talks about work with client
- you could provide some non critical result of your work that can be disclosed for your bank. No matter what is this: website, screenshot of the desktop/mobile application, result of firmware work, etc.

Usually if bank goes deep about your work, they will not check your sources codes, they just need a basic prove that recognize your work. And this prove should be same what is provided in payment description/invoice/agreement.
Also depend on the bank, bank could verify your skills in matter to possibility to do such work, like a your CV, diploma, work experience, etc.

 

[AdvancedGene8320]

Depend on your country residence, but in most cases invoice should be sufficient.
It should have data about your customer which could be validated by the bank.

What does it have to do with my residence? My company may be registered in one country, I may reside in other, my personal bank account may be in yet 3rd country.

Or I may use EMI and a bank card that may come along with it, that is, bypassing the need to transfer money to a traditional bank, at least, partially. Huh? Hence, less scrutiny?

And how can a bank validate my customer? In what sense validate? The bank isn't Interpol. And a customer may be yet in 4th country.

 

[JustAnotherNomad]

Invoice, contracts, specifications, emails, ... all kind of supporting documentation.
EMI's typically also have a lot of scrutiny, but worse customer service than banks. The bank will not contact the customer, they will contact you.

 

[John Spectre]

What does it have to do with my residence? My company may be registered in one country, I may reside in other, my personal bank account may be in yet 3rd country.

Sorry, depend not your personal residence, but residence of the company which you are use.
Your company reside in some country and should follow it laws.
Simplest example is a countries with strict currency control and international business activity. For follow all rules contract is just necessary.
But as you mentioned US/UK it's a not a case and invoice should be ok mostly for all things.

And how can a bank validate my customer? In what sense validate? The bank isn't Interpol. And a customer may be yet in 4th country.

He will try to check information about your customer from public data and from data that you will provide for bank.
Bank must follow aml rules(depend on countries more or less strict).
So he need to prove that client pay for you for IT services, not a drugs or any other dirty things.
Actually he can ask any logical or irrational questions which he will think suitable to understand about your client.
As more complex your business (like a you reside in one country, company in second country, bank in third country and client in 4th country) as more complex and more closely bank will look at this.
If you, your company, your bank, your client reside in same country - usually compliance simplest.

 

[AdvancedGene8320]

Dude, correct your grammar mistakes - I don't understand a half of what you say.

"bank may ask questions" - I've always known this.

 

[cangarooo]

I'm from the field of software dev and consulting in this field, freelance.

When we make a deal with a customer, and I want to do it officially, though *my* UK/US (non resident) company,
what documents will I have to prepare, prior or afterwards, to make it all look and be officially proper?

A customer may or may not have his own company - doesn't matter.

A job may be small - for a week or so.
And note that "sofrware development" doesn't mean necessarily creating a website to which I might send a bank link to. But it may be fixing a bug in internal software. Or consulting.



1) Do I have to create a agreement for "custom software development" or "software dev consulting"? Simply an invoice won't do?


2) What will he specify as a note/description when sending a payment to me? Or what's I specify when sending that payment to my personal account?

Namely, "consulting" or "custom sofrware development" are too vague, especially the former. While I don't care, but the banks do and thefore a bank may freeze a payment. Therefore, how do I describe it? And how do I prove it, if a bank insists on it? How can an act of consulting be proven?

Hi there.
I've a UK Non Resident Ltd. and make theese type of transactions since more than 10 years.
Never had any problem with my bank.
Only the very first transaction they requested a copy of the invloice.
That's it.

Moreover, i help my customers to reduce their fiscal exposure by issuing "invoices" for services never delivered.
They pay the amount in full. I retain a % and they get the money bank (withdrawing money via Debit Card issued by me).

I would say that most of the possible problems may come from the bank you will be using.
Hope this helps

 

[Hyo]

Hi there.
I've a UK Non Resident Ltd. and make theese type of transactions since more than 10 years.
Never had any problem with my bank.
Only the very first transaction they requested a copy of the invloice.
That's it.

Moreover, i help my customers to reduce their fiscal exposure by issuing "invoices" for services never delivered.
They pay the amount in full. I retain a % and they get the money bank (withdrawing money via Debit Card issued by me).

I would say that most of the possible problems may come from the bank you will be using.
Hope this helps

Sounds interesting. However money laundering is too much to handle for my stomach. Is the UK ltd your only vehicle or is it part of a more complex setup? Thank you.

 

[cangarooo]

The UK Ltd. is my unique vehicle.
Nothing complex, only my activity ongoing.
I'm a EU citizen not resident in UK.
I'm running my business worldwide except UK. For my UK customers I'm using an Irish Ltd. not linked with the UK Ltd.

 

[Hyo]

Thanks. If I may, how do you pay taxes? Do you go all clean with your country of residence or do you use any”clever” ideas to soften the hit? This and/or keeping my anonymity is what is keeping me stuck. I am also a EU citizen doing consulting and trying to stay under the radar. Thanks for your time

The UK Ltd. is my unique vehicle.
Nothing complex, only my activity ongoing.
I'm a EU citizen not resident in UK.
I'm running my business worldwide except UK. For my UK customers I'm using an Irish Ltd. not linked with the UK Ltd.

 

[cangarooo]

Taxes? What's this?
The UK Ltd. is not officially registered in my name and I'm the hidden owner.
This extra service allows me to not be visible and paying zero taxes.

 

[Hyo]

Hey! now you are talking sir, well done. That, of course is the natural procedure.
I have to ask, are you willing to share this knowledge? Intrigued, to say the least. Thank you again.

 

[cangarooo]

As every good consultants says "it depends" ;-)

Feel free to get in touch via PM

 

[Hyo]

Good enough. Will do.
Many thanks for your time.

 

[JustAnotherNomad]

@cangarooo For the UK Ltd. to be non-resident in the UK, it must be resident somewhere else, right? Which country would that be in that case?

 

[cangarooo]

@cangarooo For the UK Ltd. to be non-resident in the UK, it must be resident somewhere else, right? Which country would that be in that case?

I'm EU Citizen not resident in EU.
Anyway, residency has no impact on the type of setup I've in place.

 

[Jerry1911]

There is no such thing as a "non-resident UK Ltd". The UK LTD is tax resident in the United Kingdom and must pay corporation tax on its profits.

 

[cangarooo]

There is no such thing as a "non-resident UK Ltd". The UK LTD is tax resident in the United Kingdom and must pay corporation tax on its profits.

Uhm!!! If you say so.
Since 10 years my setup is in place and ZERO taxes have been paid.
I cannot deduct any cost or expense incurred bu the company but as my business is purely consulting, my company costs are zero.
I pay the yearly registration fee at Company House ((275 GBP).
That's all.
Everything is managed by a CPA and my company status is active and ok under the Company House search form.
Feel free to not believe me but that's it

Edit: forgot to mention that I also pay the "business address" and the "director".
These are fix fees (circa 1.000 GBP/Year) but have nothing to do with the UK Taxes

 

[Hyo]

my friend you’re giving too much information. It works

 

[JustAnotherNomad]

I'm EU Citizen not resident in EU.
Anyway, residency has no impact on the type of setup I've in place.

I'm not talking about your own residency, I'm talking about the corporate tax residency, i.e. where the company pays its taxes.

To the best of my knowledge, it works like this:
A UK Ltd. is always tax resident in the UK, unless it is effectively managed from a country the UK has signed a tax treaty with.
In such a case, it is possible to apply to HMRC and explain that the company should pay tax in that other country instead.
This used to be very popular a couple years ago when many countries required higher capital to incorporate a local Ltd. company. By registering a UK company, you could circumvent that capital requirement (UK companies require only 1 GBP in capital), but it didn't make any difference for the taxes the company had to pay.
However, in the absence of a tax treaty, a UK Ltd. company is always tax resident in the UK and has to pay UK corporate income tax.
So the question remains: What did you tell HMRC where your company is managed from?

You can find this explained here for example:

Companies incorporated in the UK (...) are only treated as non-resident for tax purposes if they are treated as non-resident by a double taxation treaty.
This generally means that they must be resident in a territory party to such a double taxation treaty and their place of effective management for the purposes of the treaty is the other treaty state.

Why a company may not be tax resident where you think

Questions frequently arise as to what steps must be taken to ensure a company is tax resident in a particular jurisdiction. This is important as tax residence determines the tax regime principally applicable to the company and whether it is entitled to claim the benefit of double tax treaty...

www.ashurst.com