UK tax minimising

[scrapple]

Hey,

I currently run a relatively successful cosmetic business in the UK. We import packaging from China and manufacture and package our products in the UK. This is then primarily sold on to UK and EU residents through our marketing. We are currently formed as an LLC which I am the sole director of.

I was wondering if there would be any potential ways to minimise the 20% corporation tax I'm currently dealing with. I am aware of the CFC regulations that somewhat through a spanner in the works of any structures I can personally think of with my very very very limited tax knowledge.

I'm aware it's also a potential issue that we sell to UK and operate from the UK but there must be something we can do to minimise our corporation tax if other large UK retailers can do so?

Of course, this matter is something I should talk to an international tax professional about - but I was curious as to if I would be able to get any pointers or even confirmation that what I want to achieve is possible.

Even a few % drop in corporate tax would be great, but obviously as low as possible is desired.

Thanks in advance for any advice.

 

[Martin Everson]

I was wondering if there would be any potential ways to minimise the 20% corporation tax I'm currently dealing with. I am aware of the CFC regulations that somewhat through a spanner in the works of any structures I can personally think of with my very very very limited tax knowledge.

CFC is only a small part of EU ATAD (Anti Tax Avoidance Directive) that is comprehensive and has ended most loopholes. It comes into effect in the UK from 1st Jan 2019 and latest Jan 2020 even with the UK leaving the EU. Just so you understand how extensive ATAD rules are. Article 7(2) allows member states the freedom to impose a CFC charge on undistributed income of a CFC arising from non-genuine arrangements. The UK taxman has the freedom to then decide what is a non-genuine arrangement . In plain English the directive gives the the UK taxman the right to tax as it wishes any undistributed income of a foreign CFC i.e a Seychelles CFC vehicle it deems to be in an non-genuine arrangement. It will tax it even if the controlling person receives no taxable distribution from it . This means you cannot shelter UK earnings offshore and avoid tax by not distributing those earnings. This is the same for every EU country. If you even try to move your business from 1 Jan 2019 you will also have to now pay an exit tax for relocating your business .

Even a few % drop in corporate tax would be great, but obviously as low as possible is desired.

If you wish for your business to remain in the UK then best thing to do it to wait. From 1st April 2020 the UK government should be setting corporate income tax to 17%. So there you go you can save a few percent on tax.

 

[scrapple]

CFC is only a small part of EU ATAD (Anti Tax Avoidance Directive) that is comprehensive and has ended most loopholes. It comes into effect in the UK from 1st Jan 2019 and latest Jan 2020 even with the UK leaving the EU. Just so you understand how extensive ATAD rules are. Article 7(2) allows member states the freedom to impose a CFC charge on undistributed income of a CFC arising from non-genuine arrangements. The UK taxman has the freedom to then decide what is a non-genuine arrangement . In plain English the directive gives the the UK taxman the right to tax as it wishes any undistributed income of a foreign CFC i.e a Seychelles CFC vehicle it deems to be in an non-genuine arrangement. It will tax it even if the controlling person receives no taxable distribution from it . This means you cannot shelter UK earnings offshore and avoid tax by not distributing those earnings.



If you wish for your business to remain in the UK then best thing to do it to wait. From 1st April 2020 the UK government should be setting corporate income tax to 17%. So there you go you can save a few percent on tax.

Just checked back on this and you replied 1 minute ago! That's what I call great timing! That does sound rather rough honestly though 17% would of course be better for sure but waiting until 2020 is still a significant amount of time considering we plan on heavily ramping up our marketing campaigns and revenue in the coming year.

I see you mentioned about remaining in the UK. Is there any way we could restructure our business as to minimise tax? I have the funds and am happy to setup an office in another country and "run" the operations from there. Although I'd still like to continue running our UK campaigns for advertising and distributing to UK customers.

I also don't particularly want to move too far out of the UK personally - the physical location of the business is fine but my residential status is a bit more important to me.

Assume I'm sort of, shall we say, buggered in that case? Especially under the new ruling UK is adopting

 

[Martin Everson]

Is there any way we could restructure our business as to minimise tax? I have the funds and am happy to setup an office in another country and "run" the operations from there. Although I'd still like to continue running our UK campaigns for advertising and distributing to UK customers.

Your business is in the UK and creating any artificial construct goes against Article 7(2). HMRC can claim at their sole discretion that you are choosing to give yourself a tax advantage with an artificial arrangement if they wanted too . If your not Amazon of Google with a good legal team then good luck. Anyway a small business (I assume) like yours will not likely be affected the focus is on multi nationals that are gaming the system with double irish with a dutch sandwich operations.

Assume I'm sort of, shall we say, buggered in that case? Especially under the new ruling UK is adopting

ATAD introduces a core principle of exit taxation. Hence if you move your business to another country you will be expected to pay an exit tax . i.e before your business exits it is valued and treated as if it was sold and tax on the sale is then due in worst case.

The Anti Tax Avoidance Directive - Taxation and Customs Union - European Commission

Worse is to come. I am sure down the line the EU will introduce this for natural persons i.e you will personally be taxed on your assets if you try to move permanently to a new EU country with a lower tax rate then your current one. This will be the first step in EU tax harmonization.

Just pay the taxes or totally exit UK.

 

[gonharpia22]

You could open up shop in Ireland with a 12.5% corporate tax rate if that difference makes it worth it for you. You do need to have local management and control though.