UK Taxes + VAT for Ecommerce Business

[Beyondthet]

First of all, you guys are awesome! Thank you for the invaluable gems scattered around here.

I am conducting ecommerce in the UK and I am concerned with taxes and VAT. The tax rates are so high I am considering other options (I.e. an offshore company or relocating etc)

1. What will be the best solution for me in terms of minimising taxes? From what I read so far (if I'm not mistaken) an offshore company will not work in my scenario because I will still have to pay VAT on goods sold in the UK (and the EU for that matter) So is relocation and selling goods elsewhere the only option then? (I don't mind relocating but I want to consider all my options first)

2. If relocation is the best option, which tax haven has a big demand for online buying and ecommerce (clothing, fashion)? I don't want to move to a country where clientele is scarce or they don't do much online shopping (if such a place in the world exists. The reason I say that is because I understand some countries don't exactly have the same privileges as first world countries.)

3. BONUS: Hot and sunny weather is nice (if relocating is the only option) but not essential. My main concern is maximizing profits and minimizing tax.

Thank you

 

[CaptK]

What PSP do you use and is it the UK branch?

 

[Beyondthet]

PayPal and yes. Right now everything is operating UK based.

 

[NicolasMaduro]

Basically you want to live in the same country as you incorporate in. So if you want low tax and a warm weather in Europe, this leaves you with 2 options; Cyprus and Malta. Perhaps Portugal with their NHR scheme, however I dont know how available that scheme is?

Also why is it so important for you that there is a big demand for eCommerce in the country you relocate to? Surely you would just keep selling to the same market and customers that you already target(the UK)?

 

[fshore]

Vat on goods is not based on where it's sold but where it's shipped from. Actually using a UK company when shipping from the UK is beneficial as you get a threshold for when you need to register, vs no threshold for foreign companies.

If you ship from outside the UK then the UK vat treatment will be the same for a UK and a non UK company.

If you skip from a EU country then you have to register for vat there.

If you ship from outside the UK and EU then you don't have to register for vat anyway (unless in some cases where you ship ddp and you are the importer of record).

 

[Beyondthet]

Also why is it so important for you that there is a big demand for eCommerce in the country you relocate to? Surely you would just keep selling to the same market and customers that you already target(the UK)?
[/QUOTE]

Because the plan if I were to relocate to a tax haven completely is that, I would conduct/operate/do business with the residents there instead of touching anything back in UK soil. This way I will avoid taxes and VAT (because my taxes will be paid to whatever country I relocate to.)

That's ONE option.

Option two, is if I incorporated an offshore company. If I understand correctly, this will protect me from income tax but wont protect me from VAT. I will still be paying VAT because of sales of goods which is taxable 20% above £85000.

 

[Beyondthet]

Vat on goods is not based on where it's sold but where it's shipped from. Actually using a UK company when shipping from the UK is beneficial as you get a threshold for when you need to register, vs no threshold for foreign companies.

Right now, I only ship from UK to UK. Goods are from China.

So are you suggesting sticking to using a UK company instead of an offshore company setup? But then what about taxes which is the main concern of mine? Income tax is 45% over £150,000 and on top of that you need to pay 20% VAT over £85,000?

Meaning hypthetically if you earned an annual salary of £100,0000
You would take home only £358,140 after tax and VAT.

There's got to be a better way to do this. Anyone?

 

[NicolasMaduro]

Because the plan if I were to relocate to a tax haven completely is that, I would conduct/operate/do business with the residents there instead of touching anything back in UK soil. This way I will avoid taxes and VAT (because my taxes will be paid to whatever country I relocate to.)

No. A Cyprus company can sell to UK residents without having to pay taxes in the UK. You will pay VAT in Cyprus, and if you then reach the distance selling threshold in UK, then you will have to register for VAT in the UK and pay the VAT there.

Because the plan if I were to relocate to a tax haven completely is that, I would conduct/operate/do business with the residents there

Sounds like you haven't even launched your eCommerce site yet. Perhaps see if you can beat the competition before thinking in tax optimization.

So are you suggesting sticking to using a UK company instead of an offshore company setup? But then what about taxes which is the main concern of mine? Income tax is 45% over £150,000 and on top of that you need to pay 20% VAT over £85,000?

Well VAT is something you will never get rid of if you want to run a succesful ecommerce company.

The only way to get rid of VAT is to incorporate outside EU and ship to EU from China for example. This will increase your shipping times and your customers will most likely be prompted to pay VAT and Customs Fee before they can collect their package at the post office. (Which is why this is a bad idea).

 

[Beyondthet]

No. A Cyprus company can sell to UK residents without having to pay taxes in the UK. You will pay VAT in Cyprus, and if you then reach the distance selling threshold in UK, then you will have to register for VAT in the UK and pay the VAT there.

Understood. This is if I decide to move to Cyprus.

But what if I continued to live in the UK but incorporated in Cyprus? How will that work out in terms of taxes? I assume I will pay taxes in Cyprus and pay VAT in the UK?

Sounds like you haven't even launched your eCommerce site yet. Perhaps see if you can beat the competition before thinking in tax optimization.

I have but I've not hit the UK VAT limit yet because in terms of scalability, I can't justify the tax rates. They are excruciatingly high and will eat through 60-70% of what I earn. So that's why I'm looking to optimize. As we all are.

Which is another reason why I suggested earlier that I don't even mind abandoning my current clientele and starting all over again with a different market in another lower tax country. I'm not so concerned about actual money right now. I'm more about scalability and what I'm absolutely certain of is that in the UK my potential is capped.

 

[NicolasMaduro]

But what if I continued to live in the UK but incorporated in Cyprus? How will that work out in terms of taxes? I assume I will pay taxes in Cyprus and pay VAT in the UK?

Your Cyprus Company will have PE in UK and therefore pay taxes in the UK. You run the Company from the UK so no matter which place you incorporated in you will be taxed in the UK.

No matter what you will pay VAT when you start having serious revenue.

 

[NicolasMaduro]

What you probaly realized is that you had a huge advantage against all competetion when you didnt have to pay VAT. Is it allowed to have multiple Limited in Uk without vat registration?

For example 10 different store fronts with 10 different ltds all under 85k vat treshold?

 

[Beyondthet]

Your Cyprus Company will have PE in UK and therefore pay taxes in the UK. You run the Company from the UK so no matter which place you incorporated in you will be taxed in the UK.

No matter what you will pay VAT when you start having serious revenue.

It's looking more and more like the only thing I can do is completely move somewhere else then and start everything from scratch. I dont see any other viable options.

 

[Beyondthet]

What you probaly realized is that you had a huge advantage against all competetion when you didnt have to pay VAT. Is it allowed to have multiple Limited in Uk without vat registration?

For example 10 different store fronts with 10 different ltds all under 85k vat treshold?

I did some research on this and its formally known as 'Disaggregation' or 'Business Splitting' in the UK. See here for a basic overview: Business splitting and VAT avoidance - The Friendly Accountants

In short, it's not a viable option because the taxman has powers to prove that all these businesses are actually a single entity and thus have to pay VAT concurrently.

Perhaps there are ways around that with specialist expertise, however it doesn't seem worth the time, money or effort to explore.