Contractors' Questions: Can I get by with my non-UK limited company?

Contractor’s Question: I’m due to commute to London from the EU to perform a contract in the City between Monday and Friday. I have read that using a UK limited company is the most tax-efficient option, but I already have a limited company in the country I come from. Is there any legislation stopping me from using my existing company to invoice the agent/client, or would it just be not tax-efficient?

Expert’s Answer: The general rule of thumb is that you have to pay tax in the country in which you’re working. In this specific case, we’d therefore suggest that you pay your tax in the UK as that is the physical location of the work.

You have a number of options available to you and could open a UK limited company or utilise a UK umbrella organisation; we are well-placed to advise you further on both should you wish.

But at this stage, we would strongly recommend you not to use a limited company based in your home country, or the country you’ll be commuting from. Doing so would mean that you wouldn’t be paying tax in the UK for work that has been done here, which would create a tax liability leaving you vulnerable to significant penalties.

The Intermediaries legislation and new gross pay reporting rules here in the UK will mean that any business, individual or entity not paying the appropriate levels of tax in the UK will be caught and the government would look to collect tax from the first intermediary in the contract chain. The reasoning is that, by not using a UK solution, the contractor is creating a tax bill for someone else in the chain. And with the new and updated reporting requirements, anyone doing so will be found a lot more easily by HMRC than they would have been in the past.

Potential loopholes and hiding places for tax evaders are disappearing fast and it’s considerably wiser to invest in utilising the appropriate tax solution than it is to try and evade the authorities.

The expert was Charles Daw, a director at CXC Global.

Thursday 5th Nov 2015