Does non-resident tax status exist in UK?

[Sundodger]

Hi folks,

I recently received some interest in me for a contract in London. But I am not a UK resident....I live in Europe. My question is this: if I take on this contract do I have to pay taxes the same as a UK resident or is there a category for non-residents? In Germany one can claim to be a non-resident and scarper with most of the loot.

Also what is the best way to keep the majority of one's salary? I see all these IR35 umbrella companies who seem to fleece you. A friend who contracts in London told me that he takes home about 85% of his monthly earnings. How is this possible?

Thanks.

[MrsGoof]

A friend who contracts in London told me that he takes home about 85% of his monthly earnings. How is this possible.

He either
a) earns bugger all so does not pay tax at the higher rate

or

b)is completely stupid and does not realise that divis thtat take you over the 40% tax bracket need some more tax paying on them when his tax return is filed.

"bangs head rather too hard on table"

[Mailman]

Dont be rediculous...of course you will owe Her Majesties Government their dues. After all, its only fair!

Mailman

[expat]

Hi folks,

I recently received some interest in me for a contract in London. But I am not a UK resident....I live in Europe. My question is this: if I take on this contract do I have to pay taxes the same as a UK resident or is there a category for non-residents? In Germany one can claim to be a non-resident and scarper with most of the loot.

Also what is the best way to keep the majority of one's salary? I see all these IR35 umbrella companies who seem to fleece you. A friend who contracts in London told me that he takes home about 85% of his monthly earnings. How is this possible?

Thanks.

Yes there is a category for non-residents. You qualify for that category by being non-resident, not by claiming to be. But that does not mean that you don't pay tax on money earned in the UK: see The Revenue website

5.1 If you are resident in the UK under the rules in Part I of this booklet, you will normally pay UK tax on all your earned income, wherever it arises.
....
5.2 If you are not resident in the UK, we will generally tax you on any UK pensions or on earnings from employment the duties of which are carried on in this country.

[boredsenseless]

He either
a) earns bugger all so does not pay tax at the higher rate

or

b)is completely stupid and does not realise that divis thtat take you over the 40% tax bracket need some more tax paying on them when his tax return is filed.

"bangs head rather too hard on table"

He could (although this would take some planning and professional advice so I doubt it) always pay himself minimum wage pay hour worked, backed up by time records, this would have to include admin time as well. Then pay himself in dividends twice a year keeping the value below the 40% threshold. Although I still think 85% is a bit on the high side.

You also need some serious advice as to what to do with the surplus, which you can leave in your business (but yoiu will still have to pay Corp Tax on it)

I agree that its probably another monkey not reading the small print from their umbrella and thinking all dividends are 'free cash'

[BlasterBates]

Well if you live in Germany I wouldn't tax your earnings there, wghich you could do upt to a period of 6 months. Two options are brolly outside IR35, so it would give you around 70% or Ltd where rumour has it you can keep 80%, 85% sound like sailing very close to the wind. You could get by without tax at all but that is only if you work less than 6 months and don't return to Germany. If you stay in Germany you still have to declare your foreign earnings, but this will only affect the "Progression". In other words your interest earnings and any other German income would be taxed at a higher rate, but UK income would not be subject to tax. If your UK income is not taxed then it will be taxed in Germany.

[Bradley]

Offshoring

The classic solution for the non-resident non UK domiciled individual is minimal salary in UK as it is taxed here with the rest being diverted to an "offshore" (fog in channel - Europe isolated) company eg IOM or Jersey.

The foreign worker then picks up the remainder of the cash once he/she is safely non-UK resident as a dividend.

[BlasterBates]

I strongly suspect the diverted funds are illegal. Offshore companies can't simply do business in the UK and not pay UK tax, otherwise every company would be offshore, and have UK employees. Basically the rule is, and it applies just about everywhere with a few exceptions, such as up to 6 months in one tax year, that companies must register in the country they're doing business. I'm not an expert here but I know indivudals do this (in Germany for example) and then suddenly get an unexpected tax bill.

[tim123]

I strongly suspect the diverted funds are illegal. Offshore companies can't simply do business in the UK and not pay UK tax, otherwise every company would be offshore, and have UK employees. Basically the rule is, and it applies just about everywhere with a few exceptions, such as up to 6 months in one tax year, that companies must register in the country they're doing business. I'm not an expert here but I know indivudals do this (in Germany for example) and then suddenly get an unexpected tax bill.

You are probably right. The solution is not to stick your head above the parapet. Bradley's comment needs to be clarified to define minimal salary as "minimum salary justified by your status", and not "minimum salary legally required".

tim

[ASB]

I strongly suspect the diverted funds are illegal. Offshore companies can't simply do business in the UK and not pay UK tax, otherwise every company would be offshore, and have UK employees. Basically the rule is, and it applies just about everywhere with a few exceptions, such as up to 6 months in one tax year, that companies must register in the country they're doing business. I'm not an expert here but I know indivudals do this (in Germany for example) and then suddenly get an unexpected tax bill.

You should look up right of establishment under EU treaty, also where the company is managed from and a bunch of other things. It is perfectly permissible for a company to be doing business in the UK and remain outside the UK tax system. There is certainly no need to register in the UK as a foreign entity. However, you are right in as much as it is very difficult to do this and stay within the rules.

Also, in Bradleys scenario although the dividend would not be assessable to UK tax it may well be asessable to a different tax regime. The trick is to make the payment whillst non resident in the UK and in a regime that itself won't seek to tax the payment.

Compensation payments to the company for the loss of youir services can be a boon in some offshore circumstances.

One scenario that used to work (and I believe still does is):-

I leave the UK for contract abroad.
MyCo pays me a salary of 500,000 GBP (whilst I am non resident) [The justification is expectation of future company earnings and that I personally am only prepareds to do it for a huge sum]
I lend MyCo 500,000 (the transaction MUST physically take place)

MyCo has now got some huge accumulated losses (reducing furture CT liabiliites) and I've got half a mill in the directors current account. Gives me access to funds for years to come and no CT for a good while.

Again the key is to ensure the payment is made whilst in a regime that will not seek to tax it. Monaco used to work and probably still does.