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TaxVince
TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 965
Experience:  Chartered Accountant >20 years + Qualified IFA
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The scenario, which I am concerned with is as follows: A

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The scenario, which I am concerned with is as follows:

A UK registered company with no activities in the UK (other than a registered address - even the bank account of the UK company is offshore), purchases R&D and technical assistance services from an offshore company and sells them to a Russian company at a profit. The profit received by the UK company is upstreamed through a dividend to its shareholder, which is an offshore company with the ultimate beneficiary being a non-UK resident. Does a UK tax liability arise in this scenario? What is the extent of such liability? Does the conclusion change if the UK entity is an LLP?

MamaTax :

Hi Its MamaTax Here!

MamaTax :

Thanks for the question,.

MamaTax :

Tax residency for companies is based on whether the company is UK registered or trades in UK. Other factors are also considered - like the location of the control and management.

MamaTax :

In your case the company is UK registered and hence is UK tax resident and liable to UK for all its worldwide profits subject to any double tax agreements.

MamaTax :

If the entity is an LLP, then tax liability is with the partners/individuals behind the entity. The tax residency of those individuals is what matters.

MamaTax :

Ideally since the work is all done offshore -why should the UK entity be involved? why not set up an offshore company to handle all offshore transactions ? Or are there any UK trade activities done in UK?

Customer:

Thanks. It sounds like LLP maybe the way to go. Are you aware of any obstacles for an LLP in this scenario?

MamaTax :

Are you still there? I will log off and wait to hear from you should you have any questions.

Customer:

No activities in the UK. It is just a credibility issue for the ultimate Russian customer. They would rather deal with a UK LLP than an offshore company.

MamaTax :

You may need a tax expert to review your structure and maybe making the UK company acting as an agent for an offshore company or create an offshore company in UK Isles (which share the same legitimacy with UK) or a few other options.

MamaTax :

Does this address your question. As long as the current structure is in place the UK registered company is taxable in UK.

Customer:

Not really. This is a proposed structure and just one option. The other is an LLP. Is there tax liability in the UK if an LLP is used in this structure?

MamaTax :

A UK LLP is not liable for UK corporation tax and only personal income tax is charged on its members if the profits derived from trading within the UK. Therefore potentially a UK LLP with members being offshore companies may not pay any Corporation Tax or personal income tax in the UK at all if non of the trade is considered to be within UK.

MamaTax :

However what is not clear is who is making the decision to subcontract the work and arranging these deals--as this could be taken to be UK trade activity if these decisions are done in UK.

MamaTax :

As said earlier the ideal situation is to avoid UK at all costs and be outside UK tax scope.

Customer:

No one connected with the LLP will be in the UK. The members are offshore (and ultimate beneficiaries are non-resident) and as such they will be making all the decisions. Who else can be making them? I really cannot see how the activities of the LLP can be tied to the UK. All that will be in the UK is a registered office. Even the bank accounts for the LLP will be offshore. As I say, it is just a credibility issue. Thanks

MamaTax :

Ok agreed. All i was flagging is to avoid any trading activities taking place in UK and these are usually avoided by management/board meetings should all be done offshore, members should avoid residency by minimizing visits to UK, members should avoid connection -homes, families in UK etc. Hope this helps.

Customer:

Thanks. I assume that evidence will need to be provided to evidence the fact that the LLP has no connections to the UK? Will the LLP still have to file a tax return?

MamaTax :

An LLP has to file a Partnership Tax Return each year with HMRC. The partners thenn have to file their own Tax Returns if UK resident. You also need to submit any annual accounts to company house.

Customer:

Thanks and I suppose at that stage they will need to provide evidence that there is no connection to the UK?

MamaTax :

Yes when you notify HMRC about the LLP and when you file returns - there are areas where you fill in such details - UK trade etc

Customer:

I will need to notify HMRC as soon as the LLP is set up?

MamaTax :

yes.

Customer:

So I will effectively have to pre-approve the structure with them?

MamaTax :

No this to nofity any new business/trade and self assessment for the LLC. Either you call HMRC or go to the site link HERE. Alternatively have an agent do this for you. You can get UK tax agents near you on sites like HERE or HERE or just google. This may save you time and the hassle of dealing with HMRC - usually you get all this done for as low as £100.

Customer:

Thanks. The second link does not work. Do you mind resending? You have been extremely helpful!

MamaTax :

You are welcome. I think the site is offline or something. But you can simply google for tax advisers near you if the first one is not working as well. Nice chatting with you. Thanks

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