Start a LTD but taking no wage or div. Tax Avoidance?

Start a LTD but taking no wage or div. Tax...

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Hi everyone I'm Kitti. I really value advice!

This is a business that gets 50% of clients from the US the rest from Europe, Asia Pacific. Only 10% from UK. So I wonder why start in the UK? I initally called this post 

British Global Tiny Business Startup UK or Delaware?

but renamed it to the main question:

Start a LTD but taking no wage or div. Tax Avoidance?

If I set-up a company and make money inside the LTD company (US or UK) but DO NOT TAKE MONEY OUT (no salary or dividends) would I be classed as tax avoidance crafty babe by HMRC or Europe? Does that answer change if I am UK ltd or Delaware? 

WHY? - I want to defer income to when I am living overseas and volunteering with a children's NGO. Not that the tax man cares for reasons and motives.

Background to this...

I have started a couple of tour services and business picked up very fast, we got some famous VIP's and since it was mainly in China I just took cash or personal Paypal.

I do not need China or Asia certification or travel company as Chinese offical local travel agencies provide ground service there, I don't want to start a business in China as realistically you have to give half to a local to succeed.  I currently am doing everything global online, all are freelance, writers, marketing, so I am really creating a brand, service level, and telling the local operator what I want. Now I need a LTD to gain trust, join some travel societies, prof. memberships, no need for ATOL as no flights sold. We focus on destination products. We do not sell flights and do not sell any destination or service inside Europe, only have Europe customers come outside europe with us. So now I need to form a business. So I am selling services in Asia but I only hold a British passport, I was born in lovely England. This is still small fry, less than 250,000 turn over, more like 10's of thousands at the moment as we mainly just charge guide or consulting fees. I live in Scandinavia at the moment, but understand the UK business system, so prefer that and tax is less compared to Finland.

Since most of my customers are US based, and that is where the high-value clients normally come from it makes sense maybe to consider starting over there. Also American's like 'US Company', builds trust.  I do not need to draw money from the business, got money, so I want to put it back into growth of just  let cash build in the company and when we go and do NGO work (living outside EUROZONE for 3-5 years)  we draw income from the company then. Since I am not a US citizen I have no need to pay tax there. Is this a go? Thanks all!

Replies (16)

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By killer33
02nd Dec 2014 17:26

hire an Accountant

Do you really expect someone to give this sort of advice for free?

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Replying to carnmores:
By globalnichetravel
02nd Dec 2014 17:39

Yes. I am only asking 'Can a LTD keep it's own money?'

As a start up I hope to find some helpful person. I need an accountant or tax advisor, but if I can not do this then there is no point hiring people to look more into it. To me this is the first simple question to walk a road full of horrific charges.

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By globalnichetravel
02nd Dec 2014 17:36

since right now I am earning less than an accountant and answer qustions on line and help people all the time in travel forums like TripAdvisor on detailed complex itinerary questions, I thought someone might know the answer to 'Can a LTD make and keep it's own money'? But the reality is I think HMRC and all accountants will not know. 

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Replying to Justin Bryant:
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By HeavyMetalMike
02nd Dec 2014 17:45

We're not trying to duck out of giving advice.

But your situation is a minefield.

 

Income in all sorts of countries. Tour income - TOMS and VAT (which even VAT specialists don't always know about).

Residency situation?

Any advice on Trip advisor will only be as good as the sort of person that uses it?

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By andy.partridge
02nd Dec 2014 17:45

No idea

Can a limited company make and keep it's (sic) own money?

Absolutely no idea. HMRC will not know. Sounds like you are stuck.

Any thoughts on train travel from Paddington to Rome and a reasonably priced hotel within walking distance of The Vatican?

But seriously, your question raises so many issues that concise guidance is difficult to give.

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Replying to Wilson Philips:
By globalnichetravel
02nd Dec 2014 17:52

Thanks Andy, I thought so, but wondered if it was common, as I thought wouldn't lots of people do this while there preparing to leave an employer and setup solo, and for a few year build a brand and keep profits in a LTD as a startup seed money.

 

On your advice, I would love to help but don't know or do Europe. I have a feeling hotels near the Vatican might accept Paypal ;) lol 

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RLI
By lionofludesch
02nd Dec 2014 17:56

1000 questions

The short answer is Yes.

But there are a thousand other questions that you need to ask before you get to that stage. As HMM said, you're walking through a minefield.

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James Reeves
By James Reeves
02nd Dec 2014 17:59

You won't be avoiding tax

I'm not really sure what you are driving at but you seem to think that the company money won't be taxed if you don't take it out as salary. The company will pay corporation tax on all its profits. If you do not take out money as salary (which would be allowable as a deduction) then that money would be taxed at corporate tax rates. When you eventually take the money when you are non-resident (paying yourself dividends) then it is not going to be taxed in the UK, but then it wouldn't anyway if you kept payments within the basic rate band, since the dividends come with a notional tax credit. Foreign countries that do not recognise the UK notional tax credit may want to tax you on any distributions, so you could effectively end up being taxed twice.

If the company earns money that stays in the bank, it will pay corporation tax from that money and then, presumably, the remaining money in the bank will earn interest. That too will be taxed on the company.

Just be careful that while abroad you remember to keep filing your company accounts annually, or your company may be wound up in your absence, the company's assets will become bona vacantia and Her Majesty's Government will empty the company's bank account into its own coffers.

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By andy.partridge
02nd Dec 2014 18:03

Early concerns

1. What is the connection with the UK?

2. If the company is trading why are you pocketing the sales receipts?

You should have sought professional advice much sooner than this

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Replying to johnhemming:
By globalnichetravel
03rd Dec 2014 14:43

Well, a brand name is trading but I am basically a sole trader. I just arrived in Finland, in China I was living in China on a British passport until recently. I went to my local office and said I am basically sole trader, as well as earning for another international company (employee), and told them about my extra income, and in this small province I went to the Tax office and was told multiple times basically told it is not enforced, "we do not know how to deal with a foreigner in this province earning extra money like you do". So I got this cash tax free, while in anothere job. I have now arrived in Finland to live, and want to focus on this business (as I quit my old job), also want to do things right, just like a tried in China. I just prefer UK business to Finnish. In a way I might live here but all my customers are US or UK and so I feel starting it in Finland makes no sense.

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By killer33
02nd Dec 2014 18:16

finland

Kitti currently resides in Finland.

Finland's equivalent of HMRC will take a dim view of a business registered in UK ( or US) but trading from Finland.

   

 

 

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By Duhamel
02nd Dec 2014 20:10

Entirely irrelevant but ...
...I just like the ring of 'tax avoidance crafty babe'.

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Locutus of Borg
By Locutus
02nd Dec 2014 20:27

Keep things simple
Since you live in Finland, set up a company in Finland, hire a Finnish accountant and pay your taxes in Finland. If you can't afford to do this, then you really haven't got a business.

If you try and set up a company in another country then you have international tax issues to deal with, which would prove extremely expensive in professional fees and (if you don't do things correctly) you will pay lots more tax than you need to.

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By moonmamun
02nd Dec 2014 21:41

Would i get a free holiday
i was thinking about it for 5 minutes than asked why am i thinking about this I won't get a free holiday would i and even if i do taxman not going to be happy for leaving him behind.

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By globalnichetravel
03rd Dec 2014 14:54

Just want to say thanks for all your input, appreciate it. 

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By neileg
03rd Dec 2014 16:29

Mmm...

As a sole trader, you can't opt to be taxed in the UK unless you work in the UK or your normal business base is in the UK. A limited company has its 'nationality' defined by its registered office location so a company in the UK needs a UK address. This then opens up all sorts of international tax complications if most of the income is earned abroad.

You may feel you can't afford professional advice, but you need it.

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