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Inquiry from Bulgarian Client

We have had an inquiry from an overseas client

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Hello,

I am in practice in the UK and we have recently had an enquiry from a new client through our website. The person is located in Bulgaria but they are running a UK registered company and are looking for soemone to provide book-keeping and HMRC submission services. The prospective client tells me they are engaged in the provision of  of IT services and products, hosting services, website design and development and other similar projects and turning over £1m per year. They have been registered as a UK Ltd company for 2 years now and are also VAT registered.

Whilst we are looking for new business I am a bit dubious about this. Can someone please advise if I could take this work on? Can we do anti-money laundering checks to negate the risks? 

Thanks,

MJ

Replies (13)

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By Tim Vane
04th Jan 2019 18:23

Are they liable to UK corporation tax? Seems to me they won’t be uk liable other than VAT but that should probably be reverse charged on services. Basically I wouldn’t touch it unless you have expertise in EU VAT rules and dealing with non resident companies.

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Replying to Tim Vane:
Red Leader
By Red Leader
04th Jan 2019 18:32

As the company is incorporated in the UK, it will almost certainly be automatically subject to UK CT.

On a wider point, I wonder why the owner uses a UK company instead of a Bulgarian one.

Generally agree, difficult to be sure of being on top of all the issues unless experienced in this area.

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Replying to Red Leader:
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By Matrix
04th Jan 2019 19:12

UK CT? Maybe after deducting any Bulgarian tax attributable to a permanent establishment.

MJH - if you do not have international tax experience then refer them to someone who does. Check the treaty but the company could be resident in Bulgaria and pay tax there first. The accounts/dealing with HMRC/Bulgarian advisers will be complex and I doubt you would make much money.

Ask for their Bulgarian accountants to certify their passports and if this is a problem then decline.

If they do not already have local advisers then it would be a right mess. There is also VAT MOSS if their clients are domestic.

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Replying to Red Leader:
By Tim Vane
04th Jan 2019 19:20

Red Leader wrote:

As the company is incorporated in the UK, it will almost certainly be automatically subject to UK CT.

My point was that it probably has no uk income on which to pay corporation tax, if my memory of the (relatively) new tax treaty is not completely failing me. (Unless it has a PE in the uk which seems unlikely given the circumstances described by the OP). I would therefore be suspicious as to the company’s motives.

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Replying to Tim Vane:
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By Tax Dragon
06th Jan 2019 17:30

If you rule out CT, do you not have to consider income tax?

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Replying to Tax Dragon:
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By MJHAccountancy
06th Jan 2019 19:16

The directors are not UK resident so there would be no income tax

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Replying to MJHAccountancy:
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By Tax Dragon
06th Jan 2019 19:33

I meant for the company. The reason that most companies trading in the UK are not liable to income tax on their trading profits is that they are liable to corporation tax on those profits - and the CT charge takes priority.

I thought Tim was suggesting that there would likely not be a CT charge in your prospective (company) client's situation. So is income tax in point?

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By andy.partridge
04th Jan 2019 18:49

I wonder why they picked you? Hang on . . .

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By sanjay100
05th Jan 2019 00:37

We deal with a number of such companies. Often these companies are managed overseas and the work is done overseas. They have no employees in the UK. Apart from the usual checks we do carry out search on social media. You can often gauge if they are dodgy. Only one case I did come across that I had disengage from since I found out from the web they were being investigated for malpractices.

There a number of reasons for setting up a UK company but the main reason is they think a UK company will help them obtain UK/European business which may or may not be true. Some UK Customers will not pay into an overseas bank account and hence a UK company will enable them to open a UK Bank Account (thought that is difficult)

A few customers will setup with the a UK company with the aim of growing the business and eventually will start to have employees in the UK with both implications for VAT and Corporation Tax

Where there is no fixed or business establishment in the UK then it is difficult to register for VAT. Presumably this client does have a fixed establishment i.e employees in UK ?

The company is being managed from Bulgaria therefore this is the place where they should be paying tax on their profits. Unfortunately, many clients do not understand or accept the fact that tax shouldn't be paid in UK. If they pay tax here then they are exposed in Bulgaria. My responsibility is for the UK tax as HMRC will expect a UK Tax Return unless I notify the change of tax residency so if they pay taxes overseas or not its not my problem. I just warn them.

I would go ahead as long as you are comfortable in this area and that you have carried out the necessary checks that they are a bona fide business with integrity.

One caveat is that try to get the money upfront as maybe difficult to go after them if directors based overseas.

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Replying to sanjay100:
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By Wanderer
05th Jan 2019 06:38

sanjay100 wrote:

We deal with a number of such companies. ......

..... so if they pay taxes overseas or not its not my problem. I just warn them.

Really?????
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Replying to sanjay100:
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By Matrix
05th Jan 2019 08:31

You shouldn’t be taking money off these companies if you are not prepared to do the job properly. There will likely be double taxation since the local country would have first taxing rights. Why are you putting these profits on a UK return?

You should work with their local tax advisers to get the tax right. You are completely exposing yourself from an AML and PII perspective, I just don’t know why you would do this, why you choose to just warn the client and don’t think it is your problem and why you would come on here and advise someone else to do the same.

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By bernard michael
05th Jan 2019 10:36

Why are they leaving their existing accountant ??

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By MJHAccountancy
06th Jan 2019 17:19

Thanks for all the replies. Some food for thought there. I guess I can talk more to the potential client before to get more.

As a UK registered company, would they not be liable to UK corporation tax? Their business is throughout Europe. I guess they will be due to pay UK corporation tax if they can show the business is managed in the UK.

I am more concerned that they might be using the company to launder money although why bother running it through a UK company with tighter regulations. I have dealt with overseas companies before who register in the UK as clients can be reassured dealing with UK registered businesses.

I guess once we do proper money laundering checks we will be covered anyway. Although wouldn't the bank have done this once? I will request copies of passports and proof of address and then I think I can probably proceed once I have a better understanding of their business.

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