Client has run a UK limited company for many years whilst living in UK. Company is VAT registered. Most of income is from commissions and royalties.
He has now moved to live abroad permanently but continues to use our office (his Accountant) as his registered office and his principle place of business on his VAT registration.
I'm trying to determine if there is a problem here?
The registered office is used as the adress that the company raises invoices from and most of the correspondence comes to the registered office. However the Director is now personally tax resident abroad.
Accounts and the CT600 (and so Corporation Tax) will still be submitted to Companies House and HMRC in UK and Corporation Tax paid in UK.
I thought I had read somewhere when I researched this before for someone else that a UK Limited Company had to be run from the UK and that it couldn't be run in the UK if the owner and Director was based abroad. Also when you register for VAT it says the your principal place of business is not your registered office but where orders are handled and where you manage your day to day business.
However researching this again I cannot see any issues with a Director running a company from abroad and most of the specialist Company formation companies seem to suggest this is not a problem. Also as sales invoices use the registered office address and the bank use this address and other correspondence comes here it seems to me there is enough activity via the registered office for this not to be a problem.
Am I missing something or looking for a problem that does not exist?
Many thanks in advance for any help here.
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… continues to use our office (his Accountant) as his registered office and his principle place of business on his VAT registration.
Also when you register for VAT it says the your principal place of business is not your registered office but where orders are handled and where you manage your day to day business.
Unclear why you allowed him to use your office as his principal place of business when you seem to admit it’s not.
Definitely need to understand the rules where he is resident. If the income is mostly historical royalties and very little needs to be done to generate new income, the local issue may not be too bad, but need to check.
If he is still on PAYE - you would need to consider whether a foreign payroll should be run.
If it is France - feel free to message me
If the company is controlled and operated from overseas, it may well be no longer be tax resident here for CT purposes. VAT of course is another important question as you note.
Had a French resident client get taken to the cleaners on this a few years back as they ignored the point for years on end. French taxed him on the lot as the business was run from there and most of the business was there. He ended up hiring some expensive UK accountants to claw the UK CT back and expensive French accountants arguing his side there. Took years to resolve. I think the client initially spoke to someone who was a bit rubbish in France and advised it would all be OK. We kept well out of it! He does still have a tiny UK company operating in the UK which is taxed here for CT purposes but its all trading outside France.
Think what might happen with the reverse scenario - UK resident runs a company registered overseas.
The client is not living in France which seems like good news. We have already advised him he should take advice locally from an accountant in the country where he is now living and preferably one who is familiar with local as well as UK taxes to consider both sides.
Is the risk here from the country that he now lives in who may not accept that his Company is a UK company? He is not looking to avoid paying VAT or Corporation Tax in the UK. I thought that a Limited Company and the owners and Directors were viewed in Company Law as "separate legal entities"?
He plans to take a salary and dividends from the UK company in the normal way and pay personal tax in the country he now lives in.
Re the original registration for VAT this was done years before we took the client on and when he moved his Accounts and VAT over to us we just changed the registered office address (which was used for VAT, Accounts, CT, correspondence etc) used by his previous accountant over to our address.
Looking at HMRCs help sheet it says you cannot set it up as a "care of" address which we have not done. As mentioned originally invoicing is done from the registered office address, bank statements and other correspondence come here too and the company's income is generated in the UK.
Is there any particular reason HMRC might not like the registered office to be used for these purposes? Noone is trying to hide anything.
The phrase "controlled and operated" from overseas is a phrase I recall when I researched this previously. However researching it earlier today I came across explanations like the ones below which led me to question whether it was problem to have a UK company but live abroad. These are all from well known companies involved in offering to help people set up UK Limited Companies.
"Yes, it is possible to setup a UK limited company even if the proposed directors are not resident here. It will be necessary however to provide a UK address that can be used as the registered office. This must be a serviced address where any statutory mail can be accessed by the company directors or forwarded to their overseas location"
"The answer to this question is quite simply yes. A director, secretary or shareholder of a UK company can live anywhere in the world. There is no requirement for any of the owners or company officers to be resident or to have any prior connection or residence with or in the UK in any respect"
"Company registration for non-UK residents is the same as for residents living in the UK. There are no restrictions on foreign nationals being a UK company director, shareholder, or a secretary. You even do not have to live in the UK"
"There is no legal requirement for the director of a UK company to reside or base themselves in the UK. In fact, they do not even need to be British nationals. The same applies to company secretaries, shareholders, and People with Significant Control (PSCs)"
You are thinking company law - as per your tag, and those quotes.
Respondents are thinking tax - which is where the problems lie.
Help! Spent several hours over the weekend trying to find the tax legislation and guidance and rules to cover this situation and I am struggling. I have known the client for many years so just trying to help him as best as I can. I have suggested he should get advice from a local accountant more familiar with UK/Portuguese joint arrangements but in meantime just trying to learn the basics.
The client is now living in Portugal.
My start point as Tax Dragon correctly identified is Company Law and that the Company has been UK registered for many years and always done UK CT600 returns and UK VAT returns too. So the Company is set up as a UK company.
Our office address is the registered office, the bank use this address, other mail and information comes to this address, invoices to customers are addressed from here so our address is his service address and most of the company's income is from the UK.
As the Company is UK based although the Directors and shareholders (husband & wife) live in Portugal they are separate legal entities from the Company I am struggling to find the guidance that says the Company might be caught by Portuguese tax rules rather than or as well as UK ones.
HMRC are not going to miss out on anything.
VAT will be paid in the UK; Corporation Tax will be paid in the UK. The Directors will be paid the basic Director Salary and draw dividends and I have run his income through the TaxCalc tax return software and as the will get a UK personal allowance and with the non residents disregard income calculation he will pay no income tax in the UK. In Portugal as he has non habitual residence his salary will be taxable but his pension and dividends will not be taxable.
Just keen to find the tax guidance that covers possible taxation of a UK registered company abroad. Just because the Directors live abroad why should the Company be treated as not UK resident?
Just because the Directors live abroad why should the Company be treated as not UK resident?
Again, look at the reverse. Tax Dragon Ltd is my UK company. If instead I set up Dragon Tax Ltd in Thailand and run everything through that, do you think HMRC will accept it's not taxable?
Look up "management and control." And read CTM34120.
(No idea on Portuguese rules.)
Try reading through this https://www.gov.uk/hmrc-internal-manuals/international-manual/intm120210...
Thank you Tax Dragon and Tax Guy for your helpful feedback and links. Really appreciate it.
Must confess having gone through this extra information I'm still not sure what to advise to my client.
If the Company is registered in the UK I am sure HMRC are still going to want to tax the profits earned in the UK which is basically nearly all the profit which is largely earned frfom UK customers and as the invoicing is to mainly UK customers I'm sure HMRC will want the VAT too!
So should the client close down his UK operation and re register his business in Portugal. Or could he appoint a UK based Director to look after the minimal amount of work done in uk (we do most of the work anyway and all the invoices are raised from our office. The income is easy to account for because it is just royalties and commissions from deals set up years ago; there is no new generation of customers or new sources on income).
Apologies, you did describe the income right at the top and I, and I think everyone, skipped straight over that.
There is specific provision for royalties, both in ITTOIA and CTA2009. The latter brings them into the intangibles regime. They also get separately mentioned in most DTAs.
Logically, as they are payment for work done in the UK when resident in the UK, they should be taxed here. But that's logic not law - do look at the law (I haven't, really). And the DTA (I haven't). It might at least give you a different angle to work at.
Oh and surely they get a section in CTM and/or the intangibles manual? Again, I haven't looked.