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).
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?
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)"
How about in principle? Is it potentially possible that tax deducted at source from royalties could be offset against CT?
I'm asking because royalties can be earned from numerous countries and to check the DTT for all possible countries would be a nightmare. Indeed as many of the amounts are relatively small the time cost of doing this would probably be prohibitive
Totally agree I don't think its a reasonable excuse either just wanted to check if Companies House were still being lenient. He had already missed the deadline when he came in to see us so not alot we could do
Thats great many thanks for your guidance Tax Dragon.
I have now subscribed to access Croner i and can see the updated version of S223 (7B) which clearly says "the requirement that there should be no other residence eligible for relief has been dropped".
Got there in the end and sorry for dragging it out. Until recently I was part of a larger set up with access to other resources and this episode has highlighted to me the need to ensure resources like Croner can still be accessed.
Many thanks again for the detailed feedback. To be honest I'm still not 100% sure I've got it but I greatly appreciate the time and effort you have all kindly put into it.
So my understanding of the feedback is that he does qualify for relief for periods of absence for any reason (even though he has use of another house he owns whilst he is absent).
If I have still got this wrong I would really appreciate it if you could let me know so I don't end up getting it wrong!
The question of whether renting a property out for 4 months constitutes business use is a grey area but not really relevant if the period of absence is allowed anyway.
I have found it really frustrating trying to key into the actual legislation Tax Dragon and Dullard have referred to, to try and fully understand everything; I just can't find a link straight into the legislation. Is it something that has to be subscribed to somewhere?
I envy the handle you guys have on the detail of these types of questions. I have been googling and researching the question of PPR relief on the UK property and deemed periods of absence since before Easter. I reckon I've spent over 6 hours on it and couldn't come up with the guidance you have knidly provided.
My reading of everything I read was that as he had another house (which he owned) available to use (in France) whilst absent from the UK house then he could not claim relief for the deemed period of absence for the 4 months a year he was away. I hadn't come across any reference to S222 being rewritten in 2015 during that time researching and I've just been googling for another hour since your really helpful advice and I still can't find the revised wording of S222. I find it so frustrating sometime and its not for lack of effort!!
To be honest I'm just in awe of how you find the information.
If I understand it correctly what you seem to be confirming is that under the current revised wording as the french house is not eligible to be his PPR (because the UK house is his PPR) then he can claim deemed residence for the 4 months a year he is away from the UK house.
How/where do I find the wording of the revised S222?
Also just renting the whole house out for 4 months a year does not constitute a business and therefore these 4 months do not need to apportioned out of the PPR claim.
It seems you are both saying loud and clear that so long as the UK property is his PPR based on the facts (which I believe it is) then a full claim for PPR relief can be made.
My answers
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).
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?
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)"
How about in principle? Is it potentially possible that tax deducted at source from royalties could be offset against CT?
I'm asking because royalties can be earned from numerous countries and to check the DTT for all possible countries would be a nightmare. Indeed as many of the amounts are relatively small the time cost of doing this would probably be prohibitive
Totally agree I don't think its a reasonable excuse either just wanted to check if Companies House were still being lenient. He had already missed the deadline when he came in to see us so not alot we could do
Thank you also again to Dullard .. much appreciated!
Shall we swap pseudonyms?!!
Thats great many thanks for your guidance Tax Dragon.
I have now subscribed to access Croner i and can see the updated version of S223 (7B) which clearly says "the requirement that there should be no other residence eligible for relief has been dropped".
Got there in the end and sorry for dragging it out. Until recently I was part of a larger set up with access to other resources and this episode has highlighted to me the need to ensure resources like Croner can still be accessed.
Thank you again
Many thanks again for the detailed feedback. To be honest I'm still not 100% sure I've got it but I greatly appreciate the time and effort you have all kindly put into it.
So my understanding of the feedback is that he does qualify for relief for periods of absence for any reason (even though he has use of another house he owns whilst he is absent).
If I have still got this wrong I would really appreciate it if you could let me know so I don't end up getting it wrong!
The question of whether renting a property out for 4 months constitutes business use is a grey area but not really relevant if the period of absence is allowed anyway.
I have found it really frustrating trying to key into the actual legislation Tax Dragon and Dullard have referred to, to try and fully understand everything; I just can't find a link straight into the legislation. Is it something that has to be subscribed to somewhere?
I envy the handle you guys have on the detail of these types of questions. I have been googling and researching the question of PPR relief on the UK property and deemed periods of absence since before Easter. I reckon I've spent over 6 hours on it and couldn't come up with the guidance you have knidly provided.
My reading of everything I read was that as he had another house (which he owned) available to use (in France) whilst absent from the UK house then he could not claim relief for the deemed period of absence for the 4 months a year he was away. I hadn't come across any reference to S222 being rewritten in 2015 during that time researching and I've just been googling for another hour since your really helpful advice and I still can't find the revised wording of S222. I find it so frustrating sometime and its not for lack of effort!!
To be honest I'm just in awe of how you find the information.
If I understand it correctly what you seem to be confirming is that under the current revised wording as the french house is not eligible to be his PPR (because the UK house is his PPR) then he can claim deemed residence for the 4 months a year he is away from the UK house.
How/where do I find the wording of the revised S222?
Also just renting the whole house out for 4 months a year does not constitute a business and therefore these 4 months do not need to apportioned out of the PPR claim.
It seems you are both saying loud and clear that so long as the UK property is his PPR based on the facts (which I believe it is) then a full claim for PPR relief can be made.
Many thanks again
Thanks Matrix. The french house was fortunately sold in December 2020