Dodging taxes on my new limited company

[idontlikethetaxman]

I'm setting up a new limited company and with the orders I have, expect to turn over around £310,000 in my first year, and make a profit of £290,000.

I am the sole director, sole shareholder and sole employee.

Paying income tax, corporation tax, capital gains tax, and all that nonsense doesn't inspire me with much confidence. It's far too high a rate.

I was thinking what legal way is there to avoid this?

A simple idea was that I setup an offshore company that invoices my company for £280,000 thus making my UK company turn a profit of only £10,000.

I then obviously with my connection have ready access to that £280,000 tucked away.

Is this legal? And Is this recommended or is there better strategies out there to employ?

[Incredulum]

What does your company do?

[idontlikethetaxman]

It's a consultancy business, registered as a Ltd. We help other people form their own companies, get their VAT registrations, offer insurance through our contacts, debt collection and general business services.

[mullet]

I then obviously with my connection have ready access to that £280,000 tucked away.

But if you're liable to some tax on your worldwide income and gains, how would you avoid tax on that money? (Assuming that you are UK resident and domiciled - please say if not).

If it was as easy as you suggest, then no-one in the UK with a personal company would pay any tax at all.

[idontlikethetaxman]

I am UK citizen and domiciled here. However the offshore company I speak of has a debit card in its name, not mine. Therefore if I go to a shop, and wanted to spend it, i just use the card as I would my own card.

Make sense?

[Generix]

I just can't resist but try to help on a tax I know nothing about.

Have you considered setting up your main trading co overseas - I understand that this is generally the way to go for offshore structures (rather than trade onshore and shift funds off)?

Please feel free to correct me though those who actually advise on this for a living

[Nomos]

The main problem with establishing an overseas company is the 'management and control' test, i.e. is the company actually being managed on a day to day basis from that other country? This is the test that most taxpayers fail on when they try to introduce an overseas company into the structure, where the principal aim is the mitigation of taxes.

If you are concerned about income tax,corporation tax and capital gains tax, as you are a Ltd Co, you may wish to consider the most tax efficient ways to extract the profits from your company. In the current climate, the 'solution' for this which is being promoted here, there any everywhere are Employer Funded Retirement Benefit Schemes, commonly referred to as "EFRBS". If you type in EFRBS on google, you will be able to find some basic points regarding the tax treatment and the various ways it can be utilized.

Correctly implemented, an EFRBS provides an extremely tax efficient way of extracting profits from the business, which may be of interest to you.

However, I do have to stress that as you are the sole director,shareholder, employee, you will be deemed to be a "close company" and this may have implications on the tax efficiency of the EFRBS, in particular from an Inheritance Tax perspective. I stress this as 99.9% of companies purporting to advise on EFRBS will not make you aware of this, nor the possibility of you being deemed as a "quasi transferor of assets abroad" under ss 720 et al ITA 2007 or to be honest, most other potential legal and tax traps!

For your information, I am a qualified Barrister (non practising) and I have introduced these types of remuneration structures into Ltd Co's very regularly. I have a particular specialism in Close companies and reducing the said IHT risk.

However, what I will say is that the starting point is to speak with an Accountant about what reliefs etc can be claimed before considering overseas companies or esoteric tax planning. You will be surprised at the array of 'standard' reliefs available.

[robbob]

I would imagine that EBT's and EFRBS are pretty high of the list of list of items that the revenue may tackle in the next 12 months.
If this is the case then any tax savings from a scheme like this may be short lived and may be exceeded by the costs of setting up the scheme.

Individuals and companies should be aware that the revenue approach is that everyone should pay a fair amount of tax, if you are using a complicated artificial tax "avoidance" scheme to pay a significantly lower rate of tax on realised income then you have to be prepared for the advantages to be short lived and the revenue to constantly be challenging your advantageous situation.

http://www.rsmtenon.com/en/Advice-Centre/Emergency-Budget-2010/tax-avoidance.aspx

However, those affected need to be aware that the trust arrangements which are being put in place may lose their tax advantages next April

[Incredulum]

I would add that much "esoteric" tax planning just does not work.

At your level, you may be better off just paying the tax like the rest of us have to.

That said, there are some excess capital allowances attached to commercial properties around.

[Nomos]

I completely agree that HMRC will challenge EBTs and EFRBS and as you allude to, they have confirmed this in their emergency budget. Further guidance can be found by typing in "Spotlights" on HMRC's website which will tell you about the tax strategies they know about on the market and their view on them.

However, I do not share the view that an EFRBS or EBT, correctly implemented, is 'artificial.' These are not concepts created by lawyers, they were introduced by the Government in the Inheritance Taxes Acts. In addition, the beneficial tax treatment offered by EFRBS and EBT's are written in statute and are explicitly stated on HMRC's website (e.g. http://www.hmrc.gov.uk/manuals/eimanual/eim15060.htm).

I take the view that HMRC have gone too far in their stance on tax planning. For any scheme or structure where there is a tax advantage, they instantly issue a 'spotlight' trying to deter people from entering into it and when it reaches the courts, they instantly raise an argument based on the "Ramsay" principle (if you want to know about tax planning, type in Ramsay principle into google). However, HMRC do get it wrong, as illustrated by the recent case of "PA Holdings."

In particular, for EFRBS there is nothing overly aggressive, unless you are trying to claim a CT deduction on the contribution made. However, I am always open to hear people's thoughts on this and would be intrigued to know where you believe HMRC will challenge EFRBS if implemented on a fully commercial basis.