Is Isle of Man Company Now Liable for UK Corporation Tax?

[Graeme]

I established an Isle of Man company in the early 1990’s. The company is involved in the UK buy to let market and owns several residential properties in the UK. The company is paying UK tax at 22% on its net profits and I am also reporting these profits on my own personal tax return and paying the extra 18% (I am a higher rate taxpayer). I have good reasons as to why I want the company to be non-UK.

Historically, my old service provider in the Isle of Man (who provide the registered office, directors etc.) have let me manage the properties meaning that I deal with the tenancy agreements and organise repairs etc. I have a bank account into which the rents are paid and after paying expenses I remit the balance to the company bank account in the Isle of Man.

My old service provider was sold to a new provider and they have been more aggressive in terms of warning me about the consequences of being regarded as a “shadow director” and say that they should be doing the work that I do instead. However, this means that I have to pay them more fees for their time so I am not sure they can be trusted to give me fair advice. Now they have gone further and have said that as a result of new rules in the UK that my company will be liable to full UK corporation tax if I continue to be actively involved as an agent.

I would appreciate any views as to whether the advice I am receiving is right or whether they are just trying to squeeze more money out of me.

Graeme

[Taxbar]

Dear Graeme,

I think that what the service provider is saying is that your Isle of Man Company is effectively centrally managed and controlled in the UK and may therefore be liable to corporation tax.

However, you seem to be treating the income derived under Section 739 ICTA 1988 as though it is taxed on you as it arises. If the Inland Revenue accept this,then they are unlikely to seek to claim the Company is UK resident by virtue of central management and control.

You are not really getting much tax advantage from the Offshore structure and it seems that perhaps this Company is in reality just a nominee for you.

If the Company was treated as UK tax resident you would not be taxed at 40% on its income and it would pay just 19% on its income. You would be in a way better off!

If you want more advice on what is a complex area then contact me via my section on this website.

Daniel Feingold
Editor
UK & International Tax Law Section

[Taxbar]

Dear Graeme,

I think that what the service provider is saying is that your Isle of Man Company is effectively centrally managed and controlled in the UK and may therefore be liable to corporation tax.

However, you seem to be treating the income derived under Section 739 ICTA 1988 as though it is taxed on you as it arises. If the Inland Revenue accept this,then they are unlikely to seek to claim the Company is UK resident by virtue of central management and control.

You are not really getting much tax advantage from the Offshore structure and it seems that perhaps this Company is in reality just a nominee for you.

If the Company was treated as UK tax resident you would not be taxed at 40% on its income and it would pay just 19% on its income. You would be in a way better off!

If you want more advice on what is a complex area then contact me via my section on this website.

Daniel Feingold
Editor
UK & International Tax Law Section