UK/India Companies | Double Taxation Agreement?

[sarabha]

I am a freelancer and have a limited company in UK. And, I also own a company back in India. And, I have few software developers working from Indian company for me.

Couple of my clients paid directly to the Indian company. Obviously, the respective taxes are paid in India. To clarify, sale happened here. Development happened in India, but me being in Uk managed the developers there. Can you suggest if such an arrangement is illegal.

If it is is illegal, can you suggest, how would I 'correct' such a thing. Do I let HMRC about this voluntarily. If it is illegal, Is this a criminal offence or a civil offence.

And, I was worried - I could be doing something wrong with this and since started invoicing from UK even for those clients. And, I am paying to the indian company directly from my UK company. The problem is, how much I pay is pretty much decided by me. And, am not sure what is the effective way to make these decision.

Can someone knowledgeable in this area suggest what is the best way of operating both of these companies from UK tax point of view.

[taxguru]

1. If you're tax resident in the UK and own a company in India then there is a risk that the Indian company could be held to be UK resident and, therefore, subject to UK Corp tax as the effective management is situated in the UK. You may make the Indian company a subsidiary of the UK company.

2. The Indian company could receive payments from the clients on behalf of the UK company as an agent and pass it on to the UK company. But fx controls may apply.

[sarabha]

Thank you for your reply. Much appreciated.

Couple of clarifications:

1. The company in india is held on my father's name. And he is the director of the company there and looks after the company along with me. Would it still make a UK resident company?
2. It had operated for couple of years and paid the respective taxes to Indian government. If HMRC comes after me, are they going to ignore the taxes paid to indian goverment or consider them?

Is what I have done a criminal offence or a civil offence. Can you suggest please.

[taxguru]

There is no criminal offence; if owned by your father then should be OK