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Where Taxpayers and Advisers Meet

UK sales manager of Cyprus company

AlexCh
Posts: 8
Joined: Sun Mar 11, 2018 10:43 am

UK sales manager of Cyprus company

Postby AlexCh » Sun Mar 11, 2018 11:05 am

Hello!
Please could anybody help us with the next question.
We are a Cyprus company and have one of our Sales offices in London.
We are not registered in the UK.
We have one Sales manager in the UK office, a citizen of the UK.
He performs his duties as a contractor (he has his own LTD) but he asked us to hire him as our Cyprus company full-time employee because he works for us almost on a full-time basis and he mentioned some potential issues from HMRC side.
However, we would not like to open a UK branch /subsidiary only because of the employment case.
Must we do it?
Our Cyprus accountants told us that we would need to pay him his gross salary and he would be responsible for all his UK taxes (income tax and national Insurance) further and there would be NO any payroll related taxes in Cyprus.
Please could anybody from local UK accountants clarify if is it possible to have him on our Cyprus company payroll without establishing legal UK entity/tax presence (branch/subsidiary)?
Without registering our company tax presence with HMRC? Just to pay him Gross salary, as we are doing now (but we pay it to his LTD) only help him eschew the issues from HMRC side?
Or we must establish a tax presence in the UK to have him as our employee and pay Income Tax and National insurance for him?

We were also advised that he should not be worried about his current state (he is paid via his LTD) if he processes 95% of his company income as salary and as long as he sticks to the IR35 rules. Is it correct?


Thank you

GlobalTaxAdviser
Posts: 633
Joined: Fri Dec 05, 2014 1:18 am

Re: UK sales manager of Cyprus company

Postby GlobalTaxAdviser » Sun Mar 11, 2018 12:59 pm

The first point to consider is if you have a permanent establishment in UK and hence may create a taxable presence.

Technically he is probably an employee hence two options - the employee should register and pay NI and Tax through the Direct Payment Scheme (DPNI). There is an employer scheme but that is or National Insurance only

If you have a presence in the UK then you would formally register as an employer and run the payroll and deduct NI/Tax

AlexCh
Posts: 8
Joined: Sun Mar 11, 2018 10:43 am

Re: UK sales manager of Cyprus company

Postby AlexCh » Sun Mar 11, 2018 7:36 pm

The first point to consider is if you have a permanent establishment in UK and hence may create a taxable presence.

Technically he is probably an employee hence two options - the employee should register and pay NI and Tax through the Direct Payment Scheme (DPNI). There is an employer scheme but that is or National Insurance only

If you have a presence in the UK then you would formally register as an employer and run the payroll and deduct NI/Tax
Thank you for your reply.
Actually, our Cyprus company rents an office in London and the UK sales manager has his own UK LTD and runs our sales business in the UK by using the office. Our Cyprus company pays his LTD company for his sales services.
He mentioned that he would have issues with HMRC because he has worked for us on a full-time basis and they could consider him as an employee, not as a contractor.
Now we are trying to figure out how to help him and if it is possible to take him on our Cyprus company payroll without registering our tax presence in the UK and paying taxes instead of him. We would like to pay him Gross as we are doing now.
Plus, we were advised there would be no problem with the HMRC if our UK salesperson processes 95% of his LTD company income as salary and as long as he sticks to the IR35 rules he would be fine. Could it really work in the case?

GlobalTaxAdviser
Posts: 633
Joined: Fri Dec 05, 2014 1:18 am

Re: UK sales manager of Cyprus company

Postby GlobalTaxAdviser » Sun Mar 11, 2018 11:53 pm

If the Cyprus Company is renting an office in the UK then it does have a permanent establishment (PE) and therefore should register for Corporation Tax

Yes IR35 is a major consideration but the fact is that the Sales person should be on the payroll of the PE in the first place. Paying to the Sales person operating a limited company just confuses matters plus it probably costs him additional time and money having a limited company in the first place.

I think you need to take a long term view of your plans for the UK then decide whether setting up a limited company and then the PAYE Scheme and attaching the Sales person to that scheme maybe better.

Setting up a Limited Company and then closing it (if necessary) is far cheaper than most European Countries. You can also set up a branch.

AlexCh
Posts: 8
Joined: Sun Mar 11, 2018 10:43 am

Re: UK sales manager of Cyprus company

Postby AlexCh » Mon Mar 12, 2018 12:22 am

If the Cyprus Company is renting an office in the UK then it does have a permanent establishment (PE) and therefore should register for Corporation Tax

Yes IR35 is a major consideration but the fact is that the Sales person should be on the payroll of the PE in the first place. Paying to the Sales person operating a limited company just confuses matters plus it probably costs him additional time and money having a limited company in the first place.

I think you need to take a long term view of your plans for the UK then decide whether setting up a limited company and then the PAYE Scheme and attaching the Sales person to that scheme maybe better.

Setting up a Limited Company and then closing it (if necessary) is far cheaper than most European Countries. You can also set up a branch.
Thank you for your reply.
I am not sure what you mean "if the Cyprus Company is renting an office in the UK then it does have a permanent establishment (PE) and therefore should register for Corporation Tax".
We have our management and control, our board and managers in Cyprus, so our tax residence is Cyprus and we must pay our corporation tax Only in Cyprus. We pay only for office rent in UK, and there is only our Sales person in the office, the UK citizen that registered as UK. LTD. No any sales associated with the office. Our company in Cyprus signs all contracts and invoice clients. Why should we register in UK for Tax corporation purposes? It seems your assumption is wrong.
Thanks.

etf
Posts: 581
Joined: Mon Nov 02, 2009 5:25 pm

Re: UK sales manager of Cyprus company

Postby etf » Mon Mar 12, 2018 10:25 am

Google suggests that Cyprus is a member of the EU and therefore at the very least the Cypriot company will probably be required to run a national insurance UK payroll if the individual is your employee:

From 1 May 2010, an employer in another European Union (EU) Member State will also be treated as being UK registered or having a place of business in the UK for National Insurance purposes where the employee is in UK National Insurance..

I believe in this situation there will probably be an obligation to operate a UK payroll for both tax and national insurance. This follows the Oceanic Contractors tax case which gave HMRC the authority to require the operation of the UK PAYE system by any non-resident employer which has a UK place of business.

KR

etf

www.theexpatriatetaxfactory.com

GlobalTaxAdviser
Posts: 633
Joined: Fri Dec 05, 2014 1:18 am

Re: UK sales manager of Cyprus company

Postby GlobalTaxAdviser » Mon Mar 12, 2018 11:18 am

To add what etf has stated. If you take a look at double tax treaty article 5 (2) a permanent establishment can be an office

Furthermore the government will issue guidelines shortly what exactly is a Ltd contractor, self employed and employee. The issue you may have in future is if the "disguised employee" comes back and says I should have been paid pension, holiday pay and other employment rights like redundancy pay

AlexCh
Posts: 8
Joined: Sun Mar 11, 2018 10:43 am

Re: UK sales manager of Cyprus company

Postby AlexCh » Mon Mar 12, 2018 1:31 pm

Google suggests that Cyprus is a member of the EU and therefore at the very least the Cypriot company will probably be required to run a national insurance UK payroll if the individual is your employee:

From 1 May 2010, an employer in another European Union (EU) Member State will also be treated as being UK registered or having a place of business in the UK for National Insurance purposes where the employee is in UK National Insurance..

I believe in this situation there will probably be an obligation to operate a UK payroll for both tax and national insurance. This follows the Oceanic Contractors tax case which gave HMRC the authority to require the operation of the UK PAYE system by any non-resident employer which has a UK place of business.

KR

etf

www.theexpatriatetaxfactory.com
Thank you for your response. So, if we sign a contract with him (not with his LTD) it will mean that we hire him as our employee and our company will need to pay all taxes instead of him even though we are not registered in UK (we just pay for office rent).Will we need to register for this with HMRC, even without establishing branch/subsidiary?
Correct? You mentioned ''another European Union (EU) Member State will also be treated as being UK registered or having a place of business''
Thank you

AlexCh
Posts: 8
Joined: Sun Mar 11, 2018 10:43 am

Re: UK sales manager of Cyprus company

Postby AlexCh » Mon Mar 12, 2018 1:42 pm

To add what etf has stated. If you take a look at double tax treaty article 5 (2) a permanent establishment can be an office

Furthermore the government will issue guidelines shortly what exactly is a Ltd contractor, self employed and employee. The issue you may have in future is if the "disguised employee" comes back and says I should have been paid pension, holiday pay and other employment rights like redundancy pay
Thank you for your reply. Yes, we also think about the potential employment issues. I was just a little bit confused when you mentioned Corporation Tax.
Not sure how it could work for our office (not registered presence).

GlobalTaxAdviser
Posts: 633
Joined: Fri Dec 05, 2014 1:18 am

Re: UK sales manager of Cyprus company

Postby GlobalTaxAdviser » Mon Mar 12, 2018 2:03 pm

Like I mentioned earlier a office is a fixed place of business and therefore a taxable presence is created. The Cyprus Entity would need to register

https://www.gov.uk/hmrc-internal-manuals/international-manual/intm264300

The standard setup would be setup a UK Subsidiary, register for PAYE with HMRC and give the employee a UK contact with salary and other benefits. UK company would pay corporate tax on any sale generated but with the tax much lower in Cyprus you can still have an agreement between UK And Cyprus company for management fees.


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