Offshore Company - Is It Worth It?

[Barney2201]

Hi All

We are an event design company mainly specialising in film premieres. Business has been quite good recently and I want to know if it would be worth setting up an offshore company to save on corporation tax?

Background info

The company does not have any assets to speak of just a bit of IT equipment, we operate from a home office. The service we offer is the design and production of an event, therefore we rent all equipment, labour and transport on a per event basis. There are two directors and a company secretary, one company director (me) is working full time in the business and needs to draw a full time salary, we were going to do this by paying the minimum £105 per week to ensure NI is kept up to date and the rest as dividend. The other director works full time as a freelance lighting designer and does not take any salary.

Offshore Company

The idea I had was to set up an company offshore in a low or zero tax country, the company would be a design only company. When we do an event the final profit would be marked down as a design fee and invoiced from the offshore company, therefore the UK company would technically make zero profit and avoid any corporation tax. I would then be paid by the offshore company (which I appreciate would be taxable on any money I brought into the UK). However all profits would be held in the offshore company avoiding a large tax bill.

Can anyone tell me if this is legal and if it is worth doing?

Many thanks

[RAL]

Offshore Company

The idea I had was to set up an company offshore in a low or zero tax country, the company would be a design only company. When we do an event the final profit would be marked down as a design fee and invoiced from the offshore company, therefore the UK company would technically make zero profit and avoid any corporation tax. I would then be paid by the offshore company (which I appreciate would be taxable on any money I brought into the UK). However all profits would be held in the offshore company avoiding a large tax bill.

Can anyone tell me if this is legal and if it is worth doing?

Many thanks

In short No. But it may well work but you have to get involved good accountant.

I can see atleast three different legislation in a way and I think it would be difficult to overcome those hurdles. But you never know someone here may have an answer.

[Maslins]

I'm afraid there's a bit of tax legislation known as transfer pricing which effectively prevents you choosing your own prices to charge between companies in the way you suggest. It was fairly common practice a decade or so ago, but HMRC clamped down on it.

Basically you can only charge market value for intra group transfers, and this is something they are quite likely to pick up on if you have an overseas company conveniently charging a management fee to bring the UK company's profit down to zero.

[Anna Chandley]

If the offshore company is being managed and controlled from the UK then it is deemed UK resident for corporation tax.

In order to have management and control outside of the UK would require directors to hold all meetings and make all decisions outside the UK. The costs of effectively managing the company outside of the UK could outweigh the tax savings.

[Barney2201]

Many thanks for all your replies

Seems there are quite a few hurdles to cross, however not impossible!

I think we could get around the fixed price for invoicing as we know roughly how much we are going to make on each job and the jobs do not vary that widely therefore we would just have two pricing bands one for smaller jobs and one for larger ones. The idea is not to eliminate paying UK tax (whilst that would be very nice!) just reduce our ever growing tax bill. Conducting directors meetings offshore would also be doable as we do some work out of the UK, and as there is only two directors and a company secretary the costs to travel out of the UK would not be huge.

Think I need to speak to my accountant (or get a new one!)

Once again many thanks

[JGOffshore]

If the offshore company is being managed and controlled from the UK then it is deemed UK resident for corporation tax.

In order to have management and control outside of the UK would require directors to hold all meetings and make all decisions outside the UK. The costs of effectively managing the company outside of the UK could outweigh the tax savings.

This is true, and there are other potential problems. If you want to discuss it more fully drop me a PM with your contact details.

[JonnhySocrates]

The gov looks like they are on the war path for tax but are looking to 'help' business to grow. If you have cash and don't need it now then you may think about investing it, buy a repo building on the cheap or buy some currency options. You would still be liable for tax when you release through sale, etc but you could buy time to get a clear view of the international changes that may or may not be handing our way.