Best tax strategy

[apple20]

Hi All,

I want to know what is the best strategy to optimise tax please for my situation. I am in the UK , and business partner is Turkish. Our customers mainly in Europe. We want to expand our business but thinking of best way to pay less tax, where to form the company? Company need to be registered for VAT in both UK, and Germany.
Most tax efficient way to withdraw the money from the company?
Our business is online, we both can mange it remotely. Moving away from UK is not an option for me but my partner might consider moving away for few months out of Turkey, I think 6 months to be considered non resident in Turkey.
I don't mind paying tax but not too much if I can help it, VAT is killer as it is.

 

[Martin Everson]

I don't know what your turnover is annually. But if its less than £100k use a UK company. Then the key is to reduce your effective tax rate.

Have you read my post below in regards to reducing taxes for a UK company. The key would be to make use of maximum deductions

https://www.offshorecorptalk.com/th...ate-tax-residency-in-the-uk.27553/post-113297
I give you an example for UK company with £85,000 income:

£85,000 Income
£40,000 tax deductible company pension contribution (cash account)
£12,500 Salary (tax deductible and tax free) - £465 National Insurance
£5,000 Registered office + Accounting + General Expenses
£27,500 is then your taxable income
£5,225 is then your corporate tax on taxable income to be paid
£22,275 is then your profit
£22,000 you declare as dividend
£2,000 is your UK tax free dividend allowance
£1,500 is dividend tax you pay (at 7.5% rate)

£72,035 is total Income = Salary + Dividend + Pension (Cash stash)

£12,965 is total taxes you pay overall

Total tax loss overall on £85,000 income is 15%

Hopefully I got these numbers right as I am doing it off head and using £85k figure to exclude needing to show VAT in sample calculation smi(&%. If your annual income is much more then expense away a lot more.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[apple20]

Thanks Martin for this, very helpful,

I have been reading the site for days but still there many things unclear. Your calculations sounds good, and I can work around the numbers but I have few questions please.

1. So I have been reading about dividends, is that cash?? not shares? i.e you cash out of the company?
2. Is there limit on the dividends? so as long as you declare your profit, you can cash out the rest as 7.5% dividends? Also non resident as well the same? even for 7 figure business or more?

 

[Martin Everson]

apple20 said:
1. So I have been reading about dividends, is that cash?? not shares? i.e you cash out of the company?
Click to expand...

Thats cash

apple20 said:
2. Is there limit on the dividends? so as long as you declare your profit, you can cash out the rest as 7.5% dividends? Also non resident as well the same? even for 7 figure business or more?
Click to expand...

There is no limit on dividends after paying corporate tax. You can pay out all profit as dividend but may fall into a higher dividend tax band. 7.5% rate is if your income tax band falls into the basic rate tax. Remember you always have £12,500 of tax free earnings in UK but will have used it up in my example in order to reduce corporate tax by deducting it as a wage. For a non-resident it is different. A non-resident can receive a dividend lump sum with no tax paid in UK. They then have to pay or not pay tax in their home country depending on their home country treatment of foreign dividend earnings.

None of this should be taken as tax advice. So please consult a professional tax advisor who knows what he/she is doing 😛.

https://www.gov.uk/tax-on-dividends
Dividend Tax band:

Tax band	Tax rate on dividends over the allowance
Basic rate	7.5%
Higher rate	32.5%
Additional rate	38.1%

Income Tax Band:

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,500	0%
Basic rate	£12,501 to £50,000	20%
Higher rate	£50,001 to £150,000	40%
Additional rate	over £150,000	45%

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[apple20]

Thank you, I read more about it lol it is not going to be 7.5 all the way lol
So to receive more from UK company without tax I have to be non resident. I use to think you have to be away 6 months but reading HMRC website I got confused.

You're automatically resident if either:

• you spent 183 or more days in the UK in the tax year
• your only home was in the UK - you must have owned, rented or lived in it for at least 91 days in total - and you spent at least 30 days there in the tax year

You're automatically non-resident if either:

• you spent fewer than 16 days in the UK (or 46 days if you have not been classed as UK resident for the 3 previous tax years)
• you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working

How many days away is it lol? 3 months or 30 days?

Last edited: Jun 29, 2020

 

[apple20]

Martin Everson said:
Thats cash



There is no limit on dividends after paying corporate tax. You can pay out all profit as dividend but may fall into a higher dividend tax band. 7.5% rate is if your income tax band falls into the basic rate tax. Remember you always have £12,500 of tax free earnings in UK but will have used it up in my example in order to reduce corporate tax by deducting it as a wage. For a non-resident it is different. A non-resident can receive a dividend lump sum with no tax paid in UK. They then have to pay or not pay tax in their home country depending on their home country treatment of foreign dividend earnings.

None of this should be taken as tax advice. So please consult a professional tax advisor who knows what he/she is doing 😛.

https://www.gov.uk/tax-on-dividends
Dividend Tax band:

Tax band	Tax rate on dividends over the allowance
Basic rate	7.5%
Higher rate	32.5%
Additional rate	38.1%

Income Tax Band:

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,500	0%
Basic rate	£12,501 to £50,000	20%
Higher rate	£50,001 to £150,000	40%
Additional rate	over £150,000	45%

Click to expand...

 

[Martin Everson]

apple20 said:
How many days away is it lol? 3 months or 30 days?
Click to expand...

It's more complex than that. Please follow the below flow chart to determine your residency.

https://home.kpmg/content/dam/kpmg/pdf/2016/01/statutory-residence-test-flowchart.pdf

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[apple20]

Thank you Martin, that is very complicated, is it done like that in purpose? lol
The calculation above for tax saving, do you have anything like it for VAT?? apart from the flat rate which I can't use anyway.

 

[Martin Everson]

apple20 said:
Thank you Martin, that is very complicated, is it done like that in purpose? lol
Click to expand...

Yes. To screw people over sadly.

apple20 said:
The calculation above for tax saving, do you have anything like it for VAT??
Click to expand...

VAT is dependent on whether you have B2B sales of B2C sales. B2B sales in EU are generally VAT exempt. B2C sales in EU you are forced to charge VAT. Then sales outside the EU you do not charge VAT. Then their is VAT exempt goods, different rates of VAT for certain goods etc etc. It's too complex to bother with and best to consult an expert...lol.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[PaulKruger]

That's an wonderful example @Martin Everson really, thanks for spending so much time on it.

 

[dor]

can a offshore non resident company own this uk company? uk company acts as an agent with fees up to lets say 3% and merely receives and transfer money?
and from that 3% uk company pays tax?
does not work anymore?

private human being aka sheep or a cow ,better not touch anything nor own or else