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bigduckontax, Accountant
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I am an expat (over 10 years) living in South America that

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I am an expat (over 10 years) living in South America that is returning to live in UK in September for 1 year. I have a travel agency business that sells in physical offices (in South America) and also online sales. The online sales payments are processed via paypal UK but because I had no physical entity in the UK nor was resident until now I have not been eligable for paying tax in UK on the payments.
Now that I will be living in UK again I am trying to work out how to handle this correctly. The amounts of money taken online are signicant but the majority of the money is not profit and is used to pay suppliers in South America - there is on average a 10% profit margin but of course there are expenses on top of that to be paid for (staff, office rent, server/IT, etc).There is also the expense of transferring the money from UK paypal to South America but that is covered by a 6.5% charge paid by customers on top of their order. I am unsure what the best way of handling this would be as I obviously cannot just pay tax (20% ) on the payment amounts as that is more than the profit and just want to pay tax on the profits minus expenses (as it should be). The issue im not sure about it regarding how I can provide the correct proof / invoices / reciepts in order to satisfy the requirements.
I was think of something like setting up a UK entity and pass ownership of the website to that entity, then having that business pass all orders to South American entity for fullfilment, support and processing (so the UK entity is pretty much just responsible for taking payments). The South America entity then can invoice the UK entity for say 95% of the order value leaving 5% profit (minus any UK side expenses) to declare and pay taxes on. The south american side declares the 5% profit from these on that side. Would this be a valid approach and are there any details that I need to be aware of especially? For example the fact that I / would be an owner/director of both companies - is this an issue? Also, would it be ok to use that model of invoicing that amount 95% to UK entity just from the South American Entity (it is VERY difficult to get official reciepts from all the operators in South America so showing individual proof per operator is impossible).
Hopefully someone can provide some advice on this matter - I will be looking for an accountant in the UK to help with all this. I will be Bristol based but as long as I have a good professional to work with im not too bothered about the location.Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Firstly, the basics: when you left the UK did you file a Form P85 with the Inland Revenue? If you did not you should do so immediately, but with HMRC. Fortunately there is no time limit as to its submission, it is available om the web and can be filed on line. When you go back to South America just file another P85. You will find dealing with HMRC much easier if you use the P85 procedure. When you return to the UK advise HMRC and they will class you as resident for the 17/18 tax year and furthermore split the 16/17 into two portions, one non resident and the other resident. The taxable sums in the UK would be the net profit you make, not the fees received as a substantial chunk of those are paid out again. Setting up a company in the UK for just a year is simply not worth the palaver. Whilst receipts and other vouchers to support your accounts are the ideal, providing you keep proper records which can be verified from bank receipts and payment these would suffice and, in any event, would only be needed should there be an HMRC investigation, a relatively unlikely occurrence. I do hope that I have shed some light on your position. Please do not hesitate to follow up on this thread if you need more advice.
Customer: replied 1 year ago.
Hi
Thankyou for your answer - I have some questions please :I did not file a Form P85 when I left - to be honest didnt plan to leave, was just travelling but never ended up returning so didnt investigate anything like that.I will look into doing that asap. I was just trying to read up a bit on it and saw a section that i am slightly confused by https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm10125 whereby it states (a little bit unclearly) if planing to stay less than 2 years then I would not be classed as resident. I am just wondering if this is the case would I be exempt from tax. It definitely is just for one year because the reason I am returning is my with is studying for a year in the UK but will only get the visa for one year and then return - I presume having my wife there though will be one of the things they use to ascertain if I am "resident" or not.
Regarding receipts and proper accounts - there is a paper trail for all online orders (the system automatically does that), plus online with paypal, we have all payments also input into Quickbooks in the offices (I have a full time accountant to do that) , any payments made to suppliers etc are all input into quickbooks - i.e. I have record for everything but as for actual receipts , that doesnt really happen for most businesses here. So would , for example, having my accountant produce a monthly invoice, detailing all individual online orders and the cost be sufficient? Or because I am the owner of that company also would that be deemed incorrect. I could provide some additional , separate receipts like from airlines and some companies but for most I cannot.
You say "proper records that can be verified from bank receipts" - there are some payments we make by bank but the majority are cash payments to the operators (which is typical of how things work here) and this is what im unclear about - would this lack of receipts or bank transactions cause a problem? Just to give you an idea of the amount of money (in case that is relevant) also - last year we did 1.3 million USD online sales and I expect that to be around 1.6 to 2 million this year.
Expert:  bigduckontax replied 1 year ago.
It is highly possible that your short visit spanning two tax years would bring into question the resident status. However this hangs on the 183 day rule. If you are in the UK for over 183 days in any one tax year then you are liable for UK taxation on your world wide income. 183 days is perilously close to 6 months so you will have to be very careful about the dates of arrival and departure not to fall foul of the rule and land yourself with residency. Your wife's movements are an irrelevancy. What I was suggesting was that if you needed to use say a spread sheet to account for fees as source documentation was lacking the if it is backed up by equivalent bank entries that would be of great assistance. Your trading is relatively large so that in order to save yourself a great deal of trouble just ensure that you arrival leaves under 183 days present in the tax year of arrival and ditto in the next tax year, year of leaving. Please be so kind as to rate me if you have no more follow up queries.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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