How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3823
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

I am a small limited UK company providing engineering

Resolved Question:

I am a small limited UK company providing engineering services to a Chinese company and invoice on a monthly basis. My turnover is around £85K p.a. and as the majority of my business is outside Europe I haven't registered for VAT.
My Chinese associates have bid for a project but the contract can only be awarded to a company from a OECD country. With the agreement of the client, we have discussed that my company could sign the contract and subcontract the work back to back with the Chinese company with them providing all the guarantees and warranties etc.
The contract is worth about $1.8M. What is the position regarding tax in the UK? Also as the pricing is important and the risk to my company is fairly low are there any issues in adding a low margin of say 5%?
The contract will be a dollar contract from a Chinese company and I'm proposing to subcontract in dollars to another Chinese company. The equipment will be manufactured in China and delivered FOB to a Chinese port. The equipment will be ultimately delivered to Indonesia.
Your advice will be greatly appreciated!
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 ba able to help you with your question.

Your company's turnover is getting dangerously close to the 83K VAT threshold. This turnover is calculated from an aggregate of standard, reduced or zero rated supplies. Your Chinese exports will, of course, be zero rated ones. You will have to look very seriously at the need to register for VAT almost immediately and, if the bid for the 1.8M contract is successful, then registration will be inevitable.

Adding a low margin would, I suggest, be a prudent move for your company. 5% does not give much rattle room, however. It might be safer to set up a separate company to handle this contract as any hiccup could bring the whole kit and caboodle falling down about your ears.

I do hope I have been of assistance. If you wish to follow up feel free if you think I have failed to cover a point.

Customer: replied 1 year ago.
Thanks for your reply but it doesn't really answer my question.I'm aware of the situation regarding VAT but as the majority of my business is zero rated I am nowhere near the threshold to register for VAT.What I would like is advice regarding what tax and the rate my company will be liable to pay in the UK if I take this contract. Please can you confirm the following?1, What taxes will be applicable i.e. corporation tax, etc.?
2, What are the rates of the applicable taxes along with limits, thresholds etc?
3, Whether VAT is applicable to the contract? As I have explained my company is only facilitating the contract and all the goods, services etc are provided and delivered in Asia with the local taxes and duties paid covered by the supplier or customer.Many Thanks
Expert:  bigduckontax replied 1 year ago.

Be careful, the threshold for VAT includes zero rated supplies. From the tenor of your question your company is dangerously close to that turnover level.

1 & 2. Your company will be liable to Corporation Tax (CT) on its profits. The rate is currently 20%, but the Chancellor has recently announced a forthcoming reduction to 15%.

3. Yes it will for the services rendered, but as an export it is a zero rated supply.

Please be so kind as to rate me before you leave the Just Answer site.

bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 1 year ago.

Thank you for your support.

Related Tax Questions