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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 5858
Experience:  FCCA FCMA CGMA ACIS
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I am one of two co founders of a UK recruitment company that

Customer Question

I am one of two co founders of a UK recruitment company that does business all over the world, but mainly the UK (70/30)Profit for this year 2017/18 was 1m which is shares evenly 50/50 with my business partners in the form of div/salary. We leave some money in the business. Share holder fund in around 700k.I am looking to relocate myself and a chunk of my companies operations to Dubai, and plan to spend 3-5 years there. Leaving before april 6 2019.Our aim is to redirect invoices from our client outside the UK to the Dubai the newly formed Dubai company. this will Erode the UK profits by 400k. I wish to then charge my UK company for consulting service that would possibly erode the profits of the UK business to zero.Question 1:
Will HMRC care how we work out charges from the Dubai business to the UK business for my services? in other words do they apply arms length policy given that we are a small company?
**extra info here - I have previously charged clients $1m for my consultancy service. I feel therefore it is fair to charge the UK arm of my business up to that amount. **Question 2:
If i was to pay my co founder from the dubai company dividends, at what rate of tax would he be responsible for?
Submitted: 6 months ago.
Category: Tax
Expert:  bigduckontax replied 6 months ago.

Hello, I am one of the experts on Just Answer and pleased to be able to help you with your question.

Question 1. Firstly, when you personally relocate to Dubai, don't forget to send a Form P85 to HMRC who will then classify you as non resident. Remember that if you pay yourself from your UK company such emoluments must be made through PAYE channels with Income Tax (IT) and National Insurance (NI) contributions deducted. You would be much better invoice your UK company from your Dubai company for these amounts and pay from the laltter thus outside the scope of UK taxation.

Question 2. PKGF FPM advise [edited]:

'Also, from April 2016, a new tax-free dividend allowance is introduced whereby the first £5,000 of dividend income, whether paid by UK companies, or overseas companies will be tax-free, regardless of the level of dividend income. On dividend income in excess of £5,000 [now 2000], income tax will be charged at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band'

I do hope that you have found my reply of assistance.