atom

Dear HMRC, how can I, as a UK limited company, hire remote contractors who are based abroad?
Many of these have a VAT number and are sole traders (or rather, the equivalent in the respective country) but some of them don't have either (they may be employees at home who also work an extra remotely). In this latter case, is it still possible and what obligations are there for my business?
Finally, are there any differences between overseas contractors based in the EU and extra EU (such as the US)?
Thank you for your help.

Has HMRC published any guidance on this or is there any other kind of update?

Dear HMRC Admin, you write that: "If the services are non digital in nature then please see the guidance here: B2C services of a professional, technical, financial, intellectual or other intangible nature supplied to customers outside the UK" That page says that such services (intellectual, non-digital) "are supplied where your customer belongs and so are outside the scope of UK VAT". Is this notion from UK legislation or EU legislation? I ask because there might be a mismatch between the two legislations where such services are deemed supplied where the customer belongs by UK law but where the supplier belongs by EU VAT law (the standard B2C rule). In this case would one need to register for MOSS and pay EU VAT? Thank you.

Dear HMRC, thank you for your reply. One more simpler question – does a loan from a shareholder (not director) of a ltd company for the purposes of helping with startup costs need to be at arm's length/market conditions? Is it a benefit in kind for the company if it's 0 interest? Thank you.

Dear HMRC Admin, thank you for your reply, I have referred to the guidance in both "Residence, domicile and the remittance basis: RDR1" and "Remittance basis 2024 (HS264)". What I couldn't find is whether the use of a UK private Ltd trading company to receive the foreign dividend "stains" the dividend which becomes UK income or whether the dividend (which becomes income for the ultimate owner upon declaring it) remains foreign because it was produced abroad. Thank you.

Dear HMRC Admins, I've asked this question in the personal tax forum and they replied that they are not able to assist on matters of business tax (which is half of my question) so I thought it would be beneficial to ask here, too. Tradeco GmbH makes a profit in Germany with no permanent establishment in, and no ties to, the UK. It distributes these profits, after all relevant German taxes, to its shareholders. One of these shareholders is Holdco Ltd, incorporated in the UK, which owns 80% of stock and voting rights in Tradeco GmbH. Holdco Ltd is wholly owned by a UK resident non-domiciled natural person who claims the remittance basis. The personal tax forum Admins wrote that: (1) "All sources of UK income and capital gains, remain taxable in the UK". The trading income of DE Tradeco GmbH is clearly not UK income. If a dividend is distributed to UK Holdco Ltd and then in turn distributed to the non-dom shareholder of Holdco on a foreign bank account, is that considered UK income because it is paid by a UK company? Even if the holding company is merely a "pass-through" entity and therefore transparent? (2) "The remittance basis applies only to foreign sources of income / capital gains not remitted to the UK". I think in this case there would be no remission if the dividend is paid to a foreign bank account, correct? The issue then remains of whether the dividend from the holding company to the natural person was UK income for the natural person in the first place, even if it was "produced" abroad and the holding company is "pass-through"/"transparent". My question is whether the mere presence of a non-trading UK-incorporated and UK-resident holding "stains" the foreign dividend and turns it into UK income when it is distributed to the resident non-domiciled or whether the UK holding company is transparent for this purpose and therefore the dividends remains foreign-earned income for the person and is therefore not subject to tax in the UK as long as it's not remitted to the UK. Thank you for your support.

Thank you for your reply. You are correct in saying that this is a difficult question since it covers both corporation and personal tax. However, I'd like to focus on the personal tax aspect of the questions under the remittance basis. A UK holding company distributes a dividend arising abroad (from the trade/business of a foreign entity that it owns) to a UK resident non-domiciled on a personal, foreign bank account. In terms of the natural person's personal tax, is this UK income or not under the remittance basis? You kindly write that "It would appear that the UK company is in receipt of foreign dividends and would share those foreign dividends with the share holders, who would declare as foreign dividends and not UK dividends. Dividends arising from the UK company and paid to shareholders would be classed as UK shares and dividends." I'm afraid it's not very clear what you mean. Do you mean that if the trading company is foreign, the dividends are foreign income despite the holding company being UK resident? And that if the trading company is UK resident, the dividend personal income is UK income? If so, the UK holding company is transparent for tax purposes and the income remains foreign if it's initially produced abroad? Thank you again for your help.

Dear HMRC Admin, thank you for your kind reply and for providing guidance. Let me reassure you that I have every intention of engaging with an accountant. Even after referring to the literature you have pointed to, I still do not understand whether: (1) directors' loans are also available to shareholders (besides directors of the company) to help with startup costs (2) on pre incorporation costs: excluding capital expenses, the company can claim back certain "pre-trading expenditure". Does pre-trading expenditure include non-capital pre-incorporation costs? If such costs were born by directors, a "non-trading debit" would be created within the scope of CFM32100 - Loan relationships: non-trading deficits: pre-trading expenditure. These are applicable pre-trading, but are they also applicable pre-incorporation? Does that automatically create a pre-trading, pre-incorporation directors' loan? Thank you again for the support.

Dear HMRC Admin, thank you for your kind reply. I originally submitted the question as a scenario because I thought it could help me better understand the mechanisms described. Let me rephrase it in a way that is adherent to a state of affairs and therefore not a scenario. I was also unfortunately not able to find suitable guidance in RDR1, despite repeatedly before posting this question. Tradeco GmbH makes a profit in Germany with no permanent establishment in, and no ties to, the UK. It distributes these profits, after all relevant German taxes, to its shareholders. One of these shareholders is Holdco Ltd, incorporated in the UK, which owns 80% of stock and voting rights in Tradeco GmbH. Holdco Ltd is wholly owned by a UK resident non-domiciled natural person. If you deem the above to still be a "scenario" you are unable to reply to, please disregard it for the purposes of my question and only refer to what follows. You write that: (1) "All sources of UK income and capital gains, remain taxable in the UK". The trading income of DE Tradeco GmbH is clearly not UK income. If a dividend is distributed to UK Holdco Ltd and then in turn distributed to the non-dom shareholder of Holdco on a foreign bank account, is that considered UK income because it is paid by a UK company? Even if the holding company is merely a "pass-through" entity and therefore transparent? (2) "The remittance basis applies only to foreign sources of income / capital gains not remitted to the UK". I think in this case there would be no remission if the dividend is paid to a foreign bank account, correct? The issue then remains of whether the dividend from the holding company to the natural person was UK income for the natural person in the first place, even if it was "produced" abroad and the holding company is "pass-through"/"transparent". Thank you for your support.