Questions and Questions on the TPP, July 24

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Q

My client has the following income: UK state pension / UK self-employment / UK rental income

All of this will continue – but he plans to live 7 months a year at home in Portugal (he has a permanent residence permit) and then return to the UK for the remaining 5 months of the year.

It will not have any income generated in Portugal.

Basically, once this happens, does he continue to complete his UK tax return as usual and pay UK tax?

You then have the obligation to declare all this income in Portugal and not pay any additional tax due to the double taxation agreement.

A

It is difficult to determine whether he would have become non-resident of the UK from the information provided as it is largely based on number of days in the UK/connections to the UK etc.

If someone spends 5 months a year in the UK, they will most often remain a resident of the UK.

Accordingly, the answer is yes, he would continue to declare his income in the UK and pay tax here.

The double tax treaty between the UK and Portugal will determine which country has the main taxing rights and which will therefore have to provide relief. I imagine that if the income sources are based in the UK, the UK will retain these taxing rights and Portugal will deduct the UK tax incurred from their calculations.

Q

One of my clients works with a US company that will only work with them as a sole trader.

She may want to set up a limited company (she will be the sole director) to work with other clients and she asks me if she can charge the sole trader for the funds to go into the limited company.

Can you confirm ?

A

I would expect there to be withholding tax in the US, in which case it will have to remain as sole trader income, otherwise there will be no relief for the tax withheld.

You are right: there is not much commercial to invoice, the service has already been provided personally by the client.

If there is no withholding tax, you could say that the client was acting ‘as agent’ for the limited company, then this could be considered the company’s income.

Q

I have a question regarding VAT registration in the EU.

A client provides medical writing services, clients send him instructions on what they need, for example a scientific manuscript or an abstract to present at a scientific conference. It has customers in France and Ireland, with turnover currently low (£5,000 and £2,000) but which could increase significantly. Does it have responsibilities regarding European VAT?

A

If it is B2B, the delivery location is considered to be that of the customer. If EU, then the customer will need to declare the relevant VAT under the reverse charge mechanism. When goods or services are supplied to other EU countries, reverse charge transfers responsibility for VAT registration on the transaction from the seller to the buyer.

In this way, it eliminates or reduces the requirement for sellers to register for VAT in the country where the delivery is made.

Q

I have a client who owns a holding company. They were not registered with HMRC for corporation tax as there were no transactions. But at some point they started paying dividends to the holding company from a subsidiary. Is this considered investment income and should they have contacted HMRC to advise that they are now active for corporation tax purposes or can they still be exempt from having to file investment returns income on companies? There are no other transactions in the holding company.

They also paid dividends directly to the holding shareholder from the subsidiary (the holding company does not have a bank account). I guess it’s okay as long as they have all the proof that the dividends are going through petty cash?

A

If all the holding company does is pay dividends to shareholders, I don’t see that this would affect the overall position in terms of considering it dormant from HMRC’s point of view. If the business starts building a cash balance and earning interest, that of course changes the dynamic…

In terms of direct payment, I would say that as long as the correct accounting entries are transmitted, it is not a problem. I would however suggest ensuring the correct dividend documents are also in place – resolutions etc. – again just to prove the dividend payment first from the subsidiary to Holdco, then from Holdco to the shareholders…

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