Are we completely deluded in thinking this could work ?

[Radarjet]

Hi ,

We have a Ltd company in the UK and given that our new govt is now totally hiking taxes for private family business we are looking for a workaround

We import physical items from various locations in the Far East mainly but some from Europe too into the UK . We spent about $2mill on these last year .
The idea being that we then sell goods and services from these items at a profit on which we pay UK corporation tax at 25% .

We then take out personal money - we usually just take up to the 20% threshold in 12K PAYE and made up with dividends to the 50K mark each , but this year with Rachel Reeves making her debut budget speech a few weeks after our year end we took to up to the top of the 40% tax threshold at 100K just in case she did something really silly. .
We also contributed 60k each to our SSAS pension to off set corporation tax and add to the pot.

However Rachel from Accounts has now set her sights on taxing all of these either directly or including them in inheritance tax so looking for a possible better option.

So just as a very first initial thought of whether this would be possible.

Could we open a LLC company in somewhere business friendly and private ie possibly Wyoming - as anonymously as possible which I understand the owners of this business ieus would be shielded from being identified to HMRC in Wyoming.
Initially we would buy just a proportion of our overall imports through that company ie using it almost as a broker and if it works out we can increase that proportion. We will need to do some through the UK still as we currently do as we need some profit within the UK .

The theory is that we pay that Wyoming company from our UK Ltd company an expensive rate ie stock +50% and that company pays our supplier in eg China the agreed original rate .

That would then build up funds in a US account that looks to be tax free for corporate and tax free on a personal level and considerably reduce our annual profitability in the UK thus reducing both corporation tax and we could go back to just taking out personal money up to the top of the 20% tax bracket so reducing our personal income tax and we can stop contributing to our SSAS if 40% is going to go straight to the treasury on death.

I recognise we couldn't bring that money back into the UK or it would be subject to HMRC tax , that's fine . We want to save and buy a holiday let in mainland Europe: France / Spain / Portugal so over a few years that money could mount up and directly be used for that without coming back to the UK

It looks on paper way too simple but I'm sure there is a glaring error in our thoughts.

Please tell me where I have gone wrong

Its just a thought for now but we are looking essentially to shift some profitability out of the UK to somewhere with lower corporation and personal taxes

Thank you

 

[daniels27]

I cannot recommend this.

On one side, it will be pretty obvious what you are doing and HMRC could question you buying prices.

On the other side, you would have to pay personal UK taxes in you US LLC profits if it is transparent. It you have an opaque LLC in the US, you will pay corporate taxes in the US (and then withholding taxes in the US and personal taxes in the UK in distributed dividends). Additionally, as the company is effectively manned from the UK, you most likely will add some point get a UK tax bill for your corporate profits. Also, your stays at the holiday house wold be considered taxable benefits.

In short, it is totally illegal and highly risky. Better leave the UK now. Then run a company elsewhere with lower taxes. You can still import and sell in the UK with your new company in a cheaper place. Look at Malta, Cyprus, Switzerland, etc.

Otherwise, the proposed plan would only work if the buying company is managed by a third party elsewhere. But this will cost.

 

[Radarjet]

We have 50 employees - we can't leave the UK .

I don't mind paying some taxes - just objecting to our new chancellors 'grab all' approach and especially adding our pension to inheritance tax and 20% of our family business to inheritance tax .

Never looked at tax avoidance before as have been content to pay what it has been historically - but we are now in a different political arena and one that has just removed every incentive to try and expand or continue to do well.

 

[JustAnotherNomad]

Look into outsourcing part of your operations. Customer service, marketing, procurement... That could be a new subsidiary in a place like Malta.
You'd have to actually hire people there, but as long as you pay the market rate (comply with transfer pricing restrictions, i.e. don't overpay), then you could shift profits that way legally.
But you'd have to work with an experienced tax lawyer in the UK to make sure the setup is really compliant (economic substance, transfer pricing etc.).
Then you just keep the profits in a holding company outside the UK as your piggy bank.

You could also try this in a country like Hong Kong (and then have an even better explanation for why you need a company there - to be closer to your suppliers) - but Hong Kong companies are only tax free if they don't have operations in Hong Kong, and then the company wouldn't get access to tax treaty benefits either, which you might need.

Maybe speak to someone like Sovereign who should have experience setting something like that up? I have no experience with that, just know that they're one of the bigger companies specializing in stuff like this.

 

[CyprusLawyer101]

Reorganizing your operation would be necesary to achieve what you are after. For example if you have some re-packaging going on it can take place abroad and allocate profit for that part of the operation, or it could be finance related etc. etc. In general shifting profit should go hand in hand with shifting operations. A transfer pricing study would be necessary but also beneficial. Also you will need to satisfy a "motive test" and similar anti avoidance provisions. The UK has some delicate rules in this respect and navigaying through them is no walk in the park.

 

[nurredon]

As others have suggested, setting up a subsidiary of your UK Ltd for "distribution" can be an effective strategy. Establishing a trading hub, such as in Hong Kong (0% tax on offshore income), provides both credibility and practical benefits for trading operations. To make this work, you would need:

• A local director in Hong Kong for substance.
• An assistant or broker who actively handles purchasing, trading, and negotiations in the region.
• A structure where the broker retains profit locally before sending it to your UK company.

In practice, it’s challenging for HMRC to argue that your pricing is not “market-based” as long as the trading activities are genuinely conducted offshore and contracts are properly documented.

Alternative Approach
If branding is a key part of your business, consider creating distinct brands for your products. You could then register these under an Isle of Man, Jersey, or Guernsey company, where you:

• Spend around £20K annually to establish substance and maintain the company with qualified local directors and real management. I have a few.
• Develop robust IP agreements that comply with transfer pricing rules at arm's length. Upwork is very helpful here and I can also intro you to a bunch of good lawyers for this.
• Pay royalties from your UK companies to the offshore entity for using the brands.

This approach leverages the Channel Islands' favorable perception by HMRC while aligning with your claim that brand management expertise is being outsourced to a jurisdiction with professionals who specialize in it.

Both strategies require planning and compliance with tax and transfer pricing regulations, but they can be extremely effective if properly executed.

 

[daniels27]

Just one question. It OP is willing to leave, just move all to a lower tax place with treaty with the UK. Then you move so staff there and keep a warehouse in the UK which will not be subject to UK tax with a treaty. Wouldn't this be the cheapest?

 

[nurredon]

What I proposed allows him to stay in the UK without opening the "Pandora's box." HMRC has mechanisms to impose something akin to an "exit tax," specifically the deemed disposal of assets rule. If HMRC perceives that the company has ceased UK tax residency but continues operating exactly the same from another low-tax jurisdiction, it could trigger intense scrutiny.

Under this rule, HMRC may treat the company as if it disposed of its assets at market value immediately before the change in residency, potentially leading to capital gains tax on any unrealized gains. This risk becomes particularly relevant if the move appears artificial or lacks genuine economic substance.

The cleanest approach in such scenarios would be to dissolve the UK entity and establish a new one in the desired jurisdiction. However, depending on the specific circumstances—and how "unlucky" you might be with HMRC—this transition could still become a complex and frustrating process.

My suggestion remains the same: bottom-up, with subsidiaries acting as brokerage entities and remitting profits as dividends tax-exempt under the UK's favorable holding regime for participation exemption; or top-down, by registering brands in the Channel Islands and paying royalties. Alternatively, combining both strategies could provide maximum risk diversification and flexibility.

 

[daniels27]

The cleanest approach in such scenarios would be to dissolve the UK entity and establish a new one in the desired jurisdiction. However, depending on the specific circumstances—and how "unlucky" you might be with HMRC—this transition could still become a complex and frustrating process.

Yes. That would have been my advice too. Depends a lot of what he does. But my advice would be to find a place to be and then slowly close down over 5 years while moving elsewhere. Of course this won't work if you are well-known brand but in most other cases of pure trading should work.