UK sales manager of Cyprus company

AlexCh

Hello!
Please could anybody help us with the next question.
We are a Cyprus company and have one of our Sales offices in London.
We are not registered in the UK.
We have one Sales manager in the UK office, a citizen of the UK.
He performs his duties as a subcontractor and we would like to hire him as our Cyprus company full-time employee.
We would not like to open a UK branch or subsidiary only because of the employment case.
Our Cyprus accountants told us that we would need to pay him his gross salary and he would be responsible for all his UK taxes (income tax and national Insurance) further and there would be NO any payroll related taxes in Cyprus.
Please could anybody from local UK accountants clarify:
1) If there are any UK payroll taxes related to the employment that our Cyprus company should be aware and must pay for the employee in the UK?
2) How do we need to formalize the employment? Is it possible to have a signed contract with him where his full-time employee status will be specified?
Thank you

MarieNoelle

I think you need to engage a UK accountant.

reader

Ask him to setup a UK limited company.

He can then raise a sales invoice to the Cyprus company for his services each month.

The Cyprus company can pay his company gross.

His company can account for any taxes due because it is a separate legal entity.

AlexCh

reader said:

Ask him to setup a UK limited company.

He can then raise a sales invoice to the Cyprus company for his services each month.

The Cyprus company can pay his company gross.

His company can account for any taxes due because it is a separate legal entity.

Actually, we are doing the way now. He has his own company and we pay it for his sales services. However, he told us that there would be some questions from UK Tax office because he actually works for our company almost on a full-time basis. So he asked us to hire him as the full-time employee.But as we understood we would need to create a registered UK entity then (branch, subsidiary) and we would not like to do it only because of the employment.
So we try to find a way to hire him as the employee of our Cyprus company.

AlexCh

MarieNoelle said:

I think you need to engage a UK accountant.

We tried to get the consultation and were advised that we need to create a UK registered entity (branch/subsidiary ) to display him as our company full-time employee. But it seems quite excessive now. We would like to pay him as now and to help him to avoid any issues from his tax office.

reader

There would be no problem with the UK tax office if he processes 95% of his company income as salary.

For example, if you pay his uk company £100k gross, then he has £5k to spend on admin expenses, e.g. accountancy fees, and insurance.

The other £95k would need to be processed as salary by his UK company (not your company).

His UK ltd company would pay £10k employer's national insurance (NI), £5K employee NI, and £20k income tax. The rest of the £60k would be his net income to spend.

As long as he sticks to the IR35 rules he would be fine.

The responsibility for following the IR35 rules is his responsibility (not yours) because he is using his own limited company.

MarieNoelle

AlexCh said:

MarieNoelle said:

I think you need to engage a UK accountant.

We tried to get the consultation and were advised that we need to create a UK registered entity (branch/subsidiary ) to display him as our company full-time employee. But it seems quite excessive now. We would like to pay him as now and to help him to avoid any issues from his tax office.

This is why a UK accountant would be able to advise as they would have all the relevant information. You may have tax obligations in the UK other than PAYE.

CSan89

You either want him as an employee or you don’t.
Sadly you can’t have it both ways and also get Tax advise for free.

AlexCh

CSan89 said:

You either want him as an employee or you don’t.

Sadly you can’t have it both ways and also get Tax advise for free.

reader said:

There would be no problem with the UK tax office if he processes 95% of his company income as salary.

For example, if you pay his uk company £100k gross, then he has £5k to spend on admin expenses, e.g. accountancy fees, and insurance.

The other £95k would need to be processed as salary by his UK company (not your company).

His UK ltd company would pay £10k employer's national insurance (NI), £5K employee NI, and £20k income tax. The rest of the £60k would be his net income to spend.

As long as he sticks to the IR35 rules he would be fine.

The responsibility for following the IR35 rules is his responsibility (not yours) because he is using his own limited company.

Thank you for your reply. We will try to clarify with him if it works for him. But as we understand if it does not work we will need to establish our branch/subsidiary in the UK but honestly, we would not like to do it now.

AlexCh

CSan89 said:

You either want him as an employee or you don’t.

Sadly you can’t have it both ways and also get Tax advise for free.

Actually, we are ok with our cooperation with him now. We pay his company and don't care about any UK taxes. But he mentioned about the potential issues from the side of UK tax office and asked us to help him. We are ready to do it and ready to hire him but we are not ready to open any legal entities in the UK now. This is the only question.

CSan89

But as @MarieNoelle has pointed out. It may not just be PAYE that you are having to deal with so hiring an accountant to look at the relationship as a whole would be the best course of action.

Sadly advice from an online forum doesn’t hold well when HMRC start looking around.

reader

AlexCh said:

CSan89 said:

You either want him as an employee or you don’t.

Sadly you can’t have it both ways and also get Tax advise for free.

reader said:

There would be no problem with the UK tax office if he processes 95% of his company income as salary.

For example, if you pay his uk company £100k gross, then he has £5k to spend on admin expenses, e.g. accountancy fees, and insurance.

The other £95k would need to be processed as salary by his UK company (not your company).

His UK ltd company would pay £10k employer's national insurance (NI), £5K employee NI, and £20k income tax. The rest of the £60k would be his net income to spend.

As long as he sticks to the IR35 rules he would be fine.

The responsibility for following the IR35 rules is his responsibility (not yours) because he is using his own limited company.

Thank you for your reply. We will try to clarify with him if it works for him. But as we understand if it does not work we will need to establish our branch/subsidiary in the UK but honestly, we would not like to do it now.

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

AlexCh

reader said:

AlexCh said:

CSan89 said:

You either want him as an employee or you don’t.

Sadly you can’t have it both ways and also get Tax advise for free.

reader said:

There would be no problem with the UK tax office if he processes 95% of his company income as salary.

For example, if you pay his uk company £100k gross, then he has £5k to spend on admin expenses, e.g. accountancy fees, and insurance.

The other £95k would need to be processed as salary by his UK company (not your company).

His UK ltd company would pay £10k employer's national insurance (NI), £5K employee NI, and £20k income tax. The rest of the £60k would be his net income to spend.

As long as he sticks to the IR35 rules he would be fine.

The responsibility for following the IR35 rules is his responsibility (not yours) because he is using his own limited company.

Thank you for your reply. We will try to clarify with him if it works for him. But as we understand if it does not work we will need to establish our branch/subsidiary in the UK but honestly, we would not like to do it now.

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

Thank you very much for all the info.

AlexCh

CSan89 said:

But as @MarieNoelle has pointed out. It may not just be PAYE that you are having to deal with so hiring an accountant to look at the relationship as a whole would be the best course of action.



Sadly advice from an online forum doesn’t hold well when HMRC start looking around.

As we know he has his own accountant and we will try to clarify with him if he can use the rules that were mentioned in the thread.

AlexCh

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

But if he has other customers besides us the rules won't work, correct?

AlexCh

AlexCh said:

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

But if he has other customers besides us the rules won't work, correct?

maybe this is the problem and we can ask him to stay only with us.

reader

AlexCh said:

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

But if he has other customers besides us the rules won't work, correct?

Wrong, if he has other customers the rules will still apply if you treat him like one of your employees.

MarieNoelle

AlexCh said:

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

But if he has other customers besides us the rules won't work, correct?

No you have to look at each engagement (contract). If he has other clients one engagement can be caught and not the others. If you are thinking of employing him it looks very much like he is caught by IR35.

Edit: @reader was quicker to answer! At least we are on the same page!

reader

MarieNoelle said:

AlexCh said:

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

But if he has other customers besides us the rules won't work, correct?

No you have to look at each engagement (contract). If he has other clients one engagement can be caught and not the others. If you are thinking of employing him it looks very much like he is caught by IR35.

Edit: @reader was quicker to answer! At least we are on the same page!

The IR35 rules would apply to the sales employee using his uk limited company. Therefore his uk limited company would need to do the IR35 deemed payment tax calculation on 95% of the income in order to not get in trouble with the UK tax office (HMRC).

AlexCh

MarieNoelle said:

AlexCh said:

I include some information for your employee here to put his mind at rest about IR35 for limited companies that only have 1 employer/customer:

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

And how to do the tax calculation:

https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment

But if he has other customers besides us the rules won't work, correct?

No you have to look at each engagement (contract). If he has other clients one engagement can be caught and not the others. If you are thinking of employing him it looks very much like he is caught by IR35.

Edit: @reader was quicker to answer! At least we are on the same page!

Thank you very much all. So, as I understood our Cyprus company just needs to sign a new contract with him where we should describe all his duties and indicate that he will be performing them on a full-time basis. Further, we can keep paying him as we are doing now, to his UK Ltd and he just needs to follow the IR35 rules (deemed payment tax calculation on 95% of the income ).

AlexCh

P.S in another case, worst scenario, we will need to have our branch open and hire him through the branch as our UK entity full-time employee.

reader

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

AlexCh

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

Thank you very much for the clarification.
We thought it was somehow possible to have him on our Cyprus company payroll without establishing any UK legal entities.

reader

AlexCh said:

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

Thank you very much for the clarification.
We thought it was somehow possible to have him on our Cyprus company payroll without establishing any UK legal entities.

For a UK resident UK tax would be due.

There you would need a UK branch operating PAYE or he would need a UK company operating the IR35 rules: https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye81605

AlexCh

reader said:

AlexCh said:

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

Thank you very much for the clarification.
We thought it was somehow possible to have him on our Cyprus company payroll without establishing any UK legal entities.

For a UK resident UK tax would be due.

There you would need a UK branch operating PAYE or he would need a UK company operating the IR35 rules: https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye81605

Thank you for your reply.
Could you kindly clarify one point.
We rent our sales office in London (our Cyprus company pays for it) and the salesperson (UK LTD company) operates from the office. Does it mean that we have our Permanent establishment and tax residence in the UK in accordance with this
https://www.gov.uk/hmrc-internal-manuals/international-manual/intm264300
and we must register with HMRC
or we are exempt because of this
-CTA2010/S1143 goes on to say that there is no permanent establishment in the UK if the activities here, whether conducted through a fixed place of business or by an agent, are preparatory or auxiliary in character in relation to the business as a whole. The statutory definition includes the activities that are listed as “activities of a preparatory or auxiliary character”

Our lead generation/sales activity is not our main activity, we are not a trading company, we find customers and provide them our services.
Thank you

CSan89

You do realise that this forum isn't a free accountancy advice forum but for AAT students/members to discus accountancy matters?

It sounds like your business model is quite complex and I would strongly suggest to hire a UK accountant so they can look into your affairs in more depth because more and more things keep coming out of the woodwork with every post you make.

I'm guessing you charge for your services?

AlexCh

CSan89 said:

You do realise that this forum isn't a free accountancy advice forum but for AAT students/members to discus accountancy matters?

It sounds like your business model is quite complex and I would strongly suggest to hire a UK accountant so they can look into your affairs in more depth because more and more things keep coming out of the woodwork with every post you make.

I'm guessing you charge for your services?

Thank you for your post. Actually, when I communicate ON forums and know an answer I can assist people and don't charge anything. Should I?

CSan89

Well so far you have only contributed by asking questions about your business. I wouldn't be surprised if that is how you 'contribute' to other forums too.

If you believe that you should charge people for your time, don't expect other peoples time for free.

AlexCh

CSan89 said:

Well so far you have only contributed by asking questions about your business. I wouldn't be surprised if that is how you 'contribute' to other forums too.

If you believe that you should charge people for your time, don't expect other peoples time for free.

Thank you for your post. But please note I have not asked you to contribute something into the thread. Please could you just ignore the thread? Thank you.

CSan89

Strange thing "OPEN" forums are. I can comment on any thread but thankyou for asking.

reader

AlexCh said:

reader said:

AlexCh said:

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

reader said:

No, you are wrong.

Your Cyprus company needs to sign a contract with his limited company (not him).

If you sign a contract with him (not his company) you need to setup a UK branch and PAYE. The bank account you pay into is irrelevant. The contract is more important.

Thank you very much for the clarification.
We thought it was somehow possible to have him on our Cyprus company payroll without establishing any UK legal entities.

For a UK resident UK tax would be due.

There you would need a UK branch operating PAYE or he would need a UK company operating the IR35 rules: https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye81605

Thank you for your reply.
Could you kindly clarify one point.
We rent our sales office in London (our Cyprus company pays for it) and the salesperson (UK LTD company) operates from the office. Does it mean that we have our Permanent establishment and tax residence in the UK in accordance with this
https://www.gov.uk/hmrc-internal-manuals/international-manual/intm264300
and we must register with HMRC
or we are exempt because of this
-CTA2010/S1143 goes on to say that there is no permanent establishment in the UK if the activities here, whether conducted through a fixed place of business or by an agent, are preparatory or auxiliary in character in relation to the business as a whole. The statutory definition includes the activities that are listed as “activities of a preparatory or auxiliary character”

Our lead generation/sales activity is not our main activity, we are not a trading company, we find customers and provide them our services.
Thank you

It is not possible to comment on whether or not you have a permanent establishment in the UK without knowing:
1) What services are you selling?
2) Where the fee earners are based?
3) Are contracts entered into in the UK by the sales manager?
4) Will the office you are renting be just for the sales manager? Or will you be subletting too?

A UK sales agent acting on behalf of a non-UK resident company who continually exercises authority to do business on the company's behalf may create a UK permanent establishment. If contracts are made outside the UK, the company may not be trading in the UK, but this will not be conclusive if there are other factors that are more important.