Contractors' Questions: Should a foreign 'Ltd' open a UK office for UK work?

Contractor’s Question: Although the questioner in this Contractors’ Questions piece is advised against using a limited company, I think there is a way to use a non-UK limited company to execute a UK contract and still be compliant.

In particular, where a contractor such as the questioner has a foreign limited company and is going to commute to the UK from an EU country to perform a contract in London, Monday-Friday, I believe the contractor’s existing limited company could open a subsidiary/branch/office in the UK.

Assuming that the contractor’s foreign company remains based overseas, and that the directors remain based overseas and management decisions are taken there, couldn’t the non-UK company then just simply register for UK income tax and VAT, in order to perform the UK contract?  

Expert’s Answer: The initial guidance given to the questioner was based around the idea of an individual contractor, or one-man-band, rather than an example of a limited company with multiple directors. However, in the situation of multiple directors, the arrangement you outline is permissible.

So opening a subsidiary or branch or office in the UK would work. However any small business that sends a member of staff to work overseas will still have to register the individual as a UK worker, so they’re properly registered to pay the requisite levels of income tax and national insurance. This only works if the firm has more than one director, as the centre of economics for the company is based on where the director is based and where management decisions are made from.

Consequently, if the limited company only has one director, the centre of economics would follow where the director is working and you would most likely form a permanent establishment by moving and working in a new country. This could mean that they could become liable for corporation tax and employment taxes in both countries.

The process involved in doing this can be time-consuming and expensive as you would need to find and accountant who is familiar with both countries’ tax systems to manage the process. I would suggest it is considerably more efficient to just open a new limited company in the UK or utilise an umbrella organisation, both of which would remove a considerable amount of difficulty.

In summary, while the set-up you outline is correct from a compliance standpoint, it only applies in the situation of a limited company with multiple directors, rather than a personal services company with just one director. For the latter - who would be operating on their own - they must be registered in the country in which they are working.

The expert was Charles Daw, a director of CXC Global.