Recently we were told by a UK professional looking to set up an IBC but presently on the books of an employment agency that the IBC needed to be IR35 certified.

Why?

On the face of it, there’s the potential for tax evasion in such a circumstance – ie. British professional / providing services fully in UK. Why does he need an IBC and not a UK co one might wonder? Still, it could be a legitimate situation (assuming the IBC will pay UK tax on its UK and foreign income – as it will probably be regarded at law as a UK tax resident unless the shareholder is resident, and management and control is seen to be exercised from, offshore.

IR35 is UK tax legislation which facilitates avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise be regarded as an employee of the client, etc.

Hence, the plan here perhaps might be to legitimately take the earned money out of the IBC in the form of dividends rather than the professional personally receiving a salary which would be subject to NIC. Presumably PAYE would not apply on the dividends.

We have no idea about the “details” of IR35 or if an IBC is eligible for the scheme – it may well not be, ie. such onshore Government-approved tax schemes rarely promote non-British companies! The client or his/her UK tax advisor in such a situation should clarify – maybe you may need a UK company?.

NOTE: We are not in the business of providing legal advice. If you require further information and/or advice as the law governing such matters you will need to obtain such advice from a licensed Attorney at Law in the country of proposed incorporation. If you require further information or legal advice please contact us as we can assist you to obtain such advice via our network of international legal contacts.

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