This is to all companies based in europe.

What did you do when you reached the VAT limit. I dont want to increase my prices or decrease my profit margin, i was considering incorporating in the USA to avoid this? What did you do? Have you got any recommendations on this?

If you are incorporated in a foreign country are you still able to have a bank account in the UK?

Alan Reid
Splas Host

Hi Alan,

I am not sure then Inland Revenue would let you get away with this. Short of getting a head office office in the States (which is something worth considering) I cant see a way round this. Dont forget - you can claim you VAT back on a great deal of things in return for being registered.

We are currently going through all this at the moment - I didnt realise how much accountants, lawyers, insurers etc. really cost :(

Let me know if you find anything of interest.

Well i dont mind paying to get a company set up in the states, it would certainly be worth it with the amount of money i would save.

There is very little i can claim back vat on, all my costs are from the servers rented from american companies.

How about car expenses, phone costs, office expenses, mobile phone, computers, laptops, "business meetings" - ie. restaurant, hotels etc........the list goes on.....

I work from home, there is very little costs over my servers.

You are missing the point......go and have a free consultation with an accountant....he will advise.

I agree though, uprooting and getting over to the states is probably a good way....good food, good weather, mmmmm!

I wasnt thinking of getting a real office in the states. Im prett ysure you dont have to do that.

I am just a little concerned about what the tax man might say if you are working and running a business from the UK but registered and paying taxes in the States.

I have to admit we didnt really look to much into this.

Youve got it the wrong way around, i would cease trading in the uk. Register in the us, and only pay income tax from my us business.(I think)

As far as I know you only have to pay VAT for UK clients, right? You shouldn't have to pay VAT for US clients or any other country.

Or am I wrong?

I'm located in Romania, and we also pay VAT, however I receive lots of money from US, UK, Germany and we don't pay VAT on this.

We incorporated in the US for this very reason, as zoli says you would only charge VAT to UK customers if you stayed UK based but that can add a nightmare level to your administration of the business if you grow.

Incorporating in the US can bring many advantages which basically you need to compete in this business and overall tax payments are much lower. Being remote you can choose a very tax friendly state to register in and most incorporators will supply basic office services etc.

We have been incorporated in the US for over 2 years now and its paid for itself 1000's of times over. We do however still run our UK company which runs under the VAT threshold but gives us some UK tax advantages as we can inter-trade with our US company, so basically 2 seperate legal companies each with its own bank account etc etc

Luckily I was in accountancy for many years before starting this business so didn't need to buy in help but even so you should save the cost if you have to buy it in.

If you are incoporate i the us can you still have uk bank account for you business so you can by things in gbp?

you would need to run both UK and US companies, the US company handles all sales and you can then use the GB company to buy things if needed.

But not sure if you can open a UK bank account for a US company if you completly closed your UK company

I think ill probably set up another one in the US and keep the UK one then keep the UK one below the vat limit.

I would say that is the best way forward.

If all sales go through your US company then you can pay for US services in dollars and make payments to your UK company for 'management services' you can then pay your UK staff out of the UK company and limit its profits etc etc

Thanks for the advice bbi

Originally posted by SplashHost.com
I think ill probably set up another one in the US and keep the UK one then keep the UK one below the vat limit. Alan, Just out of curiosity what is the VAT limit in the UK or does it vary on a case to case basis?

It's around £55,000 per annum.

The VAT limit in England is currently £54,000/annum.

But there is one thing I find puzzling, having just spent the last 2 days trying to figure out English VAT laws. From what I could make of what custom and excise were saying on their website things such as web hosting only need to pay VAT on the English and (from what I could make out) the European sales. The rest of the world was exempt.

Anybody able to enlighten me on this? Cause its might confusing for my small brain :)

Have anyone started a US based company from outside the US? How should I proceed if I decide to start one?

If your point of supply ie where your servers are based is in the US - Alan I beleive yours are in Texas - then you don't have to charge VAT.

Have to say that was Dr Strangelove said was something that also caught me while reading the custom and excise site. I'd class Web Hosting as a digitised product/service - as such you only charge VAT at the point of supply, where the service is enjoyed. If you get the servers in the US this then would be your point of supply. You supply the space and pages from the US, once they leave the server they're onto other companies territory :D

Anyone else got anything to say about this? I'd be very interested to hear what other UK based hosts/business minded people think.


Originally posted by Dr Strangelove
If your point of supply ie where your servers are based is in the US - Alan I beleive yours are in Texas - then you don't have to charge VAT.

Absolutely right Soulfish. If you just ask your local VAT office or some regional accountant they don't understand this. They just tell you what they think should be the case.

Originally posted by SuperDon
I am just a little concerned about what the tax man might say if you are working and running a business from the UK but registered and paying taxes in the States.

I have to admit we didnt really look to much into this.

Correct, you might run into trouble with that. They most probably won't accept that you're incorporated in the U.S. but working 100% of the time in the UK.

I would still be paying income tax like normal.

Okay, the servers would be US based which is part of the service, but the support services would be from the UK. So where wold that leave things?

Does anyone have any confirmation about VAT charges for international orders if you're located in the UK? Our accountant is currently doing some research on this, just to check if we register for VAT, will it apply to customers located internationally?

There's a few posts above saying that if servers are located in the US and the company is located in the UK, then no VAT needs to be charged. But is the service agreement not between the company and the customer? and not that customer and the server location?

We should get someone from customs into this forum to ask :).

Alan

we had long conversations with our local VAT officer and the digitised product does not include web hosting and domain names, basically you are renting the use of a physical product, a web server or part thereof. Digitised product would be a content provider etc.

The point of supply is the web server so location is important

Most people cite the AOL case for VAT avoidance but they are being taken to court over this

I would highly recommend you do not rely on this thread to just not pay VAT, in the UK customs and excise have more powers than the police :) and a fine line between avoidance and evasion. At the end of the day the decision is made by your local VAT officer.

Who brought up corporating in the US? Why do this?

The best thing to do is have your registered office offshore like for example the channel island, gibraltar or cyprus.

Then you dont have any tax problems what so ever, you can have your UK bank account and you can trade in GBP and have UK customers. You can even get away with employing your work force in the UK, just make sure you always mention that your head office is a PO box in your registered country.

You dont just avoid VAT, you only get taxed by the local goverment which is very minimal. In gibraltar, I believe you only have to pay around £2000 a year in tax for your company being registered and thats it! You can turn over what you like!

- blob2

For a UK company the USA is offshore and much cheaper than Gibralta or Cyrus, we chose Delaware as it has no state corporate income tax for corporations that operate outside of Delaware, franchise tax is low and formalities are easy.

bbi-linux, some very good points there... I guess people should have a talk with their local VAT officer to see where they stand and what they should do. I'll be seeing what my accountant turns up about the VAT situation, if nothing... then I'll be having a meeting with the VAT man too (sounds just like the tax man, but not sure if it's worse) :D.

Alan

I thought you only need to pay VAT if you charge VAT? I'm not sure if you need to charge UK/Europe customers VAT, as it depends on how your VAT man classifies web hosting, as a resource or a VAT'able service?

I know you don't need to charge people outside of the UK VAT anyway, and so the amount of VAT you need to pay might not be that high, you don't need to pay it for 9 months or so after the date anyway. But I'm all for incorporating outside the UK, far too high a tax rate, please let me know how it go's! :D

HTH,
Infinite :)

I thought you only need to pay VAT if you charge VAT? I'm not sure if you need to charge UK/Europe customers VAT, as it depends on how your VAT man classifies web hosting, as a resource or a VAT'able service? Well if you're VAT registered and you have to register if your revenue is above £54,000 per year, then you'll have to charge your clients VAT on your services. Why would web hosting be classified as a resource? I would say it's definitely a service.

Alan

Hello
I hope this helps.

VAT is an Excise tax.
It is only due on goods or service provided to csutomers in the European Union from COmpanies in the European Union.

If you host US customers on a US server but are a business located in the EU you do not have to charge your customer VAT
as the hosting is never coming into the EU area.

If you host US customers on servers based inthe EU then you must charge them VAT because the service is supplied from the EU.
The customer COULD then reclaim the VAT paid from Customs and Excise like a tourist buying goods here to take back to the US (if they could be bothered).

However, if your turnover is over the VAT limit and you are a UK company you MUST register for VAT.
This is not the huge problem you might imagine.
It allows you to reclaim VAT on services purchased in the EU.

We actually gain about £500 per month by being VAT registered
as we can reclaim more than we pay out in VAT.
BUT of course the VAT people could/will eventually stop this by exempting us from the ability to reclaim VAT.

The bottom line is that you need a good accountant.
I just changed to using a big city firm.
There view of my business is that it is much more complex than any other business of similar size because of the international dimension especially on the VAT issue.
I would strongly suiggest you get the correct advice and don't trust the Customs and Excise people as the position on "place of supply" is changing all the time.

Gordon

Gordon what happens if your a EU based business hosting customers on a US server then? Do they still have to pay VAT if your registered?

We actually gain about £500 per month by being VAT registered
as we can reclaim more than we pay out in VAT.
BUT of course the VAT people could/will eventually stop this by exempting us from the ability to reclaim VAT.

The bottom line is that you need a good accountant.


This was exactly my point towards the beginning of this thread....thanks for the great post Gordon :)

Originally posted by Soulfish
Gordon what happens if your a EU based business hosting customers on a US server then? Do they still have to pay VAT if your registered?

If the customers are in the EU then you must charge them VAT
as the service is being supplied in an EU country from an EU based business.

If you were a US company this would not be the case.

Usual disclaimer about seeing an accountant applies.

BTW: web hosting is classed as a telecommunications supply

Gordon

Originally posted by GordonH

BTW: web hosting is classed as a telecommunications supply

Gordon

Gordon, does this mean that VAT should be charged on web hosting? What about non-uk domain names?

TIA,
Infinite :)

Hello
If you are VAT registered you must charge VAT on all services unless they are zero rated or outwith the scope of UK VAT.

If your servers and/or the customer is in the Uk then you must charge them VAT and pass that to the government.

The difficult bit is separating your vatabale from non vatabale income.
We have two seperate merchant accounts and bank accounts with the correct one being applied when the customer selects their country.

Gordon

Does anyone know how you pay your income tax on money you make from your offshore company?

Originally posted by SplashHost.com
Does anyone know how you pay your income tax on money you make from your offshore company?

yes. i'm interested too.

how much do you pay for your individual income tax since all the profits are legally earned by your offshore company?

does it depend on the amount of money you remit back to your country?

or do you have to pay the income tax based on the full profits earned by the offshore company since you are the only director.

I consider to move to Slovakia since their taxes are even lower than US taxes. Anyway I think international customers do not trust in companies from Slowakia. I did also consider to move to Switzerland. Their tax rate is very small, too.

It is really wired that you have to pay 50% in taxes and more in Europe. I think the people who make such laws are criminals and should be put in jail or even better - be shot.

It depends.

In the UK people who work for companies and pay their taxes monthly with heir wages pay huge amounts of tax.
I used to pay 55% of my salary when VAT, local taxes and other taxes were taken into account.

People on self assessment or who have thier own business tend to pay less tax because of the way it is worked out, but the business (if it is a company) pays massive amounts. I think I paid £35,000 past year in corporation tax for the business.

Anyway, I changed accountant and got that down to £2,600 this year.

The good side about the UK system is that we pay taxes but we get healthcare, education (mainly free) up to quite a high standard.

Every country has their own way of providing services and the UK tends to do it through taxation.
I don't mind paying taxes, and at the rate I am paying them I will have paid for the building of a hospital or a school by the time I retire.
It gives me a warm glowing feeling as I lie awake at night thinking about the tax demands.

Gordon

sorry i dont understand the £54,000 VAT limit. I've been told that its 54,000 turnover, what does this mean? does it mean in total you've received a total of 54,000 but not nessarily have the money in your bank account but just received it

If you are a Uk business and your turnover is more than the VAT limit you MUST register for VAT.
This means that you have to charge your customers VAT.
It also means you can reclaim VAT on any of your business expenditure, so if you pay for UK services you will get the VAT back.
The resut of this is that you don;t actually pay 17.5% of your income to customs and excise. You pay 17.5% of your income minus the amoutn you can reclaim in that quarter of the year.
In other words, the impact of paying VAT is not as much as you think it will be.

Originally posted by GordonH
I think I paid £35,000 past year in corporation tax for the business.

Anyway, I changed accountant and got that down to £2,600 this year.

If you dont mind me asking, how did you manage that? you telling me that just by changing accountants you're making a saving of £32,400 ? or am i missing something?

Yes
Our previous accountants had a very bad grasp of how much profit we were making.
This meant we owed a lot of corporation tax.

Now, we know very accurately how much profit we make, we can spend it on equipment and business development which means we do not lose it to the tax man.

Gordon

so you are saying that the way to avoid paying more corporation tax is to make less profit? but isnt that bad for you?

OK, you need to look at what constitutes profit and what does not.
Profit invested back in the business (i.e. spent) is not taxable.
It appears as expenditure.

I used to sit on vast amounts of cash, but its simply not worth it. I now do three things with spare cash.

1. Invest it in equities (shares in other technology companies) as this turns it into an asset in the balance sheet. It has some risks but its fun.
2. Spend it on projects which will benefit the business (new software, hardware etc).
3. Pay myself a bit more salary :) (although this means I then pay personal tax on it but its nice to do that from time to time).

Gordon

so, paying yourself more salary will reduce overall profits and as a result will reduce corporation tax. Only downside will be the income tax on the salary right?

Yes.
It reduces the company's profits but increases personal taxation.
Its swings and roundabouts.

My business may be different to others on this board because I am salried. Although i own the business I am on a fixed salary. Some people who are sole traders will take a variable salary based on what profit they have actually made ina month.
Therefore how much profit the business makes has no effect on the amount of money I personally earn, that is always the same every month.

Ok guys, this is the official stance on VAT on hosting: http://www.hmce.gov.uk/business/tradinginternet/tradinter-9.htm

It clearly states in the above URL and at http://www.hmce.gov.uk/forms/notices/info0403.htm that Webhosting is a digitized service and that you if you are a UK company, you should only charge VAT to UK cutomers - not EU customers. ONLY UK!

It changed as of July last year.

Originally posted by GordonH
OK, you need to look at what constitutes profit and what does not.
Profit invested back in the business (i.e. spent) is not taxable.
It appears as expenditure.

I used to sit on vast amounts of cash, but its simply not worth it. I now do three things with spare cash.

1. Invest it in equities (shares in other technology companies) as this turns it into an asset in the balance sheet. It has some risks but its fun.
2. Spend it on projects which will benefit the business (new software, hardware etc).
3. Pay myself a bit more salary :) (although this means I then pay personal tax on it but its nice to do that from time to time).

Gordon

Too often I see business owners take this the wrong way and it turns out they spend a dollar to save 40 cents.

Isn't it a bit OTT to consider moving to another country just to avoid VAT ?

Surely if you've not reached the VAT limit yet, it'd be far cheaper to pay the VAT than move house to another country ?

If it's that critical to not pay / charge VAT, have you considered owning several small companies each with their turnover below the VAT threshold ?

If it's that critical to not pay / charge VAT, have you considered owning several small companies each with their turnover below the VAT threshold ?

That will not work.
If the companies all have the same controlling directors they are viewed as a VAT group and the turnover of all the companies are added to egther to work out if it is over the VAT threshold.

If you try to use different directors or hide them as sole traders ultimately owned by the same people you will eventually get caught. It all depends whether you like sleeping at night. I keep things as squeaky clean as possible as I enjoy not worrying.

Gordon

Originally posted by GordonH
Yes.
It reduces the company's profits but increases personal taxation.
Its swings and roundabouts.

My business may be different to others on this board because I am salried. Although i own the business I am on a fixed salary. Some people who are sole traders will take a variable salary based on what profit they have actually made ina month.
Therefore how much profit the business makes has no effect on the amount of money I personally earn, that is always the same every month.

so basically if i spent 100% of my company's profits buying shares of other companies, i need not pay any corporate tax?

I've currently dropped under the VAT threshold, but still retain the registration. My main target customer is small business and they tend to be VAT registered anyway.

so basically if i spent 100% of my company's profits buying shares of other companies, i need not pay any corporate tax?

In the UK, yes.

If you spend 100% of your profits you then have no profit and there is nothing to pay tax on.
If you buy shares you have to pay stamp duty on each purchase so the government still gets their pound of flesh, plus you will pay tax on any dividends.

I make a bout 4% per month on my share dealings after the dealing fees and taxes are paid, which is a lot more than the money would earn sitting in the bank.

Gordon

wow! that's a neat trick.

darn, i need to get a GOOD tax planner

So when you register, what are things you can get away with to reclaim tax? Could you reclaim tax on a company car used to get you to your office?

I'm not 100% sure on this, but wouldn't be possible to register in another EU country besides UK which has a lower tax rate? If you do this, then you are free to trade in the UK but don't need to pay any of its taxes (except your own personal income tax and council tax).I know AOL did this and with one of the new countries which joined the EU, it is so poor that it has 0% tax on business because it wants to promote business to open in that country. I'm not sure which country it is but i'll try and find out for you.

Rameen

So when you register, what are things you can get away with to reclaim tax? Could you reclaim tax on a company car used to get you to your office?

No!

Exactly the opposite.
If you get a company car you lose all of your personal tax allowances.

Here is how I do the car(s).

I have a set salary of £x
I then go to a garage and buy a car on HP (finance) with the servicing included.
The cost of this will be £y per month.
I then pay myself £x + £y per month.
I pay tax on the additional element of my salary but its simpler than the complex company car arrangements.

Its a very complex area.
For example, you can avoid tax by taking your salary as dividend but if you do that you can only pay £300 a month into a pension which is not enough.

I pay about £8,000 a year in accountancy and book keeping fees, but bu doing this I saved over £20,000 last year compared to the year before, and this year I have saved about £30,000 plus I get a nice lunch occasionally.

At the end of the day I don't want to have to worry about being investigated by the tax or the VAT and I am happy to pay to have things done properly and it has probably saved money in the long run.

Gordon

so is it legal to use 100% of your profits to buy tech shares and pay no tax at all since the net profit is zero after the buying of the shares?

i believe you could, but as those shares are now under the company name, when you come to selling them, you will have to pay tax on the money you sell them for as if it were any other income from your business

hmmm... but you can delay it the tax payment. isn't that good?

if you want, but if the shares increase so does your tax, and if the shares decrease in value youve lost all your money

would you prefer to pay tax on your money or have no money at all? Shares are risky. Besides why would you want to delay tax? it just means to have to pay a bigger lump sum later and it might build up too much for you to handle..

gorden, sorry if i missed this but how are you registered? sole trader or limited company? and would it make a difference (bar liability)

We are alimited company.

On the losses issue, yes shares do go down but they never go to zero. Plus the amount we are investing is an amount we could afford to lose.

I have to say I come from several generations of share traders so I do have some cumulative experience in the family!