Bon voyage!

Relative to many parts of the world, the UK remains an attractive place to live. This may come as a surprise to UK readers, but the UK represents a modern, stable, successful jurisdiction in which living standards are high and prospects are good. People still want to move to the UK and, with remote working becoming increasingly sustainable and effective, this now includes business owner‑managers who previously were loath to shift away from the physical site of their businesses.

Wider discussions around ‘remote’ management are beyond the scope of this article, but the tax issues triggered are important to understand. What is the danger of making, for example, a bottling factory in Baku tax resident in the UK (and, therefore, taxable in the UK as a company and its dividends taxable in the UK on the UK‑resident shareholder) when its owner‑manager opens a laptop on a kitchen table in London?

UK tax residence for companies

Company UK tax residence broadly falls under two headings:

• being a UK‑incorporated company; and
• having the company’s central management and control (CMC) exercised in the UK.

Assuming that the Baku bottling factory is not a UK‑incorporated company, the second heading is the more important to understand when considering remote management.

Central management and control

The focus on CMC for UK company residence is long‑standing, as stated in the case of De Beers Consolidated Mines, Ltd v Howe.¹ This case linked a company’s residence to the UK because its ‘real business’ was carried on there, being the place in which its CMC occurred. This developed the earlier general principle that a company resides where its board meets rather than where it operates. De Beers decided that this principle assumed that the place where a board meets is the place where the company’s CMC happens.

The 2005 case of Wood v Holden developed that broad principle:²

‘… in all normal cases the central management is identified with the control which a company’s board of directors has over its business and affairs, so that the principle almost always followed is that a company is resident in the jurisdiction where its board of directors meets’.

This development means that the site of CMC is a matter of fact. The case distinguished between CMC exercised:

• through the company’s ‘constitutional organs’ (i.e., its board or in general meetings); and
• by someone else – in the language of the judgment, the board’s CMC being ‘usurped’ (exercised by someone independently of, or without regard to, those constitutional organs) or ‘dictated’ to the board.

Where ‘usurping’ or ‘dictation’ happens, the location of board meetings may not represent the location of the company’s CMC.

Leave the CMC behind

Each company’s and individual’s circumstances will require different considerations, but the following are basic tips for keeping CMC outside the UK:

• Do not have a sole director who is also UK‑resident (or a UK‑resident board majority) in any circumstances. Seek to have a non‑controlling minority of UK‑resident directors only.
• UK‑resident owner‑managers should have no particular influence over board meetings, whether as a board member or as a shareholder.
• The board should meet frequently to make decisions and review the company’s business. These meetings should most regularly be held in the country in which the company is tax resident (and not in the UK).
• Board members should understand the information based on which decisions are being made and in advance of meetings, if appropriate; these decisions and meetings should be minuted properly. Decisions should be made by the board as a whole (and be so expressed).

The UK‑resident sole director of our Baku bottling factory is likely to be exercising CMC from the UK. Of course, they may avoid making management decisions while in the UK; as per the case of Development Securities (No.9) Ltd v HMRC, their individual residence status in the UK is not determinative of the company’s own status.³ However, Her Majesty’s Revenue and Customs may look with scepticism at a sole director who is also a major shareholder claiming not to exercise management and control while living in the UK. The risk would be greater still if the company’s business was less closely connected to a single jurisdiction; for example, a company holding financial assets only.

Key to successful relocation is planning ahead of the event. Where clients are moving to the UK, they should be encouraged to take local advice ahead of their planned arrival and, more specifically, ahead of the UK tax year in which such relocation is likely.