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If I have a business in the UK that would be taking x amount profit per year, what if I pay employees in a low tax country like Philippines (freelancer rate is 8%).

E.g. they might do £400 worth of work, but I pay them £2000. This would be reasonable because £400 worth of virtual assistants is like £2000 in the UK for a similar role.

However, I can tell the virtual assistant that their actual money is £400 and the other £1600 is for me and that they should keep that aside. I can then tell them to buy me whatever with that money and they'll agree if they're trustworthy.

Is that legal? Because if it is, I'd be taxed only 8% rather than the much higher rate in the UK

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  • I assume you checked how gifts are taxed in the Phillipines and if you need to pay VAT and Customs Duty for gifts from abroad? I also assume you looked up if being a restaurant owner is still considered freelance in the Phillipines? Also, do you think someone earning GBP400 a month is willing to do whatever you tell them (they are not desperate over there)? Lastly, you seem to be very inconsistent, I thought you "can then tell them to buy you whatever"?
    – AKdemy
    Jan 6 at 21:46
  • There would be no gifting going on, but yeah I guess the freelancer couldn't run a restaurant.
    – Peter K
    Jan 6 at 23:33
  • Okay they might not be able to buy whatever, but they could buy a lot of business expenses that HMRC might not accept right?
    – Peter K
    Jan 6 at 23:38

2 Answers 2

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What you are suggesting is tax fraud. If you do it and are caught you could be prosecuted.

At the simplest level, you are getting income of £1600 from each assistant that you are not declaring to HMRC. Not declaring all your income is prima facie tax evasion.

It doesn't matter that the money doesn't come back to you. If they use it to do something that you decide then it's not their money, it's yours. If it's their money then they get to decide what to do with it.

Meanwhile your Filipino assistants are paying tax on £2000 of income which, according to your plan, they don't actually get to use.

Also, if you were approached by someone who said "I'll pay you £2000 but I want you to send me back £1600" then that looks very like a scam and smart people wouldn't do it. The only people who will do it are gullible idiots, and you shouldn't want them to work for you.

If anyone other than yourself has an interest in the business then you might be charged with other things too.

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  • But it wouldn't be my money right? It's theirs and they can spend it how they like right? If it so happens that they spend it on making music or starting a photography company, that's up to them. Now if I "recommended" they did that, it's still their decision right? Is this not a legal loophole?
    – Peter K
    Jan 6 at 21:03
  • There would be no sending back of money. It would never come back to me. It would stay with them
    – Peter K
    Jan 6 at 21:05
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    The question to ask yourself is this: if you recommended they "make art", and they chose not to, would you keep sending them the £2000 next month? If not then it's not their money. (That's not what you said in the question, you said "buy me whatever").
    – DJClayworth
    Jan 6 at 21:13
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    By the way, I'm not saying you couldn't get away with this if you were devious enough. But you asked if it was legal, and it isn't.
    – DJClayworth
    Jan 6 at 21:17
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    Now you are not only engaging in tax fraud but workplace bullying, and possibly violating the employment laws of the Philippines.
    – DJClayworth
    Jan 6 at 21:19
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I can tell the virtual assistant that their actual money is £400 and the other £1600 is for me [...] Is that legal?

Attempting to deceive HMRC is illegal. Telling HMRC something different than you are telling your supplier is an attempt to decieve HMRC.

This is not tax avoidance, it is tax evasion. That is illegal.

It doesn't matter whether you are being repaid in cash or in kind.

See https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em5105

Fraud (in relation to HMRC) includes, in its various forms, falsification with an intention to deceive and this may be present even as a mere conscious understatement in, or omission from, a return or accounts.

Any falsification may be consciously planned with the clear intention of deceiving and cheating HMRC by, for example, the omission, manipulation or invention of figures, or other records. This may require consideration by Specialist Investigations (SI), and even, possibly, the institution of criminal proceedings.

This is not a loophole, it is a criminal act. If it were a loophole, you could safely discuss it with HMRC directly yourself and have them tell you it is legal.

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