Over the years, we have seen investigative journalists claim that one can choose an offshore company in much the same manner as a week in Benidorm. Not only are they based in exotic locations, but it is claimed they are able to reduce a company’s tax bills.
Further, there now appears to be a slew of individuals shilling the merits of overseas jurisdictions like Dubai.
However, all those potentially tempted by reduced liabilities and white, sandy beaches should think again. It is not as easy as it might seem.
Indeed, if not done properly, the only sand you might be seeing is HMRC quicksand.
Totally fictional case study: You bend ‘em, we mend ‘em
For example, let’s say we have a Halifax-based panel-beater. He’s taken action after being seduced by a short video blog on Linkedin which explains how it’s possible to avoid tax by setting up a tax-free company in the Seychelles.
All he has to do is carry on his work in West Yorkshire while his invoices are issued from the new overseas business.
After all, it’s what Google do, right?
Initially, he was under the impression he could buy an off-the-shelf firm and appoint a nominee director to do his bidding. However, he quickly learns that he needs to put more distance between his operations in West Yorkshire and his apparent Indian Ocean idyll if his arrangements are to be acceptable to HMRC.
The suggestion is that he must have directors that are actually resident in the Seychelles, able to exercise genuine central management and control there — and not merely act on instructions from the UK.
Hmmm. He’s not too sure about that. But, after a quick Teams call with the potential offshore directors, he understands they know on ‘which side their bread is buttered’ and are likely to do what he wants.
His other concern is that, as signatories to the bank account, they might run off with his brass. However, again, the potential fiduciaries convince our metallurgical tycoon that they deal with much bigger fish than him… so they’re hardly going to do a runner, are they?
That’s a relief… and with all that taken care of, he might be forgiven for thinking that he now has a pukka tax avoidance mechanism in place.
But wait.
What the magazine advert didn’t spell out is that, despite shelling out for his Seychelles company, he is still likely to be within the UK corporation tax net if:
If in this scenario he does not account for UK tax to HMRC, he’s not avoiding tax. He is, in fact, very likely committing tax evasion.
The Corporation Tax and PE problem
What if our friendly but perplexed panel beater now takes himself off to an accountant to ask how he can really avoid Corporation Tax? After all, he’s already gone to considerable lengths to do so.
Well, they explain, it’s not going to be easy.
Firstly, he’ll have to make sure he genuinely ceases trading in the UK.
Secondly, he’ll have to ensure that the overseas company does not have a UK permanent establishment under UK domestic law and relevant treaty definitions (now closely aligned with OECD standards).
Thirdly, he will need to ensure that transfer pricing principles are satisfied where there are UK connections.
It all sounds so much more complicated than the ad made it appear.
He’s starting to get hot under the collar… and he hasn’t yet left the West Riding of Yorkshire.
Transfer of Assets Abroad
Leafing through another of his favourite tax publications, he reads about the Transfer of Assets Abroad provisions. Alarmed, he quickly rings up his new accountants,he’s certain they hadn’t mentioned anything about these to him.
That’s because, his advisers point out, they are personal tax anti-avoidance rules and we’ve only been talking to you about the corporate issues. It’s all set out somewhere in the engagement letter. However, to put his mind at rest, they provide a short, sharp summary.
Put simply, if he remains UK resident and transfers assets or income-producing activities to a non-UK company, and one of the main purposes is to obtain a tax advantage, HMRC may attribute the company’s income to him personally under the Transfer of Assets Abroad (TOAA) rules unless he can demonstrate genuine commercial purposes and that the avoidance of UK tax was not a main purpose.
Importantly for 2025/26, this analysis now sits within the UK’s reformed international tax regime following the abolition of the remittance basis since 6 April 2025. The UK now operates a residence-based system, including a new four-year foreign income and gains regime for new arrivals. However, long-term UK residents do not obtain protection merely by interposing offshore entities.
Blimey.
Offshore Tax – Paradise Papers
It all seemed so easy when he was reading about the Paradise Papers in the Guardian.
But what if, thinks our friend, one does away with all the overseas nuts and bolts and keeps a low profile. After all, “how will anybody find out!?”
Our panel-beater’s advisers start looking a bit green…
Shifting uncomfortably in their seats, they begin to tell him about HMRC’s data-gathering powers, international information exchange under the Common Reporting Standard (CRS), beneficial ownership registers, and increasingly sophisticated analytics systems.
Our friend gulps and immediately begins to regret his Instagram story documenting his trip to the Seychelles entitled ‘Sticking it to the taxman’. He’d never bothered to tick the privacy settings.
Pleading ignorance is not a defence, lectures his adviser [although in tax, sometimes it is!]
In addition to civil penalties which for offshore matters can reach up to 200% of the tax due in serious cases there remains a strict liability criminal offence for certain offshore tax evasion matters. In such cases, the prosecution does not need to prove dishonest intent in the traditional sense.
“But that is tantamount to guilty until proven innocent” our friend protests. “Indeed,” says his adviser, now watching the clock as he has a pressing lunch appointment.
He sets out that in addition to significant financial penalties, serious cases can result in criminal prosecution and potentially imprisonment.
Our imaginary West Yorkshire friend puts his passport away and tips his collection of holiday island avoidance brochures into the bin.
Perhaps he’ll stick to a trip to Filey this year…
Conclusion
Of course, there are scenarios where an entrepreneur might set up an overseas entity and obtain genuine tax benefits.
Generally speaking, this will be where an entrepreneur has the opportunity to generate genuine overseas sales and establish real economic substance outside the UK.
Further, our intrepid entrepreneur will need to ensure that his or her business is genuinely managed and controlled from overseas and that transfer pricing, permanent establishment, and anti-avoidance provisions (including TOAA and the Anti-Profit Fragmentation rules) are properly addressed.
The Diverted Profits Tax remained in force until 2025/26 , although t it has been replaced by a new regime (Unassessed Transfer Pricing Profits) for accounting periods beginning on or after 1 January 2026.
Both management/control and personal anti-avoidance concerns may be mitigated if the entrepreneur genuinely becomes non-UK resident under the Statutory Residence Test but temporary non-residence rules and the tax regime of the destination country must be considered carefully.
Exposes like the Paradise Papers attract controversy but you can guarantee that tax advisers’ phones ring the next day as individuals like our imaginary friend above “want to do a Google”.
But, as you will hopefully appreciate, offshore tax planning isn’t as simple as many TikTok influencer/advisers would let you think.
If you have any queries regarding offshore tax matters or require any tax advice then please do not hesitate to get in touch.
*Original 2022/10/12 updated 25/02/2026
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