Back in 2020 Father Christmas (“FC”) phoned the ETC offices for the first time.
Like many clients, he had some tough tax issues to contend with.
Importantly, during COVID, FC had got stuck in the UK and was living with his brother, Farmer Christmas (to revisit this call click here )
You see, he had become UK resident as he had exceeded his ‘unexpected reasons’ exception.
Today, on a cold and dark morning in Altrincham, the phone rang again and old St Nick is on the phone with an update and more questions.
In the main, he’s been enjoying his new life in Rutland, as opposed to Lapland, and has bucked the UK anti-growth trend and had started building his business in the UK.
However, his happiness seems to be waning under the current government having now “had enough of those reds in Downing Street”. As we will see, he also seems to be having some ongoing tax problems, which might be feeding this narrative as well. We pick up the conversation here.
ETC: (laughing) Thought you liked ‘red’ FC.
FC: Well, sartorially, yes. But politically? Absolutely not. In fact, I’m thinking of moving to Dubai.
ETC: Oh, that’s interesting.
FC: Yes, I’m very well connected there in the highest circles. You see, I’m great friends with Sheikh Bin Stevens [yes, this entire tale has been drafted to accommodate this Christmas cracker-level joke].
ETC: ‘Is Dubai not a bit too bling’ for you FC?
FC: Dear girl, a man who likes a bauble as much as me is right at home in Dubai.
ETC: So, what do I owe the pleasure of this call, FC?
FC: Well, you see, I’ve just got into TikTok. All the elves love it. It’s terrible for productivity and drives me mad. But I now love a good scroll… and I find I get some excellent tax advice…
ETC: Hmmmm…
FC: I see you’re not convinced, dear girl. Well, only last week, one enterprising young man told me how it’s possible to avoid tax by setting up a tax-free company in Dubai. All I have to do is carry out my work from Rutland, and invoice from the new overseas business. Profits. Decanted. Like a fine Christmas port.
ETC: Errr?
FC: After all, it’s what Google do, right? So, all I have to do is buy an off-the-shelf company… or should that be an ‘off the elf on the shelf company’ (just my little Christmas offshore joke, dear girl, you’re far too serious) and appoint a nominee director to do my bidding.
ETC: I do apologise for being too serious. It’s an occupational hazard.
FC: Apology festively accepted!
ETC: But does your man on TikTok have any qualifications?
FC: Well, he’s more of a boy than a man. And no, he goes to great lengths to say ‘this is not financial advice’ and ‘do your research’. He’s very smart, you see.
ETC: OK. First of all, you need directors that are actually resident in Dubai, and who are able to exercise proper management and control from there.
FC: Exercise? Hmmm. I’m not too sure about that (FC pats his belly). Let me call you back.
[CLICK – Santa hangs up!]
…
Santa calls again.
FC: Ok, I’ve had a quick Teams call with potential offshore directors. They understand. They know ‘which side their bread is buttered’ so will do what I want. Hmmm, bread and butter pudding (muses FC).
FC: (Snapping back into the present) I did have one other concern.
The ETC tax adviser perks up a bit.
FC: And that was that they might run off with my brass. However, they did tell me that they deal with much bigger fish than me… and I’m a pretty big fish… so they said they’re hardly going to do a runner, are they?
ETC: Ok, that’s good, FC. But where are the elves these days?
FC: Well, we had to move them to Rutland under the little-known UK Ear 1 Investor Visa. It’s a bit hot for them and they have to sit, all year round, in the air con. But I find it does make them more productive… if a little miserable.
ETC: The problem is, then, FC, it still seems that you would very much still be classed as trading in the UK… and taxable.
FC: (He gulps hard) Well, you are giving me lots of problems and very few solutions. What can I do?
Well, as ETC explains, it’s not going to be easy.
ETC: Firstly, you’ll have to make sure you aren’t trading in the UK. Secondly, you’ll have to make sure that you don’t have a permanent establishment (or ‘PE’, for short) in the UK.
FC: So, I need to sort those elves out?
ETC: Well, yes, I guess so.
FC: It all sounds much more complicated than my TikTok friend suggested.
ETC: Indeed.
Tentatively, our ETC adviser goes on.
ETC: Have you heard of the transfer of assets abroad?
FC: What, like my sack of presents?
ETC: No, no.
FC: But my present sack transfers assets abroad?
ETC: No, not quite. I’m talking about the personal tax anti-avoidance rules…
FC: I’m not going to like this, am I?
ETC: Put simply, if you remain a UK-resident shareholder and there is no commercial reason for setting up the company overseas, then HMRC can effectively ‘look through’ the company and tax you, as the shareholder, on the profits.
FC: Blimey. But how will anybody find out!?
The ETC adviser looks weary, as if she’d been asked this question thousands of times before.
She begins to tell him about HMRC’s scary new data-gathering capability that links together many different data sources and whatever useful or incriminating snippets it can find on the internet.
FC gulps and immediately begins to regret his Instagram story documenting his trip to Dubai entitled ‘Sticking it to the taxman’. He’d never bothered to tick the privacy settings.
Sensing the troubling atmosphere, our ETC adviser decides to move the conversation on.
ETC: Let’s leave that for now and we can have a think. But, anyway, tell me how you’ve been getting on since our last conversation?
It has to be said that this was a slightly barbed comment as, following the last conversation, FC had decided to appoint other advisers to ‘solve’ problems / access opportunities explained by ETC back in 2020. However, like his faith in his favourite TikTok adviser, things hadn’t quite panned out too well.
FC: Yes, where do we start?
ETC: Well, I don’t know, how about the R&D claim?
FC: (Sighs) Well, as you know, we researched and created a brand-new hydrogen-powered sleigh. Zero emissions. You know, to counter the methane production from all those carrots that the kids leave out for the reindeers that are sprinkled in glitter… And let me tell you this, if you had a second home on a glacier, you’d be worried about climate change, too.
ETC: Oh yes. We proposed a full report on this. We told you that, if successful, as you weren’t turning a profit, you could have surrendered the loss to HMRC… at the time that was worth 14.5% of the amount.
FC: Yes, that’s the one.
ETC: …and I remember, you wanted the funds before Christmas and we couldn’t guarantee that. So, you went elsewhere?
FC: Errr. Yeah. In the end, we made our claim with an R&D claims company called Green Jinglefish. It had the strapline, “If you don’t ask, you don’t get”.
FC: (continues) Sadly, they also made a claim for the special fridge the elves use to cool down in. And when I say ‘special’ I mean a Beko fridge from Argos. I was also a bit wary when they started claiming for a project on elf nutrition. Basically, they just eat candy sticks and gingerbread… like they’ve done for millennia.
FC: What Green Jinglefish didn’t tell me was that I would get an investigation from HMRC… and then the company would do a runner. Can you assist me with that please?
ETC: Yes, sure. We’d be happy to help with the enquiry.
FC: Good. One other thing.
ETC: Yes…
FC: Do you remember that I was looking at whether the business could provide me with that new sleigh? And the wise old elf had told me that I might have a ‘Benefit of being Kind’ on it.
ETC: Hmmmmm. Again, I think you’ve got the wrong end of the candy stick there, FC. As I told you at the time, a benefit in kind is where an employer provides you with something – say, the use of an asset – free of charge or at an undervalue, and thecash equivalent of that ‘benefit’ is subject to tax.
FC: But that doesn’t sound like something nice at all!
ETC: Indeed, but as I said at the time, were it a zero-emission car, then there would be no benefit in kind (although it’s not quite as attractive now)… and the company could have written off the purchase in the first year.
FC: Yes, yes. We tried to argue that the sleigh was a car.
ETC: We?
FC: Well, I did.
ETC: But it’s not a car, is it? Do you remember what I told you a car was, FC?
FC: Yes (you can hear FC rolling his eyes). A… mechanically… propelled… road vehicle.
ETC: And what was your response?
FC: Well, I think I was rather clever, to be honest. The new sleigh was mechanically propelled… and it could go on a road… weather permitting.
ETC: Snow permitting?
FC: Well, yes.
ETC: As I said at the time, it was a fairly bullish view. What happened?
FC: Well (rather embarrassed) we got an enquiry. Can you help?
ETC: Of course we can.
ETC: Oh, I almost forgot to ask. How did Rudolph get along with his Spanish image rights investigation?
FC: Well, let me tell you. It was a pretty close call. In the end, he used the same lawyer as Carlo Ancelotti. Same result. Suspended jail sentence. He’s not been the same since. All the colour has drained from his nose. But he’s a free reindeer with a criminal record.
ETC: Good, good. Oh, one final thing, FC. You’ll need to satisfy our Anti-Money Laundering checks before we can engage you.
FC: How hard could that be?
ETC: Usually, it’s quite straightforward, but… well… erm…
FC: Spit it out, dear girl.
ETC: I think we might need to do some enhanced checks on you.
FC: What!?
ETC: Well, from what I can see, you procure items for the entire world’s children… and I’m not clear on the source of the funds… and then you then simply give them away. This seems an unusual pattern of transactions to me.
FC: Unusual? I represent the spirit of good cheer at Christmas. I bring peace, joy… good food… and wine.
ETC: Of course you do. But I can’t see any exemption in The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 for any of those things… Also, worryingly, you seem to have a number of different names – Father Christmas, Santa Claus, Old Saint Nick, Weihnachtsmann, Papa Noel, Babbo Natale…
FC: That’s not my fault. I am the personification of the most wonderful time of the year. Why does it matter what they call me in different countries?
ETC: I know, I know. We just have to do our due diligence on all our clients. Look on the bright side… I don’t think you’re a Politically Exposed Person.
FC: Well, that is a relief?! Please send me what you need. I need to go. It’s time for the Christmas work do. Merry Christmas. Let’s crack on. Or should that be ‘cracker-on!’
ETC: Very funny. Merry Christmas.
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