Moving to the UK as a founder? Understand the corporate tax risks

Large numbers of business owners relocate to the UK while continuing to hold interests in companies incorporated abroad, whether in jurisdictions such as the UAE, Singapore, Malta, Bermuda or elsewhere. A common assumption is that those companies will remain non-UK tax resident because their place of incorporation and registered office have not changed.

However, the recent tribunal decision in Cogefin (Bermuda) Limited and Giuseppe Ciardi v HMRC highlights an important point, a company’s tax residence is determined not only by where it is incorporated, but also by where its central management and control is exercised.

Understanding the central management and control principle

Under established UK tax law, a company incorporated outside the UK can nevertheless be regarded as UK tax resident if its central management and control is exercised from within the UK. The key consideration is where the company’s highest-level strategic decisions are genuinely being made.

This test goes beyond administrative matters such as where paperwork is signed or bank accounts are maintained. Instead, HMRC focus on who is directing the business and where those decision-makers are located when significant commercial decisions are taken.

For founder-led businesses, this can present a particular challenge. A founder may relocate to the UK but continue to oversee and direct the company’s affairs. In those circumstances, HMRC could argue that the company’s central management and control has effectively moved to the UK along with the founder.

The significance of the Cogefin decision

Although the facts in Cogefin were unusual, the legal principles applied were well established. The tribunal found that, despite having Bermuda-based directors and local administrative functions, the company’s key strategic decisions were ultimately being made by an individual based in the UK. The offshore directors were largely carrying out or implementing those decisions. As a result, the company was held to be UK tax resident.

The decision demonstrates HMRC’s readiness to look beyond formal arrangements and assess the reality of how a business operates. Evidence such as email correspondence, banking activity and approval procedures may all be scrutinised to determine where effective control actually sits.

A concern for globally mobile entrepreneurs

This issue is especially relevant for founders who now live in the UK while continuing to own and run businesses established overseas.

Even where foreign directors remain in place and board meetings are formally held outside the UK, problems can arise if the founder continues to make the substantive decisions and the overseas board merely ratifies or executes them. In such cases, the intended overseas tax residence position may be at risk.

Warning signs commonly include situations where:

• The founder remains responsible for all major strategic decisions
• Overseas directors exercise little independent authority
• Commercial negotiations and banking instructions are managed from the UK
• Board approvals serve primarily as a procedural step rather than a genuine decision-making process

Possible tax implications

If HMRC successfully establishes that an overseas-incorporated company has become UK tax resident, the consequences may be substantial. Depending on the circumstances, the company could be liable to UK corporation tax on its worldwide profits, together with historical tax liabilities, interest charges and penalties. While double tax treaty provisions may provide relief in certain situations, the analysis is often complex.

An important reminder for founders

The principal takeaway from Cogefin is not that the rules have changed, but that the long-standing central management and control test continues to be rigorously applied. Founders relocating to the UK should carefully assess whether the governance arrangements of any overseas companies continue to support their intended tax residence position. The crucial issue is not where the company is incorporated, but where strategic decisions are genuinely being taken in practice.

For businesses that depend on maintaining non-UK tax residence, ensuring that central management and control is genuinely exercised outside the UK may be just as important as the company’s legal structure itself.

If you would like guidance on these issues, please contact our team for specialist advice.