Tax
Part 2 - setting up a business in the UK
Adrian Hackett
National Head of Taxation Services
Corporate tax
A UK resident company is currently subject to corporation tax on its worldwide profits (whether or not they are remitted to the UK), at the following rates:
- profits £50,000-£250,000 = A sliding scale (marginal rate) ranging from
- 19% at £50,000 to 25% at £250,000.
- Total profits > £250,000 = 25%
For the purposes of corporation tax, profits include all income and capital gains. Your company is considered UK resident if:
- it is incorporated in the UK
- it is a company incorporated outside the UK, but the highest level of management and control is exercised in the UK (even if its day to day administration takes place outside the UK).
An overseas company will also be subject to UK corporation tax on its profits to the extent that they are attributable to the operation of a UK a ‘permanent establishment’ (PE). A PE includes a branch, office or factory in the UK.
How to report and pay corporation tax in the UK
Once your company (whether a PE or a UK subsidiary) has been established in the UK, it must register for corporation tax online within 3 months of the date it begins trading operations in the UK.
After the end of each of its accounting period, a company must also:
File a corporation tax return(s)
- A company has to file an online corporation tax return to HM Revenue and Customs (HMRC) for each of its accounting periods, regardless of whether it has any corporation tax to pay
- The return is due no later than 12 months after the end of the company’s accounting period (but cannot be submitted until any corporation tax due is paid)
Pay any corporation tax that is due
- Any corporation tax due must normally be paid within 9 months and one day of the end of the company’s accounting period
- A ‘large’ company will, in most circumstances have to pay corporation tax in quarterly instalments
Your capital tax allowances and reliefs
When calculating the trading profits of a company for corporation tax purposes, UK legislation provides tax relief for:
- Capital allowances - certain capital expenditure (mainly plant and machinery) is deductible for tax purposes
- Trading losses - losses incurred by a company on a trade may be set against other profits/gains of the company in (i) the same accounting period, (ii) in a previous accounting period, or (iii) in the next accounting period (same trade as created the loss only).
Value added tax (VAT)
VAT is a consumption tax charged on ‘taxable supplies’. If you sell goods or services subject to VAT under UK legislation, you must register for VAT with HM Revenue and Customs (HMRC) if your total ‘taxable supplies’ in a 12 month period exceed the VAT registration threshold (currently £90,000 per year) although a business may also register for VAT voluntarily, in particular if it anticipates needing to claim VAT refunds (see below).
Once registered, a business must charge VAT on all taxable supplies, regardless of whether the supply is to a final consumer or not. The charge applicable will generally be at the standard rate of VAT, currently 20%, but different rates apply for certain transactions.
The VAT chargeable on taxable supplies is referred to as ‘output tax’ and a business must account for this to HMRC. However, your business can offset any ‘output tax’ that is due against ‘input tax’, which is any VAT that your business pays on the goods or services it purchases for the purposes of making its own taxable supplies. Input tax can only be offset if it relates to a taxable supply.
A business can claim a refund of VAT from HMRC if the amount of input tax exceeds the output tax.
Failure to register and account for VAT in accordance with the UK’s strict regime incurs heavy penalties. If you carry out business in the UK it is absolutely essential that your VAT affairs are properly dealt with.
Payments to UK employees
If your company has a presence in the UK, you will generally have to deduct income tax and employee National Insurance (‘NI’) contributions (social security payments) from the salaries of your UK-based employees. This is done through a system called ‘Pay As You Earn’ (PAYE).
Your company will need to register for PAYE online with HMRC. You cannot begin to pay your employees until registration has been confirmed.
Your company is also liable to make a separate employer NI contribution for each of its UK-based employees worth (in most cases) 15% of the employee’s salary.
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