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UK Tax

UK Tax | Corporate Tax

Residence

A company is UK tax resident if it is incorporated in the United Kingdom or, if not incorporated in the United Kingdom, if its place of central administration and power is in the United Kingdom.

Direct Taxation of UK companies

United Kingdom companies are tax-resident in the United Kingdom for Business Tax.
If business activities take place outside the United Kingdom, application to be tax resident in a different country might be required, leaving the company excused from United Kingdom Corporation Tax.
There are three simple policies:
If tax is not paid in other countries, then the organization is a UK tax resident by default
If there is a tax agreement among the country of trading and the United Kingdom, in that case the provisions of the tax contract be relevant
If there is no tax agreement, the United Kingdom will unilaterally provide dual tax exemption

UK Quick Tax Facts for Companies
Rate of company income tax19%
Rate of Branch tax 19%
Rate of Capital gains tax 0%/20%
Residents' basis of taxationGlobally
Participation Exemption Abroadyes
Loss relief
- Carryforward
9 years
− Carryback1 year
Twofold taxation exemptionYes
Consolidation of taxYes
Rules for transfer pricingYes
Rules for thin capitalization yes
Rules for controlled foreign companyYes
Withholding Tax
− Dividends0%
− Interest0%/20%
− Royalties0%/20%
− Branch remittance taxNone
Capital taxNone
Tax for real estate transfervaries
Gift tax/Inheritance0%-40%
VAT
20% (standard rate)/5%, 0% (reduced rates)

UK Tax | Withholding Taxes

Dividends

Generally, the United Kingdom does not levy withholding UK tax on dividends. However, from certain dividends, a real estate investment trust (REIT) is needed to deduct UK tax at 20%.

Interest

Usually, to non-UK residents, a 20% withholding UK tax is levied on interest payments, except the rate is decreased under a valid UK tax treaty. Clearance must be approved by the UK tax authorities as this is not a regular reduction. Before making the initial interest payment on the loan the borrower just has to complete a notification form 30 days, if the lender is on the list.
In UK law, the interest payments to qualifying EU companies might be exempt with the condition that they meet the conditions for application of the EU royalties and interest instruction as executed. Once more, clearance must be granted by HMRC since this is not a regular reduction. In diverse EU member states, the instruction exempts from withholding taxes payments of royalties and interest amid companies, in limited situations. One of the prime necessities is that, where a United Kingdom company is paying royalties or interest to a company in another EU member state, one of the companies should have a direct interest in minimum 25% of the capital or voting rights of the other, or voting rights of both companies or a third company should have a direct interest in minimum 25% of the capital. Therefore, where there is not a direct interest, payments between companies in the same group are not included. The instruction will a lot of times not have any practical effect, with reference to its application to United Kingdom companies making payments of royalties and interest, because a lot of tax treaties with EU member states already provide for a relief from withholding UK tax where certain situations are fulfilled.

Royalties

Unless the rate is decreased under a UK tax treaty, generally a 20% withholding UK taxis levied to nonresidents on royalty payments.

Branch remittance tax

No.

UK Tax | Wage Tax/Social security Contributions

Wage tax/social security contributions

The United Kingdom does not levy a payroll tax; yet, in the UK the employers are supposed to make social security contributions under the NIC scheme to support their employees. For corporation tax purposes these contributions are tax deductible. NIC is also paid to employees. Usually, NIC is payable is 13.8% rate of on all income in surplus of GBP 8,112 (from 6 April 2015), for employers.

UK Tax | Value Added Tax

The largest single source of indirect UK tax income  is VAT. In the course of a business, VAT is chargeable by a taxable individual on most supplies of goods as well as services made in the United Kingdom. Also, it is chargeable on the good imported from countries outside the EU and certain services.

A UK company requires applying to a UK VAT number if it has considerable activity in the UK, as it is not created with a UK VAT number.

VAT is imposed on the value added at every stage of the manufacturing and supply chain, and on trade in. Businesses serve as VAT collectors as they pay to HMRC the tax that is paid by their customers and receive a credit for the tax that they pay to suppliers. Therefore, until the goods or services are received by the end consumer or an exempt business, the VAT is counteracting at every stage. With a decreased 5% UK tax rate, the standard rate of VAT is 20%. Moreover, a few supplies are zero-rated and others are exempt.

Zero -Rated VAT: Zero-rated supplies are considered as a taxable and Zero-rating VAT is applicable on

  • Excluding catering a lot of foods,
  • Newspapers as well as books,
  • Some transactions with respect to property and land (for example new homes, and to some buildings used for charitable and some housing purposes),
  • Some clothing and footwear like children’s clothes and protecting clothing.
  • The majority of water and sewerage services,
  • Public transport excluding taxis,
  • Some health as well as welfare services,
  • Charities

If the business anticipates a turn over GBP 82,000 in the next 30 days or if taxable turnover goes beyond GBP 82,000 (from 1 April 2015) in any 12-month period, then incorporated and unincorporated businesses, both should register for VAT.

For businesses that make taxable supplies below this threshold, voluntary registration is feasible. And, if taxable supplies comes under GBP 80,000 (from 1 April 2015), then deregistration is feasible

UK Tax | Accounting, Filing and Auditing Requirements

Along with numerous extra details, public limited companies should file annual accounts, with Companies House, where they are available to public.

Unless the organization is an SME, the accounts will comprise of

  • a directors’ report signed by a director or the company secretary and notes to the accounts.
  • an auditors’ report signed by an outside auditor,
  • a profit and loss account and a balance sheet signed by a director,

 

For these purposes, no public organization, irrespective of its size can meet the criteria as an SME.

Except for special provisions applicable to SMEs, the private limited companies are supposed to meet the similar criteria.

Small companies might submit a comprehensive balance sheet and notes and a special auditor’s report those fulfilling any two of the following three requirements:

  • no more than GBP 6.5 million of annual turnover,
  • not more than GBP 3.26 million of balance sheet total and
  • no more than 50 employees in a workforce

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