Company Formation & Taxation

Overview

Why do I have to set up a UK entity? There are several reasons. Under the Companies Act, an overseas company setting up in the UK must register a UK establishment. This only applies if you haven’t already set up a UK subsidiary. Also, you can only make immigration applications for inter-group transfers (Tier 2 ICT) if you’ve set up your UK entity as either an establishment or a subsidiary.
How do I decide what kind of legal entity to set up? Ask yourself: what are my commercial aims? Your answers will determine the type of operation that you need to establish and help define your legal and tax status.
What are the most common legal entities? There are two: a UK private limited company, known as a subsidiary, or a UK branch of your overseas company, known as a UK establishment.
Which is the best legal entity? Many customers and suppliers prefer dealing with a UK company, so setting up a subsidiary is often the best option.
What is the legal status of a subsidiary company? It is a separate legal entity from the parent company even though it will be wholly owned by the parent company. It must file, on public record, annual accounts. It is liable for UK corporation tax on its profits but it may be able to take advantage of reduced rates of corporation tax depending on the size of profits globally.
What is the status of a UK branch of a parent company? It will be legally the same entity as the parent, meaning that all profits or losses of the UK establishment are incorporated with those of your overseas parent and all debts and liabilities of the UK establishment belong to the overseas parent. It should be registered with Companies House within one month of being established.
What taxes will I have to pay on a UK branch of my parent company? This will be assessed on a case-by-case basis. For example, work undertaken in preparation for the eventual setting up of a taxable presence may be non-taxable. If the UK activities are taxable, UK corporation tax is payable on the UK establishment’s profits, via the submission of an annual tax return.
Does a UK branch of my parent company qualify for tax relief? Double tax relief is usually available in the parent company jurisdiction.
Will I have to file accounts? Yes, annually, and these accounts will be publicly available.

 

What Taxes Should You Pay?

Corporation Tax

You will be asked to pay corporation tax on the profits your UK business makes.

How much? The mainstream rate of corporation tax is 20%. The small profits rate (profits up to £300,000) is 20%.
Who works it out? You are required to calculate your own company tax liability and file an annual return of your results over the company accounting period.

Our specialist team of accountants will make sure that your business is structured in the most tax efficient way and that you know how much corporation tax you need to pay and when.

Income Tax

Income tax is generally deducted from your salary on a monthly basis, through an employer-run system known as ‘pay as you earn’ (PAYE), and automatically paid to HMRC.

How much? As an employee, you will pay between 0% and 45% tax, depending on your earnings.
Employer responsibilities: Our specialist team of accountants will advise you regarding the most tax-efficient payment system for your employees and advice on how to calculate income tax liabilities for foreign nationals.
How much income tax will you pay? The first £10,600 of your earnings is covered by your personal allowance (0% tax). The next £31,865 is taxed at the basic rate of 20%. The higher rate of 40% applies to income between £31,866 and £150,000, after which the maximum rate of 45% applies.

National Insurance

A type of social security.

Who? Both employers and employees are subject to National Insurance contributions as a percentage of the gross salary paid to an employee.
How to calculate? As an employer you must calculate this amount and pay it to HMRC on a monthly basis, along with the PAYE tax. Current rates for employees are 12% of salary between £153 and £805 per week, and then a further 2% on income above that limit. For employers, the rate is 13.8% of total salary above £153 per week. As an overseas national you may also be subject to UK National Insurance.

Value-Added Tax (VAT)

VAT is the UK sales tax.

How much? If the annual turnover of your UK business exceeds £81,000 per year you are required to register with HMRC and pay this tax on your sales. The VAT rate applicable depends upon the goods or services you supply. The standard rate is currently 20%. A reduced rate (5%) or a rate of zero can apply.
VAT legislation is complex and you should seek expert advice to make sure that you are paying the correct rate of VAT.
The main areas where VAT should be considered are importing goods for resale; providing services from overseas to private individuals in Europe; and digital businesses who are transacting with businesses and individuals in different jurisdictions: consideration should be given to this when building platforms/commercial websites so that information is captured correctly for reporting purposes. None of the above issues are difficult if they are considered upfront.

Explore R&D Tax Incentives

The UK has become a great place to undertake R&D. R&D tax incentives are available for innovation and apply across all industry sectors. The incentives are most attractive for SMEs, which can claim a deduction of 225% of R&D expenditure.

Companies with tax losses can claim a cash credit of up to £24.75 for every £100 spent on R&D. And while innovation is generally thought of as a totally new development, in practice businesses are finding that many areas of development, particularly around technology, are deemed to be innovative and qualify as R&D.

Large companies are eligible for a deduction of 130%, and a loss-making company may also receive a repayable cash credit.

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