UK
Tax Registration
Newly
formed businesses must register with HM Revenue
& Customs (HMRC) for corporation tax purposes
within three months of commencing business.
In
the case of VAT, businesses must register
with HMRC where turnover for the previous
12 months exceeds GBP77,000, or the business
expects turnover to exceed that figure within
the following 30 days.
In
certain circumstances, it can be tax beneficial
for a business to voluntarily register for
VAT – for example, where it sells zero-rated
items and wishes to reclaim the VAT on standard-rated
items purchased in the course of business.
Failure
to register for tax purposes in accordance
with the above rules can result in penalties
of up to 100% of any tax that would have been
due otherwise.
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UK
Scope and Rates of Corporation Tax
Companies
that are tax-resident in the UK are subject
to corporation tax on their worldwide income;
non-resident companies pay corporation tax
on their UK-source income only.
Corporation
tax is charged at a rate of 24% from 2012
(26% in 2011), although a lower rate of 20%
applies to taxable profits of up to GBP300,000;
this lower rate was 21% prior to April 2011.
Marginal rate relief may apply where taxable
profit falls between GBP300,000 and GBP1.5m,
which can reduce the company’s corporation
tax liability.
From
April 2010, companies realising a profit from
UK-registered patents benefit from a reduced
corporation tax of 10%.
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UK Capital Gains Tax
Capital
gains are taxed at a rate of 28%.
Holding
companies benefit from capital gains tax exemption
on the sale of shares in a subsidiary, provided
that the holding company holds at least 10%
of the ordinary share capital of the subsidiary
and has held the shares for at least 12 months.
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UK
Stamp Duty
Stamp
duty is charged on real estate transactions,
and on certain share transactions.
The
duty is 0.5%, rounded to the nearest GBP5,
on share purchases exceeding GBP1,000, where
the transaction is not electronic. Shares
bought electronically are subject to stamp
duty reserve tax of 0.5%, rounded up or
down to the nearest penny, of the amount
paid for the shares (and therefore not on
the value of the shares). The tax is automatically
deducted when the transaction is made.
A
company that buys back its own shares held
on an overseas branch register is relieved
from paying stamp duty.
Stamp
duty land tax (SDLT) is payable on non-residential
real estate transactions exceeding GBP150,000.
Rates are 1% for real estate valued at up
to GBP250,000, 3% where valued at up to GBP500,000,
4% where valued at over GBP500,000, 5% where
valued between GBP1m and GBP2m, and where
valued above GBP2m the rate is 7% (5% prior
to March 22, 2012). In the case of rent for
new leasehold properties, a flat 1% SDLT applies
to the value that exceeds GBP150,000, plus
a “lease premium” that is based
on the 1%-4% SDLT rates listed above.
Various stamp duty reliefs and exemptions
apply.
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UK
Calculation of Taxable Base
Corporation
tax is charged on the profits of a business’s
taxable income, i.e. trading and investment
income and chargeable gains. Dividend income
is not included for these purposes.
Normal
business expenses are deductible from taxable
income. There are also a number of tax credits,
such as research and development (R&D)
relief of up to 130% of R&D costs (subject
to conditions), as well as capital allowances
and depreciation of assets. There are first-year
capital allowances of 100% on purchasing certain
(e.g. environmentally friendly) plant and
machinery, as well as a temporary first-year
allowance of 40% of expenditure on other plant
and machinery incurred in the tax year 2009/10.
Losses
can be carried forward indefinitely, although
they can only be offset against future trading
profits. Losses can generally be carried back
for a period of one year; however, there is
a temporary provision by which losses not
exceeding GBP50,000 can be carried back over
three years for accounting periods ending
between 24 November 2008 and 23 November 2010.
Companies
can also make claims and elections that assist
in reducing corporation tax liability. Examples
of claims might include, for example, reliefs
such as for R&D; in the case of elections,
these might include electing to have an asset
treated as a “short-life asset”
for capital allowance purposes, which would
allow the company to write off the cost of
the asset over its lifetime.
Arms’
length thin capitalisation rules apply to
both domestic and cross-border transactions
under transfer pricing legislation; however,
certain small business groups are exempt from
these provisions, subject to conditions.
UK
Filing Requirements and Payment of Tax
The
corporation tax return must be filed within
12 months of the end of the company’s
accounting period. The return can be filed
online; electronic filing of corporation tax
returns will be mandatory from April 2011.
The filing date can be extended where there
is “reasonable excuse”, such as
natural disaster or where there are technical
problems with HMRC’s online filing system.
Companies
with annual turnover exceeding GBP1.5m must
pay their corporation tax in quarterly instalments,
with final adjustments for the accounting
period made when the annual corporation tax
return is filed. For companies with annual
turnover of GBP1.5m or less, payment is due
within nine months and one day of the end
of the accounting period.
Corporation
tax can be paid using a number of methods,
including by direct debit, telephone or online
bank transfer, and cheque or cash, and can
be made by post, at a bank or at a post office.
Penalties
apply for late filing, payment and failure
to keep proper records for corporation tax
purposes. For example, failure to keep proper
records can result in a fine of up to GBP3,000.
Interest due on unpaid tax is calculated using
the Bank of England base rate, plus 2.5.
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UK
Withholding Taxes
Real
estate investment trusts are required to withhold
tax of 20% on dividend payments to non-residents,
subject to any relevant double tax treaty.
Otherwise, generally no withholding taxes
are applied to dividend payments.
Interest
payments are usually subject to withholding
tax of 20%. In the case of royalty payments,
those made to individuals (whether resident
or non-resident) are generally subject to
20% withholding tax; royalty payments made
between resident companies are not subject
to withholding tax. Exemptions apply to interest
and royalty payments that fall under the EC
interest and royalties directive. Double tax
treaties may reduce or exempt such taxes.
Value
added tax is charged on most goods and services
at a rate of 20% since January 4, 2011,
prior to that it was 17.5% (increased from
a temporary one-year reduced rate of 15%
on January 1, 2010).
A
lower rate of 5% applies to a number of
items, including domestic fuel and power
supplies; installation of energy saving
materials; and residential property conversions,
renovations and alterations. A number of
items are zero rated, and include books
and periodicals; children’s clothing;
most foods; the construction and sale of
new houses; most medical supplies; imports
and exports; and carbon emissions allowances.
VAT
returns are usually filed quarterly, within
one month of the end of the relevant three-month
period, along with payment. From April 2010,
all existing businesses with an annual turnover
of GBP100,000 or more, excluding VAT, must
file their tax returns and pay their VAT
online. Additionally, all businesses, regardless
of turnover, that register for VAT after
April 1, 2010, must file and pay online.
Late
filing of VAT returns and payment are subject
to penalties of up to 15% of the unpaid
VAT, in addition to interest charges. Documents
and VAT returns that are found to be misleading
or inaccurate can result in a penalty of
up to 100% of the VAT that would have been
due had the documents or returns been in
good order.
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