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Taxes and Accounting

In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies
A company is resident taxpayer if it is incorporated in the UK or if its place of central management and control is in the UK.

A UK-resident company is subject to corporation tax on its worldwide profits with credit given for most overseas taxes paid. A non-UK resident company is taxed only on locally-sourced profits and chargeable gains of its permanent establishment (PE) in the UK as well as any investment activity made with locally-sourced income. Any foreign-sourced profits of the PE is not taxed nor available for tax credits.

Real Estate Investment Trust (REITs) are resident companies listed on a recognised stock exchange and can choose to be exempted from tax on income or gains arising from property rental business. If they opt to do so, they must distribute substantial profits. A REIT must also deduct 20% tax from certain dividends.

 

Tax Rate

Main corporate income tax rate, not applicable to profits from oil rights and extraction 19% (where the taxable profits can be attributed to the exploitation of patents, a reduced rate of 10% applies)
 
Tax Rate For Foreign Companies
A diverted profits tax (DPT) (25%) applies to profits of MNCs intentionally diverted from the UK for companies to better align their corporate tax position to reflect the expected outcomes of the G20/OECD base erosion and profits shifting project (BEPS). This tax sits above existing double tax treaties and is levied at 55% for oil and gas companies.
Capital Gains Taxation
Capital gains form part of a company's taxable profits but are exempt if they arise from the disposal of substantial shareholdings in both UK and foreign companies. A 28% capital gains tax applies on the sale of UK residential property worth more than GBP 500,000 and that has previously been subject to the Annual Tax on Enveloped Dwellings (ATED). Non-UK resident companies that realise a non-ATED gain on the disposal of UK residential property are subject to 20% capital gains tax.
Main Allowable Deductions and Tax Credits
In general, all expenses that are not capital in nature and that are used for trading purposes are deductible. Taxes other than direct UK taxes are generally deductible. Interest is deductible within the debt cap rules that apply to companies that are members of large groups. Most donations to charities by companies are deductible.

An R&D tax credit is available at 130% of R&D expenditure for large companies and 230% for SMEs (as defined by the EU). A patent box regime is gradually being introduced over 5 years to allow companies to apply an effective 10% rate to all profits derived from qualifying patents from 1 April 2013.

Other Corporate Taxes
A general anti-abuse rule (GAAR) applies across a range of taxes on transactions made after 17 July 2013.

Profits that arise from oil or gas extraction, or oil or gas rights, in the United Kingdom and the UK Continental Shelf ('ring-fence profits') are subject to tax in the United Kingdom in accordance with rates applicable in 2006, i.e. a full rate of 30% and a small profits rate of 19%. Such activities also attract 100% capital allowances on most capital expenditure. A supplementary tax charge of 10% applies to 'adjusted' ring fence profits in addition to normal corporation tax.

An annual tax on enveloped dwellings is charged on the acquisition and holding of high-value residential properties (property over GBP 500,000) through a company or other 'non-natural' person. The minimum charge is GBP 3,500 for a property valued at GBP 500,000.

A bank levy is applied at 0.17% for short-term chargeable liabilities and 0.085% for long-term chargeable equity and liabilities. The first GBP 20 million of chargeable liabilities is exempt. Bank profits are also subject to an 8% supplementary corporation tax charge on profits above GBP 25 million from 1 January 2016.

There are several environmental taxes, including: a Landfill tax, a Climate change levy and an Aggregates levy.

Since 1 April 2017, employers are required to pay 0.5% of their total payroll in excess of GBP 3 million to create a fund to support apprenticeships

A stamp duty is charged at 0.5% on instruments effecting sales of shares.

Other Domestic Resources
Consult the Doing Business website, to obtain a summary of the taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  United Kingdom
Number of Payments of Taxes per Year 8.0
Time Taken For Administrative Formalities (Hours) 110.0
Total Share of Taxes (% of Profit) 30.9

Source: Doing Business - 2017.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Accounting Rules

 

Accounting System

Accounting Standards
Financial statements of domestic and foreign public must be prepared in accordance with IFRS Standards (except in the case of foreign companies whose home jurisdiction’s standards are deemed by the EU to be equivalent to IFRS Standards). There are five possible financial reporting frameworks for SMEs, the most common being FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. This framework is based on the IFRS for SMEs Standard with several modifications.
Accounting Regulation Bodies
Financial Reporting Council
Accounting Law
The Companies Act of 2006 and the Third Country Auditors Regulation of 2007 regulate the accountancy profession in the UK.
Difference Between National and International Standards (IAS/IFRS)
IFRS Standards are required for all domestic public companies and listings by foreign companies (except in the case of a foreign company whose home jurisdiction’s standards are deemed by the EU to be equivalent to the IFRS Standards. There are 5 possible financial reporting frameworks for SMEs, which are all based to some extent on IFRS Standards for SMEs.
Accounting News
Accounting Web
Accountancy Live
 

Accounting Practices

Tax Year
The corporate tax year begins on 1 April. A company’s financial year normally is 12 months’ long and companies may prepare their accounts to any date. A company’s corporation tax accounting period is usually the 12-month period for which it prepares its accounts but special rules apply where the accounts cover a period of more than 12 months. For company accounting periods that straddle the start of the tax year, the taxable income is time-apportioned and taxed in accordance with the rates prevailing in the two tax years that the accounting year overlaps.
Accounting Reports
English companies must keep account books where are registered all the operations of the company and establish annual accounts including an annual report, a profit and loss account, a balance sheet, a table of financial flows, an appendix, an opinion of the auditors, a statement upon losses and earnings recorded, the comparison between the movements of interests of the shareholders and a note upon the result on historical costs basis.
Publication Requirements
Financial statements must be prepared annually.
Small companies (those meeting two of the three following requirements: annual turnover of no more than GBP 10.1 million, balance sheet total not more than GBP 5.1 million and a workforce of no more than 50 employees) may submit a shortened balance sheet and notes, and a special auditors’ report.
Medium-sized companies (those meeting two of the three following requirements: turnover of no more than GBP 36 million and balance sheet total of no more than GBP 18 million and 250 employees or less) may submit as a minimum a profit and loss account, a statement of other comprehensive income, a balance sheet and a statement of changes in equity, a directors’ report, a strategic report, an auditor’s report and notes to the accounts.
 

Accountancy Profession

Accountants
Only the "Chartered accountants" and "Certified accountants" are authorised and have the possibility given by the Accounting Commission to exercise a mission of audit or auditorship.
Professional Accountancy Bodies
The Institute of Chartered Accountants in England and Wales
The Association of Chartered Certified Accountants
Chartered Institute of Public Finance and Accountancy
Institute of Chartered Accountants of Scotland
Association of Accounting Technicians
Institute of Financial Accountants
Member of the International Federation of Accountants (IFAC)
Yes
Member of Other Federation of Accountants
Member of Accountancy Europe
Audit Bodies
Companies have to seek a statutory auditor to conduct an annual audit of the financial health of their organisation. Subject to meeting certain additional criteria, small companies may be exempt from the requirement to have their accounts audited.
For more information, consult the Financial Reporting Council.
 
 

Consumption Taxes

Nature of the Tax
Value Added Tax (VAT)
Standard Rate
20%
Reduced Tax Rate
A reduced VAT rate of 5% applies to certain categories of goods and services, including children’s car seats or social housing, fuel and power supplied to domestic users and charities, installation of energy-saving materials, mobility aids for senior citizens and so on. Certain goods and services are zero-rated, including books, newspapers, young children’s clothing and shoes, motorcycle helmets and certain types of food, but must still be recorded in VAT accounts.
Exclusion From Taxation
Goods and services that are outside the scope of the UK VAT system are tax exempt
Method of Calculation, Declaration and Settlement
A business can only charge VAT if it is registered with the HMRC. VAT applies to 'taxable supplies' such as the sale of goods and provision of services, the sale of business assets, commission, gifts and so on. Different rules apply to imports, exports and charities. A VAT return is typically filed every 3 months with the HMRC.
Other Consumption Taxes
The government has introduced legislation in Finance Act 2017 to encourage the reformulation of drinks that are high in added sugar by levying a unit charge on UK producers and importers of such drinks. There will be an exemption for smaller producers. The levy will come into effect in April 2018.

The Inheritance tax (IHT) is a transfer tax payable on a taxpayer’s chargeable worldwide estate above the nil-rate band (NRB), which has been GBP 325,000 since 6 April 2009.

Individuals leaving the United Kingdom by air are obligated to pay a duty, which, in practice, is invariably included in the cost of the air ticket.

Individual Taxes

Tax Base For Residents and Non-Residents
A statutory resident test (SRT) is applied to determine if an individual is a resident or non-resident taxpayer of the UK. The test includes a combination of physical presence and connection factors. Where an individual is resident and domiciled in the UK, he or she is subject to UK income tax and capital gains tax on worldwide income and gains. Where an individual is resident but not domiciled in the UK, he or she is also subject to UK income tax on worldwide income but may choose to pay tax on foreign income and capital gains on a remittance basis, subject to a supplementary charge. Non-resident individuals are taxed on UK-sourced income and capital gains realized from the disposal of UK residential property.
 

Tax Rate

Income tax rate Progressive rate up to 45%
GBP 0 - 5,000 (allowing for standard Personal Allowance) 0%
GBP 5,001 - 33,500 20%
GBP 33,501 - 150,000 40%
Over GBP 150,000 45%
Scottish Taxpayers Scottish Taxpayers pay 10% of income to the Scottish Government
 
Allowable Deductions and Tax Credits
Tax relief can be claimed on personal allowances (the standard amount is GBP 11,500 for the 2017-2018 tax year), work or business expenses and certain pension contributions, charity donations, maintenance payments and time spent working on a ship outside the UK.
Special Expatriate Tax Regime
Expatriate allowances are included in taxable income but may be available for exemption for certain subsistence expenses.
Capital Tax Rate
An Inheritance tax (IHT) is generally applicable upon death, to the value of the estate and gifts made within the previous seven years, subject to a reduction for gifts made between four and seven years before death. Where assets are worth more than GBP 325,000, IHT is 40%. Where more than 10% of assets are distributed to charity, a reduced IHT of 36% may apply to the rest of the estate.

The UK does not levy a net wealth tax.

A real property tax applies to the occupation of domestic property, to the value of the estate on 1 April 1991 in England and Scotland and 1 April 2003 in Wales. If occupied by a single adult, the tax is reduced by 25%. Stamp duty, land tax or land and buildings transaction tax apply to the purchase of property.

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
UK Tax Treaties
Withholding Taxes
Dividends: 0%, Interest: 20% for nonresidents, Royalties: 20% (rates can be lower if a tax treaty is signed)

Sources of Fiscal Information

Tax Authorities
HM Revenue & Customs, HM Revenue & Customs
Ministry of Finance, Ministry of Finance
Other Domestic Resources
UK Trade & Investment
Country Guides
Windsor Accountancy Tax Guide 2017-18

Learn more about Service Providers in the United Kingdom on Globaltrade.net, the Directory for International Trade Service Providers.

 

Learn more about Taxes and Accounting in the United Kingdom on Globaltrade.net, the Directory for International Trade Service Providers.

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Last Updates: June 2018