It is no secret that the British tax system can often be a minefield, with rules, regulations and allowances frequently changing.
Business owners need to be aware of the three most common tax considerations that will affect their business when coming to the UK.
That is why we want to outline the three most important taxes that affect UK businesses: Value Added Tax (VAT), Corporation Tax and Pay as You Earn (PAYE, so that you can create an efficient tax plan for your business.
VAT
VAT is one of the most common taxes in the UK. 17 per cent of all the Government’s money collected comes directly from VAT.
VAT is charged on most goods and services in the UK. It is essentially a consumption tax that is levied at each stage of the supply chain, from production to consumer.
Businesses registered for VAT must charge VAT on the goods and services they supply and pay the VAT they have charged back to HMRC.
It is also possible for businesses to claim back any VAT they have paid on their business expenses.
The current rates of VAT are:
- Standard rate – This is charged at 20 per cent on most goods and services.
- Reduced rate – This is charged at 5 per cent on some goods such as home energy, children’s car seats and residential property conversions, etc.
- Zero rate – Zero per cent rated items are charged on most foods and children’s clothing.
In the UK, you must register for VAT if your taxable turnover exceeds the threshold, which is currently £90,000.
Corporation Tax
All international companies with a UK branch must pay corporation tax on their profits, including profits, investments and gains from selling assets for more than their purchase price.
The rates of corporation tax can vary. The current rates are:
- A 19 per cent charge on profits up to £50,000.
- A 25 per cent charge on profits over £250,000.
If you are between these thresholds, you will still be charged at 25 per cent but could be eligible for marginal relief.
Before you can register a business for Corporation Tax, you must first register it with Companies House. Once that is done, you must then register for corporation tax with HMRC.
It must be done within three months of starting any business activities.
PAYE for employees
For international businesses establishing operations in the UK, operating PAYE is a key tax consideration.
PAYE is the system used to collect Income Tax and National Insurance Contributions directly from employees’ wages before they are paid.
Before employing staff, overseas businesses must register as an employer with HMRC. Once registered, HMRC will issue an employer PAYE reference number and an Accounts Office reference number.
These references are required when submitting payroll information, identifying your PAYE scheme and making PAYE payments to HMRC.
Employers must submit payroll information to HMRC on or before each payday through the Real Time Information (RTI) system, usually by sending a Full Payment Submission (FPS).
This ensures employees’ tax and National Insurance records remain accurate throughout the tax year and helps businesses comply with UK tax reporting requirements.
How can we help?
Tax in the UK can be a minefield and these are only three of many tax considerations a business must make when they are setting up in the UK.
If you find the process confusing, we are here to provide clarity.
Our team of accountants can support you when moving your business to the UK.
We can advise on VAT, PAYE and corporation tax, along with many more UK tax payments and any allowances you may be eligible for.
To arrange a conversation, get in touch with our team today.