Law & Taxation • Services
Setting up in the UK: Unlocking Tax Efficiency
The UK has emerged as a popular choice due to its competitive tax rates, generous tax reliefs for things such as Research and Development (R&D) and its strategic location. It is important to ensure that any newly formed company is structured in as tax efficient a manner as possible, not just with regards to the tax on the company’s profits, but also the way that the ownership structure is set out, etc. In this article, Sopher + Co guide you through the diverse tax rates and R&D tax incentives.
The first thing that needs to be done is for the company to be set up and registered at Companies House, the public register that lists all UK companies, and this process is known as “incorporation”.
At incorporation you will also set out the number of shares in the company, the holders of the shares in the company, the directors at formation and the company’s registered office address.
Corporation Tax
Once incorporation has been completed, HMRC will issue a unique tax reference number for the company.
As things currently stand, the main UK corporation tax rate is 25% for companies with taxable profits of £250,000 or more, although the previous rate of 19% still remains should taxable profits be only £50,000 or less. A marginal rate will apply for those with taxable profits in between.
The company will be required to file a company tax return each year, along with the company’s accounts. The accounts also need to be filed at Companies House on an annual basis.
The accounts need to be with Companies House within 9 months of the company’s accounts end date, known as the “year end”, and the company tax return with HMRC within 12 months. Any tax payable by the company will also need to be paid within 9 months and 1 day of the year end. Failure to meet these deadlines may result in penalties or interest charges being levied.
VAT
The main rate of UK VAT is currently 20%. Should your company’s turnover exceed £85,000, you must register for VAT, charge this in addition to your standard invoice fee and pay the VAT element to HMRC after completing a VAT return.
On a VAT return you list your total sales for the specified period and also the VAT you have collected. That total VAT is payable to HMRC, though you are permitted to deduct any VAT you have paid for goods or services if these goods and services qualify for a deduction.
The only real commercial issue that being VAT registered may cause is where your clients are predominantly individuals who are not VAT registered. In this situation, your prices will effectively increase by 20%, which may put off this type of customer.
R&D Tax Reliefs
The UK government places significant emphasis on innovation and research and development. To support this, it offers generous tax incentives to companies engaged in R&D activities. The R&D tax relief allows eligible companies to claim tax credits or deductions for qualifying R&D expenditures. This incentive encourages companies to invest in innovation, fostering technological advancements and enhancing their competitive edge on a global scale.
Companies can claim relief on various R&D-related costs, including employee wages, materials, software, and utilities. This provides a considerable advantage for companies seeking to develop cutting-edge products, services, and processes, while simultaneously reducing their tax liabilities.
Personal Tax Issues
In addition to the above, there is further consideration required as to how to structure any payments to you from the company. Salaries, dividends and taxable benefits are just a few ways of doing this and it’s important to ensure that this is also structured as tax efficiently as possible.
Also, if moving from overseas to the UK, there are several tax implications to be considered from a personal perspective to ensure that any transfers of funds from overseas do not trigger unintentional tax charges.
Conclusion
The above sets out a few of the basics that you need to be aware of. Whilst every case is different, a personal, tailored approach to these matters usually works best, looking at both the company and the individual or individuals collectively.
What may be best for you tax-wise may not be best for the company, or vice versa, which is why a holistic approach usually gets the best results.
It is therefore imperative that you seek professional advice at the outset, before undertaking any intended business venture in the UK, to avoid making errors that could prove costly both from a tax perspective and to repair.
Sopher + Co are a firm of chartered accountants, based in Mayfair, London, that has particular expertise in tax and business advisory. They also have French speakers, so are able to assist in both English and French, where necessary.
For more information on the above and their other services, you can contact:
Claire Le Du
International Client Manager
Tel: 020 7493 0100
