Great Britain, a term often used to refer in fact to the entire UK i.e. the United Kingdom of Great Britain and Northern Ireland, is a major western European state comprised of four constituent lands or regions: England, Northern Ireland, Scotland and Wales. Its overall capital city is London. The national currency is the British pound (GBP), the symbol for which is £ and which, as a currency, is referred-to also as Sterling. Great Britain is a member of the Commonwealth of Nations, the UN, the WTO, the IMF, the OECD, the FATF, the EEA (although it is no longer a member of the EU) and other international organisations.
Great Britain has three Crown dependencies within the British Isles: The Isle of Man and the Bailiwicks of Jersey and Guernsey which two dependencies cover all of Channel Islands.
Great Britain has also fourteen British Overseas Territories, which maintain political affiliation with the United Kingdom and include Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, the Falkland Islands, Gibraltar, Montserrat, the Turks and Caicos Islands and several others.
Great Britain is also a primary member of the Commonwealth of Nations, a political association of 54 sovereign states across the globe who are members, nearly all of them either former dominions, former colonies or else former ruled countries or territories of the British Empire. Among these are Australia, Canada, New Zealand, South Africa, the Bahamas, Belize, Cyprus, Dominica, Grenada, India, Malta, Mauritius, Samoa, the Seychelles, Saint Kitts & Nevis, Saint Lucia, Saint Vincent and the Grenadines, Singapore and others.
The United Kingdom has a very longstanding and well-established system of common law and the British judicial system is held in high regard throughout the world. The amount of direct legislative regulation is currently increasing, however, especially in relation to corporate and financial law.
In 2014 the United Kingdom was judged to be one of the most economically free countries in the world, ranking 14th out of 178.
Registration of companies in England is widely used in international trade and for the purposes of tax planning.
Although some British Overseas Territories are offshore jurisdictions, the United Kingdom itself cannot be considered an offshore jurisdiction either de jure or de facto. Its legislation does provide convenient tools for corporate and tax planning, however, so company registration within Great Britain is likely to help your business to become more tax efficient.
UK Company Formation
A company in Great Britain may be registered in one of the following legal forms:
- Private company limited by shares, LTD
- English limited liability partnership, LLP
- English limited partnership, LP
- Scottish limited partnership, LP
- Public limited company, PLC
- Private company limited by guarantee
- Private unlimited company
- Branch of a foreign company
- Self-employed individual
Basic Features of the Tax System
In contrast to offshore territories, the UK has an ordinary (medium or high) income tax rate for companies and individuals. Before you register a company in the UK it is therefore important to take into account the following:
- Corporate tax is 19% (as from 1 April 2017, formerly – 20%).
- Standard VAT (value added tax) is 20%.
- Maximum personal income tax is 45%.
- A company is considered resident within the UK if it is incorporated in the UK or its place of central management and control is in the UK.
- The worldwide income of UK resident companies (i.e. income received both from within and from outside the UK) is subject to corporation tax (foreign tax credit is available).
- Non-resident companies are subject to tax only in respect of income from within the UK.
- EU Parent-Subsidiary Directive (2011/96/EU) and Interest and Royalty Directive (2003/49/ЕС) still apply for now.
- The UK has controlled foreign companies (CFC) rules, thin capitalisation and transfer pricing rules and a number of special anti-avoidance rules.
Incorporation of a company in the UK entails its tax liability prescribed by the law.
The taxable income of resident companies includes trading income, some income from non-commercial activities and capital gains. Ordinary expenses related to business activities may be deducted from taxable income.
Most dividends received by British companies are exempt from tax.
Dividends received by British companies (except for small companies) from other companies (British or foreign) are exempt from corporation tax in the UK, without the requirement of a minimum period and/or a minimum percentage of share ownership.
This exemption can also be applied to small companies that receive dividends either from UK companies or from foreign companies which reside in jurisdictions that have a double tax treaty with the UK containing non-discrimination provisions. A “small company” means a micro- or small enterprise as defined by the EU, whose rules about this still apply until further notice.
Capital gains received from the disposal of a significant share (more than 10%) of the company’s capital, under certain conditions, are not subject to corporate tax.
Dividends paid by UK companies are usually exempt from withholding tax in the UK.
Interest paid by a British company to a non-resident is subject to a 20% withholding tax, unless the rate is reduced under a double taxation treaty or there is an exemption under the EU Interest and Royalty Directive, which still applies until further notice. The reduced rates under double taxation treaties are not applied automatically and require prior authorisation from the tax authority.
Royalties paid by a British company to a non-resident is subject to a 20% withholding tax, unless the rate is reduced under a double taxation treaty or there is an exemption under the EU Interest and Royalty Directive. Prior authorisation is not required to apply the reduced rates under double taxation treaties.
Value Added Tax (VAT)
The UK VAT is charged in accordance with the Value Added Tax Act 1994 and EU Council Directive 2006/112/EC of 28 November 2006 “On the common system of value added tax”.
VAT applies to most transactions such as the sale of goods, the provision of services and imports. The standard VAT rate is 20%. Certain groups of goods and services are taxed at a rate of 5% or 0% or are exempt from VAT.
Use of VAT demands a special VAT registration with HMRC (a government department known as Her Majesty’s Revenue and Customs).
VAT registration is compulsory if:
- a company’s VAT taxable transactions turnover exceeds £82,000 GBP in a 12 month period or;
- a company receives in the UK goods from the EU countries whose value exceeds £82,000 or;
- it is expected that the turnover threshold of £82,000 will be exceeded in the first 30 days.
If the turnover threshold does not exceed £82,000 per year then a company is not obliged to register for VAT but may do so voluntarily.
A company is obliged to pay any VAT due from the date of its registration for VAT.
Double Taxation Treaties
Great Britain has agreed treaties on the avoidance of double taxation with 127 countries including Russia.
These tax treaties only apply, however, when a British company is more than simply nominal, e.g. it is not just an agent of a principal offshore company (where the latter owns the major part of the profit). To register a company in the UK solely for the purpose of double taxation agreements would therefore yield no benefit.
The sufficient substance, i.e. presence, of a company in the UK is also required. This must include a real office within and management from the UK, etc. Double taxation treaties apply when its income is recognised as being that of a British company. A company which submits so-called “dormant accounts” may not invoke or apply double taxation rules.
The Convention between the Government of the United Kingdom and the Government of the Russian Federation for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, signed on 15 February 1994, is in force.
Tax Information Exchange Agreements
The UK has around 25 bilateral tax information exchange agreements (TIEA) with various – primarily offshore – countries and territories.
Besides this the UK is a member of the multilateral Convention on Mutual Administrative Assistance in Tax Matters (1988) and the 2010 Protocol amending the Convention.
Registration of a UK company entails its obligation to keep accounting records and also to submit to Companies House financial statements, tax returns and an annual return or, since 2016, an annual confirmation statement. Companies that pay VAT must submit also VAT returns to HMRC.
- The annual return contains information about registered address, structure and management bodies of the company. Since 2016 this type of return has been replaced by a confirmation statement confirming the completeness and accuracy of the information that the company provided to the Company Register in accordance with the legal requirements.
- A company’s annual accounts contain information about its financial activities. The first account must be filed within 10 months from the date of expiry of the accounting period. Late submission of these accounts can attract heavy fines. Companies which are inactive must file so-called “dormant accounts”, based on the beneficiary’s special declaration.
- The tax return. As a general rule tax returns must be filed within 12 months after the end of a tax period. Companies may also be responsible for assessing and paying their taxes by themselves (the self-assessment regime). For example, when using such a regime, the latest tax period is from 6 April 2019 to 5 April 2020. Paper self-assessment tax returns must be filed before 31 October 2020, and online tax returns must be filed before 31 January 2021. The tax must be paid before 31 January 2021.
Audit of financial statements is not required for most small private companies (except in cases where a company has established such a requirement in its Articles).
A company is exempt from audit if it satisfies at least two of the following three criteria:
- the company’s annual turnover does not exceed £6.5 million GBP,
- the book value of the company’s assets does not exceed £3.26 million GBP,
- the average number of employees is 50 or fewer.
Having registered a company in the UK you must perform your information disclosure obligations to the registration authority in a timely manner. The Companies Act 2006 (as amended by The Small Business, Enterprise and Employment Act of 2015) requires companies to notify the Company Register about all important events in a company’s life, in particular:
- changes of registered office address;
- changes of directors and their data which is to be entered into the register of directors;
- the company’s decision to keep information about people with “significant control” (PSC) in the central register;
- a change in the company’s main activity;
- the amount of the company’s capital (statement of capital);
- the company’s shareholders (included in the register of members), the number of shares owned by each of them and any share transfers and the dates thereof;
- people who exercise “significant control” over the company (PSC), unless a company has decided to keep this information in the central register. This information from the company’s PSC register is to be filed to the Company Register annually together with the company’s confirmation statement.
Since 2016 British companies must keep a special register of people exercising significant control over the company (a “PSC register”), provide information about such people to Companies House and provide access to it upon request by any person.