- Great Britain (The United Kingdom of Great Britain and Northern Ireland, the UK) is a West-European state consisting of four parts – England, Wales, Scotland and Northern Ireland. The capital of the UK is London. The national currency is pound sterling (GBP). The country is a member of the UN, WTO, IMF, EU, OECD, FATF and other international organizations.
- Great Britain has several Crown dependencies – Channel Islands (Guernsey and Jersey) and Isle of Man, and the British overseas territories that still have some political affiliation to the UK (Anguilla, Bermuda, British Virgin Islands, Gibraltar, Cayman Islands, Montserrat, Turks and Caicos Islands and others).
- A number of sovereign states constitute the Commonwealth of Nations, among which are Australia, The Bahamas, Belize, Dominica, Grenada, India, Canada, Cyprus, Mauritius, Malta, New Zealand, Samoa, Seychelles, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Singapore, South Africa and others.
- The UK has a long-standing system of common law. At the same time, the volume of direct legislative regulation is currently increasing, particularly in corporate and financial law. The judicial system of the United Kingdom enjoys a high authority in the world.
- In 2014 the United Kingdom held the 14th place (of 178) in the ranking of the most economically free countries.
- 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 UK itself cannot be considered an offshore jurisdiction both de jure and de facto. However, the national legislation provides the convenient tools for corporate and tax planning, so company registration in Great Britain may 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
- 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, England has an ordinary (medium or high) income tax rate for companies and individuals. Therefore, before you register a company in the UK, it is important to take into account the following facts:
- Corporate tax rate is 19% (as from 1 April 2017, formerly – 20%).
- Standard VAT rate is 20%.
- Maximum personal income tax rate is 45%.
- A company is considered resident of 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 the UK resident companies (i.e. income received both within and outside the UK) is subject to corporation tax (foreign tax credit is available).
- Non-resident companies are subject to tax only in respect of the UK-source income.
- EU Parent-Subsidiary Directive (2011/96/EU) and Interest and Royalty Directive (2003/49/ЕС) are applicable.
- The UK has controlled foreign companies (CFC) rules, thin capitalization and transfer pricing rules and a number of special anti-avoidance rules.
Incorporation of a company in England entails its tax liability prescribed by the law.
The taxable income of resident companies include trading income, some income from non-commercial activities and capital gains. Ordinary expenses related to business activities may be deducted from taxable income.
Most of 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 requirements of minimal period and/or percentage of share ownership.
This exemption can also be applied to small companies receiving dividends from the UK companies or foreign companies, which are residents of 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.
Capital gains received as a result of disposal of a significant share (more than 10%) in the company’s capital, subject to 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. The reduced rates under double taxation treaties are not applied automatically and require prior authorization 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 authorization 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 sale of goods, 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 in HMRC.
VAT registration is compulsory in case if:
- company’s VAT taxable transactions turnover exceeded 82 000 GBP in the 12-months period;
- company receives goods in the UK from the EU countries for the value exceeding 82 000 GBP; or
- it is expected that the turnover threshold of 82 000 GBP will be exceeded in the nearest 30 days.
If the mentioned threshold does not exceed 82 000 GBP, a company may register for VAT voluntarily.
Since the date of VAT registration a company is obliged to pay any VAT due.
Double taxation treaties
Great Britain signed agreements on avoidance of double taxation with 127 countries including Russia.
However, application of tax treaties is possible only when a British company is not nominal, e.g. it is not an agent of a principal offshore company (where the latter owns the major part of the profit). Therefore, registration of the UK company solely for the purpose of application of double taxation agreements makes no sense.
The sufficient presence (substance) of a company in the UK is also required. It includes a real office, management from the UK, etc. A company may apply double taxation treaties only in case if its income is recognized as an income of a British company. A company, which submits the so-called “dormant accounts”, may not apply double taxation treaties.
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 Protocol 2010 amending the Convention.
Registration of a UK company entails its obligation to keep the accounting records, submit the financial statements and tax returns, as well as the annual return (since 2016 – the annual confirmation statement) to the Companies House. The companies that are VAT taxpayers also submit special VAT returns.
- The annual return contains information about registered address, structure and management bodies of the company. Beginning with 2016 this type of return will be substituted by the confirmation statement confirming the completeness and accuracy of the information that the company provided to the Company Register in accordance with the legal requirements.
- The annual accounts contain information about company’s financial activities. The first account must be filed within 10 months from the date of expiry of the accounting period. Late submission of the accounts entails charging of significant penalties. Some companies, which do not exercise any activity, file the 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 charging and paying taxes by themselves (self-assessment regime). For example, when using such regime, the latest tax period is a period from 6 April 2016 to 5 April 2017. Paper self-assessment tax returns must be filed before 31 October 2017, and online tax returns must be filed before 31 January 2018. The tax must be paid before 31 January 2018.
Audit of financial statements is not required for most small private companies (except in cases where a company established such a requirement in its Articles).
A company is exempt from audit if it satisfies at least two of the following three criteria:
• company’s annual turnover does not exceed 6.5 million GBP,
• book value of company’s assets does not exceed 3.26 million GBP,
• the average number of employees is 50 people or less.
Having registered a company in the UK you must timely perform the information disclosure obligations to the registration authority. The Companies Act 2006 (as amended by The Small Business, Enterprise and Employment Act 2015) requires companies to notify the Company Register about all important events of company’s life, in particular about:
- changes of registered office address;
- changes of directors and their data which is to be entered into register of directors;
- company’s decision to keep the information about people with “significant control” (PSC) in the central register;
- change of the main type of company’s activity;
- amount of company’s capital (statement of capital);
- company’s shareholders (included into register of members), a number of shares owned by them, share transfers and dates thereof;
- people who exercise “significant control” over the company (PSC), unless a company 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 this company (“PSC register”), provide information about such people to Companies House and provide access to it upon request of any person.