Form of government:Parliamentary monarchy
Area:243 809 км2
Taxation of legal entities in the UK:
- income tax
- tax on income from fuel production (only oil and gas producing companies)
- tax on income from the sale of fixed assets (only private entrepreneurs and trust funds)
- Value added tax (VAT - 17.5%)
- excise taxes on oil products
- annual excise tax on trucks, taxis and buses
- business tax from tenants of non-residential premises (in some counties)
Taxation of natural persons in the UK:
- Income Tax
- National Insurance Contributions - contributions to pension and insurance funds
- Capital Gains Tax
- Inheritance Tax
- Council tax - municipal tax on the maintenance of streets, garbage removal, etc
- Stamp Duty - гербовый сбор при покупке недвижимости
- годовой акцизный налог на владельцев личного транспорта (если автомашина выпущена после 1973 года)
- taxes on property insurance and television possession (black and white, by the way, too)
- also the tax on residential houses, preserved in some counties of Great Britain
Taxation of companies in the UK
Taxation of companies in the UK The UK tax system consists of national and local taxes. State taxes: income tax for natural persons, corporate income tax (company tax), capital gains tax, oil income tax, inheritance tax, value added tax (VAT), duties and excises, and stamp duties. State taxes in the UK represent over 90% of tax revenues to the state budget. Local taxes include only the property tax, part of which is about 10% of tax revenues.
Any profit that was received in the UK is taxed regardless of the residence or formal residence of the person or country of registration of the company.
In the case of private individuals, this can be understood in this way. The persons who are not tax residents in the UK, pay tax only on profits earned in the UK. The revenues received outside the country are not taxed.
Any profit is taxable for the persons who are tax residents with domicile in the UK: both received in the UK and abroad.
Any profit received on the territory of England is taxable for the persons who are tax residents with domicile in any country except the UK. Profits received outside its borders are taxed only if it is imported into the UK. (In this case, the UK acts as a country with a preferential tax regime). Domicile also affects the inheritance tax and the capital gains tax.
The calculation of the taxation of companies in the UK is based on certified audited accounts, which is provided to the Inland Revenue Administration at the end of each fiscal year of the company.
Tax Year or Fiscal Year in England starts on April 6 and ends on April 5 of the following year. However, the company may set the deadline for the end of the fiscal year at its discretion.
A UK resident company is subject to a company tax on all sources of income and capital gains, wherever they arise.
A resident of the United Kingdom for tax purposes is a company registered in the UK or a central office and which is controlled in the UK. A UK non-resident company that trades in the UK through a permanent establishment (located in the UK) is liable for corporate tax on all revenues associated with this permanent establishment.
The company tax rate is set separately for each fiscal year beginning on April 1. If the reporting period of the company does not coincide with the fiscal year, its profit should be distributed over time, and accordingly the company tax rate must be applied.
The rate for the period from April 1, 2016 to March 31, 2017 was 20%, for the period from April 1, 2017 to March 31, 2018 - 19%. By April 1, 2020, the tax rate is expected to fall to 17%.
If the taxable profit can be attributed to the use of patents, a reduced tax rate applies, which is 10% for the period from April 1, 2017. At the same time, the reduced rate is applied not only to income from patent royalties, but it can be also applied to the profit from the sale of a product having a patent.
Dividends received by the British companies from British and non-British companies are usually exempt from company tax if the conditions are met. These conditions are more stringent for small recipient companies.
Capital Gains Tax
Capital gain is the profit from the sale of capital assets. Capital assets can be both real estate and financial assets (shares, bonds, etc.). Capital gains tax is levied at the standard corporate tax rate (19%).
Non-resident companies are taxed only on capital gains from the sale of assets used in the transaction or for trading purposes through a permanent establishment located in the UK. Since April 2015, non-residents of the UK are paying for certain types of alienation of residential property in the UK.
Losses of capital can be compensated only by capital gains arising in the same fiscal year, or transferred for indefinite period, to be compensated by future capital gains.
VAT is charged on the supply of most goods and services provided by companies in the UK. VAT is levied at every stage of the supply chain, usually when the ownership of goods passes or when services are performed.
Registration as a VAT payer is compulsory for British companies whose turnover exceeds the established threshold of £85,000. Voluntary registration is also possible when the turnover does not exceed the established threshold.
The companies that provide taxable goods and services to the UK, which do not have a business address in the UK, do not have registration thresholds for VAT payment. Such companies must be registered for VAT payment immediately after the performance of taxable supplies to the UK, if “reverse charge” mechanism is not applied (applicable to most services provided by a foreign company to a resident company that is a VAT payer).
The standard VAT rate in the UK is 20%.
The reduced rate is 5%. At this rate, tax is levied on some construction work and energy-saving products. The exports of goods from the UK are taxed at a 0% rate, as well as the supply of certain goods and services (for example, books, food, children’s clothing). Insurance services, educational services, financial services, as well as health and social services are exempt from VAT. Companies registered for VAT payment with an annual taxable turnover not exceeding £150,000 can simplify VAT accounting using the “fixed rate” scheme. According to this scheme, companies consider VAT on turnover, and not for each individual transaction.
Domestic and foreign dividends received by the UK resident companies are generally not taxed, subject to various conditions, depending on whether the recipient is a large company.
In most cases double taxation agreements are applied when UK resident companies are paid interest and royalties, otherwise the tax rate will be 20%.
The minimum social contribution of the employer before April 6, 2018 is 1.0% of the employee’s qualifying income, it will be 2.0% of income until April 6, 2019, and after April 6, 2019, it will be 3.0%.
The employer pays a contribution of 13.8% from an employee’s income exceeding £156 per week.
The tax on additional security, payments and benefits on the part of the employer in the interests of the employee (Fringe Benefits Tax) is not levied.
Local tax is levied on a commercial real estate tenant in the UK based on the appraised value of the property in the amount determined by the central government.
TP Rules in the UK
The UK transfer pricing legislation describes the procedure for conducting transactions between related persons, based on the internationally recognized principle of “outstretched hand”. For tax purposes, such transactions are considered taking into account the profit that would arise if the transactions were carried out by independent parties under comparable conditions.
Small companies are the companies that have no more than 50 employees and an annual turnover or a balance total is less than 10 million Euros. Medium-sized companies are the companies that have no more than 250 employees and an annual turnover is less than 50 million Euros or a balance total is less than 43 million Euros are considered .
Thin Capitalization Rules in the UK
In a simplified sense, a British company is subtly capitalized when it has more borrowed funds than it could or could attract without the support of the group and act in its own interests. This leads to the possibility of “excessive” interest deductions, that is, more financial costs than would arise if the loan parties acted on the terms of the agreement. This may happen only when the company:
- Attracted loans from related companies or
- Attracted loans from third parties due to support of the group, as a rule in the form of guarantees
Work on thin capitalization involves applying the principle of outstretched hands to borrowing and lending to companies taking into account all conditions and other factors affecting borrowed funds, including the amount of debt, interest rate, repayment terms, etc.
CFC (controlled foreign companies) Rules in the UK
CFC rules are provisions aimed at combating tax evasion aimed at preventing the leakage of profits from the UK to low-tax areas. If the UK profits bypasses the CFC rules, it is distributed and levied by a British corporate shareholder that has a share in a foreign controlled company of at least 25%. In general, CFC profits will be taxed using the usual corporate tax rates and rules for persons controlling CFC if (i) the profit passes through the CFC gateway and (ii) is not an exception.
“Gateways” are a series of tests that identify the profit artificially transferred from the United Kingdom. For example, if profits are paid to the British individuals with significant control, this profit will be taxed in the UK unless one of the four conditions is fulfilled (the first is that the obtaining of a tax advantage is not a primary goal or one of the main purposes of the arrangement). A number of other tests can reveal other profit.
There are different exceptions for certain types of companies. For example, they may be companies that fall under the regime for the first time, CFC with low profits or low margins, CFC on excluded territories or other territories with similar corporate tax rates, or rates exceeding UK rates. There is also a special exemption for attracted intra-group financing. This mechanism can ensure the release of 75% to 100% of financial profit on qualified loans.