Businesses are strongly drawn to the UK as it is one of the world’s top investment destinations known for its entrepreneur-friendly climate and favourable tax rates. The United Kingdom and London as a global business hub, rank among the most appealing corporate locations when considering expansion from the rest of Europe or globally. Having weathered the storm of Brexit, the attractiveness of this thriving market remains. The variety of sectors, such as energy, pharmaceuticals, healthcare, IT or fintech, have been flourishing despite COVID due to the UK’s accommodating approach towards foreign investments.
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Industries and investment incentives
The oil and gas industry plays a central role in the United Kingdom economy. In addition, banking and insurance industry is considered one of the largest.
The strongest workforce in the United Kingdom is centred in the financial technology (FinTech) industry.
In the United Kingdom, one of the favoured investment incentives, aimed at stimulating investment by increasing income from it or reducing its costs, is provided in the form of tax reliefs.
- Attractive venture capital schemes are offered in the United Kingdom to assist small and medium enterprises in their growth plans.
- For individuals interested in investing in UK small businesses, tax relief is offered by The Enterprise Investment Scheme and the Venture Capital Trusts
- For companies investing in research and development in the UK, there are generous incentives, such as the R&D Expenditure Tax Credit. This is intended to promote fast-growing, innovative services and products.
- The Patent Box offers a 10% corporation tax (compared to the usual 19%) on profits from inventions patented in the UK.
In the United Kingdom, the most common legal form of business is a private company limited by shares (or LTD in short).
The incorporation time for such a legal form of business usually takes up 3-5 hours, counted from when the necessary documentation is signed.
The fees related to establishing an LTD form of business are from GBP 12, if submitted online on Companies House or slightly more, if you do it through a service provider.
For setting up a private company limited by shares, at least one shareholder is required. The LTD company is also required to have at least 1 director, who can be the same as the shareholder.
The official company register of United Kingdom is open to public and can be accessible at www.companieshouse.gov.uk.
Corporate income tax
The government of United Kingdom has announced at Spring Budget 2021 an increase in the corporation tax main rate from 19% to 25% for companies with profits over GBP 250,000 as well as the introduction of a small profits rate of 19% with effect from 1 April 2023. The small profits rate will apply to companies with profits of not more than £50,000, with marginal relief available for profits up to GBP 250,000.
A company is considered the UK tax resident if it is either incorporated in the UK or, despite being non-UK incorporated, the business of the company is centrally managed and controlled in the UK.
- 20% is the standard VAT rate in the UK and applies to most goods and services
- 10% is the reduced rate
- 0% applies to zero-rate goods and services
Companies with a taxable turnover of over GBP 85,000 must register for VAT. Registering time for the UK VAT can vary but can generally takes around four to six weeks.
There is no longer any non-resident VAT registration threshold, therefore foreign companies must register for UK VAT immediately, if they are providing taxable supplies.
- Non-resident VAT trading is where foreign companies may register for VAT in the UK without the need to form a local company;
- EU and non-EU companies are permitted to register for VAT in the UK without the need to appoint a local fiscal representative.
There are rules to consider on some situations where a registration is permitted. Some common scenarios below would result in a requirement for a UK VAT registration:
- buying and selling goods within the UK
- importing goods into the EU via the UK
- selling goods from the UK to other EU countries
- acquiring goods from other EU countries into the UK
- holding goods in a warehouse in the UK as stock
- distance selling to private individuals in the UK from another EU country, e.g. internet retailing.
There are three different levels of government where taxes may be paid to: the central government (HMRC), devolved governments (notably, Scotland), and local governments in the form of council taxes.
HMRC administers the following central taxes:
- Income tax
- Corporation tax
- Capital gains tax
- Inheritance tax
- Insurance premium tax
- Stamp, land, and petroleum revenue taxes
- Environmental taxes
- Climate change and aggregates levy and landfill tax
- Value-Added Tax (VAT)
- Customs duty;
- Excise duties
Labour law and employment
Entitlement to work
In the United Kingdom are entitled to work:
The next types of employment contracts are available in the United Kingdom:
- Full-time and part-time contracts
- Fixed-term contracts
- Agency staff
- Freelancers, consultants, contractors
- Zero-hours contracts
Contract types and employers’ responsibilities can be accessible at https://www.gov.uk/contract-types-and-employer-responsibilities.
Employee taxes and contributions
The personal income tax rates in the United Kingdom:
- 0% on annual taxable income up to GBP 12,570
- 20% on annual taxable income from GBP 12,571 to GBP 50,270
- 40% on annual taxable income from GBP 50,271 to GBP 150,000
- 45% on annual taxable income over GBP 150,000
The tax period for personal income tax runs from 6th April to 5th April each tax year.
In the UK, the due date for the paper tax returns is the midnight of 31st October and for the online tax returns the due date is the midnight of 31st January.
An individual is considered as a tax resident in the UK when:
- Present in UK for more than 183 days in the current tax year
- All homes are in the UK (for more than 30 days present in home)
- Works sufficient hours in the UK
As a taxable income of an individual in the UK is considered:
- employment and self-employment income
- capital gains
- property income and inheritance.
The rate of the social security contributions paid by the employer in the UK is:
- 0% up to GBP 9,100 per tax year
- 15.05% from GBP 9,101 per tax year
Health insurance paid by an employer in the UK is not covered by national insurance, unless covered by private healthcare, which is on an individual basis.
The rate of the health insurance contributions paid by the employee in the UK is the same as for the employer.
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