The UK is one of Europe’s leading investment destinations for companies relocating and developing their global business. Here are some of the reasons why:

  • The UK is a World leader in innovation
  • It is one of the easiest places to set up and run a business in Europe
  • There is a low tax rate environment for foreign investors
  • It has one of the most flexible labour markets in Europe
  • English is the international language of business
  • Outstanding transport links
  • Several of Europe’s best universities are based in the UK

MAIN TYPES OF UK BUSINESS ENTITIES

Limited Company Read more

The most common way of doing business in the UK is through a private limited company. Private limited companies are owned by shareholders (individuals or other legal entities) and run by directors. They must be registered at Companies House and meet the regulatory requirements detailed below.

To set up a limited company you need to:

  • Have a name and address for the company
  • Register with Companies House
  • Have at least 1 director (an individual)
  • Have at least 1 shareholder
  • Have articles of association (agreed rules about running the company)
  • Set up your company for Corporation Tax
  • Register for VAT (if applicable)
Partnerships Read more

Partnerships are very flexible. No formal agreement between partners is required although an agreement that indicates the individual’s profit sharing ratios is advisable.

Limited Liability Partnerships Read more

Limited Liability Partnerships are run by members and not partners (as the title might suggest), they are governed by a member’s agreement. LLP’s are required to register with Companies House and prepare annual accounts in accordance with the Companies Act.

Sole Traders Read more

The easiest way to start a business in the UK is to become a ‘sole trader’. This means that only you own the business and you can work alone or employ other people.

AUDIT AND REGULATORY ENVIRONMENT

Companies Act 2006 Read more

UK law requires companies to keep adequate accounting records and to prepare accounts for each financial year which have to be filed at Companies House. Small and medium sized companies may file an abbreviated version of their accounts. A company will be small if it meets at least two of the three following conditions:

  • Annual turnover of £6.5 million or less
  • Balance sheet total (gross assets) of £3.26 million or less
  • Average number of employees no greater than 50.

A company will be ‘medium-sized’, if it meets at least two of the three following conditions:

  • Annual turnover of £25.9 million or less
  • Balance sheet total (gross assets) of £12.9 million or less
  • Average number of employees no greater than 250.

Companies must have their accounts audited, unless they qualify for exemption. The rules on eligibility for audit exemption are complex and advice should be sought to determine whether or not the company is exempt. Generally however, accounts do not have to be audited if the company:

  • Qualifies as small for the purposes of filing abbreviated accounts (refer above)
  • Has a turnover of not more than £6.5 million, and
  • Has a balance sheet total of not more than £3.26 million.
Financial Conduct Authority Read more

Businesses offering financial services are subject to a regulatory system established by the Financial Services and Markets Act 2000 (FSMA). This Act set up a ‘single regulator’ for the financial services industry, the Financial Conduct Authority (FCA). The small company exemption is not available for some FCA regulated companies and they can require an audit.

Money Laundering Regulations Read more

The Money Laundering Regulations 2007 came into force in December 2007. The regulations apply to a number of different sectors including financial and credit businesses, accountants and estate agents (please refer to http://www.hmrc.gov.uk/mlr/getstarted/intro.htm for more information)

Data Protection Act Read more

The Data Protection Act 1998 requires every organisation processing personal data to register with the ICO, unless they are exempt (please refer to http://ico.org.uk/for_organisations for more information).

Bribery Act Read more

The Bribery Act 2010 creates a new offence under section 7 which can be committed by commercial organisations which fail to prevent persons associated with them from bribing another person on their behalf (refer https://www.justice.gov.uk/downloads/legislation/bribery-act-2010-quick-start-guide.pdf for an introduction)

INDUSTRY INCENTIVES

Incentives Available

Depending on the size and nature of the business you may qualify for UK Government Grants and subsidies of up to £10 million in the form of:

Grants and subsidies Read more

Grants and subsidies

The main organizations offering grants are the European Union (mainly through the European Commission), the Government, Regional Development Agencies in England, the Welsh Development Agency, Scottish Enterprise, Invest Northern Ireland, local authorities and certain charitable organizations.

There are around 6,000 grants available to UK businesses. Each has its own criteria and purpose, depending on the awarding body's aims.

One time and renewable grants

Once received, this money does not have to be repaid. The business is free to use it under the terms of the grant. The national and regional governments provide billions of pounds a year to aid UK product innovation and grow small businesses.

Small businesses accessing grant programmes enjoy a bonus benefit - once you have successfully received funding, you are more likely to get additional grants from the same agency because you meet their programme requirements.

Conditional repayable contribution

In this case, you might be required to pay back the amount but only if the venture proves successful. Repayable contribution programmes offer up various avenues of access to various funds for small businesses, for example, interest-free, unsecured repayable loans.

Loans Read more

Equity financing

In this case, the government invests in your company, much as a venture capitalist might. The key difference is the government is often more interested in economic stimulus and less anxious about the return on the investment - so there's less pressure on you to deliver short term profits to them right away.

Loan funding

While a grant is obviously an ideal source of government funding, you have an even greater chance of accessing government programmes which provide financing for small businesses through loans. Government loans may be interest-free, or may offer highly competitive rates and are more likely to be unsecured.

The Government can also provide loan guarantees to help small businesses get funding. Government insurance (available for low premiums or even no premiums) provides this option to small businesses. For example, the Enterprise Finance Guarantee Scheme can help you get a loan from private lending sources, backed by a guarantee from the UK Government.

Enterprise Zones Read more

The Chancellor of the Exchequer announced the first 11 zones in the 2011 Budget. The government has now created 24 enterprise zones (Refer to http://enterprisezones.communities.gov.uk/ for more information on the enterprise zones)

PRINCIPAL TAXES

The main business taxes that are levied in the United Kingdom are dealt with in turn below:

Corporation Tax

Profits2013/142014/152015/16 onwards
£1 - £300,00020%20%20%
£300,001 - £1,50023.75%21.25%20%
£1,500,001 and above23%21%20%

Corporation Tax is levied on the taxable profits of companies that are incorporated in the UK or non-resident companies that trade in the UK via some form of permanent establishment (such as a branch). UK resident Companies pay Corporation Tax on their worldwide income (which can be subject to double tax relief) whilst non-resident companies will only pay tax on income arising in the UK.

Corporation Tax rates are set on a fiscal year basis that runs from 1 April to 31 March each year. In recent years there have been three rates: the standard rate, the small company rate and the marginal rate that fits between the two. A summary of the rates over recent years and as set for future years (albeit potentially subject to change) are indicated in the table above.

Taxable profits are accounts profits as adjusted for tax legislation. The above bands are reduced where there are companies under common control to avoid an advantage being gained by establishing multiple companies.

Companies paying at the lower rates of tax are required to pay their tax 9 months after the end of the accounting period whilst companies paying at the full rate are required to pay their tax by quarterly instalments. All companies are required to submit their Corporation Tax returns 12 months after the end of the accounting period.

Any company making a taxable loss can carry the loss back 12 months to recover tax previously paid and any losses that are not carried back can be carried forward to set against future income from the same source.

Foreign dividends received by a UK company are generally not taxable (although dividends from certain low tax countries are excluded from this exemption).

There are a couple of corporation tax reliefs available for businesses:

  • Capital allowances are a tax relief designed to allow the cost of certain of your company or organization’s assets to be written off against its taxable profits. They take the place of the depreciation shown in the financial (commercial) accounts, which isn't allowable for Corporation Tax purposes.
  • Research and Development (R&D) Relief – In order to claim this the company has to be liable for corporation tax and must meet certain conditions (please refer to http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm for further information)

Indirect Tax (Sales Tax)

  • Standard rate 20%
  • Reduce rate 5%
  • Turnover threshold currently £81,000

Value Added Tax (VAT) is a tax that is ultimately levied on consumer expenditure as businesses registered for VAT must charge VAT on their sales but can recover VAT that they have suffered themselves (such that the end consumer suffers the net cost). UK established businesses are not required to register (and therefore account for) VAT unless their taxable turnover exceeds the registration threshold, which is currently set at £81,000. Non UK businesses that trade in the UK may also need to register but must do so immediately and cannot wait until they exceed the threshold.

The current standard rate of VAT in the UK is 20% which applies to most goods and services (although there are a small number of items that qualify for a reduced rate of 5%). There are a number of categories of items that are either zero rated or exempt from VAT, in either case no VAT is charged. A seller making entirely zero rated sales may recover the VAT on their purchases whilst someone making exempt sales will not necessarily be entitled to recover all VAT suffered.

Sales outside the EU are likely to have no VAT charged as VAT is a tax that essentially operates across Europe. Sales across European borders are subject to complex place of supply rules but VAT will be charged in either the member state of the seller or the buyer.

Income Tax

2014/15 Rates

Personal allowance £10,000
0 - £31,865 20%effective dividend rate 0%
£31,866 - £150,000 40%effective dividend rate 25%
£150,000 and above 45%effective dividend rate 30.56%

Every UK resident individual is entitled to a tax free allowance. For 2014/15 the tax free allowance is as follows:

AgeAllowance
Under 6510,000
64-7410,500
Over 7510,660

Individuals pay Income Tax on their earnings from all sources of income. Taxable sources of income are primarily from employment, self employed income, income from partnerships, dividend income, bank interest and other investment income. Individuals that are UK resident pay tax on their worldwide earnings although their domicile status may affect the taxation of non-UK earnings. Generally individuals that are non UK resident pay tax on their UK source income only.

Note that for higher-income individuals, personal allowances are reduced or eliminated.

Income tax is dealt with on a fiscal year basis that runs from 6 April to 5 April each year. Tax is collected at source from employment income and bank interest whilst other forms of income need to be reported annually on a tax return. Tax returns need to be filed by 31 January following the end of the tax year which is also the payment date. An interim payment is potentially required on 31 July each year.

Capital Gains Tax

The rates that CGT is charged at are as follows:

Total taxable income and gainsRate of CGT
Up to £31,86518%
Over £31,86528%

For individuals gains and losses made from the sale of capital assets (for example property and shares) are not dealt with as Income Tax but are dealt with separately under the Capital Gains Tax (CGT) rules. Subject to an annual exemption (£11,000 for individuals in 2014/15), the rates that an individual pays CGT at are based on his total income with CGT being the ‘top slice’.

A reduced rate of 10% may be applicable for individuals selling their own businesses in qualifying circumstances.

Similarly to Income Tax, UK residents are taxable on their worldwide gains although the taxation of non-UK gains may be affected by their domicile status. Generally non-UK residents will pay CGT on their UK gains only.

Gains and losses made by companies are subject to Corporation Tax.

National Insurance

Employers13.8%(above £7,956)
Employees12%(between £7,956 - £41,860)
2%(over £41,860)
Self employed£2.75per week flat rate
9%(between £7,956 - £41,865)
2%(over £41,865)

National Insurance Contributions (NIC’s) are effectively a tax paid by employers and individuals that are linked to qualification for certain state benefits. NIC’s are calculated on earned income only (so exclude income from investments) at the above rates in 2014/15: