Taxation

Corporation Tax

  • Corporation tax refers to a tax levied by various jurisdictions on the profits made by companies or associations.
  • The tax is calculated at the end of every financial accounting year and must be paid to the Inland Revenue within 9 months of your financial year end.
  • A company is usually accountable for determining their own corporation tax which is submitted via a self-assessment form. If you are not trading as a limited company, you do not have to pay corporation tax. However, you should confirm this with the Inland Revenue as some non-limited businesses are responsible to pay such tax.
  • The Small Companies Tax Rate is 20%.

Income Tax

Income tax is a tax paid on income. It is paid by employees and people who are self-employed. It may also be payable if you aren't working if, for example, you have an income from a pension or savings. Not all types of income are taxable and it will seldom be the case that all of your income is taxed. There is no minimum age at which a person becomes liable to pay income tax. What matters is the amount of your taxable income. If this is below a certain level, no tax is payable.

Different Income Taxes
Income tax law defines income tax as a tax on income and sets out how each type of income listed below is charged to income tax:

  • Employment income
  • Pension income
  • Social security income
  • Self-employed income from a trade, profession or vocation
  • Property income
  • Savings and investment income
  • Miscellaneous income
  • Tax allowances

Everyone who lives in the UK on a day-to-day basis is entitled to a basic personal tax allowance. You may also be entitled to other allowances on top of the basic allowance. This means that some of your income, which would otherwise be taxable, will be tax-free.

Tax allowances are announced in the Budget each year. If you are an employee and so are taxed under Pay As You Earn (PAYE), your personal allowance(s) will be spread throughout the year, so that each week or month you will have a certain amount of tax-free income and then pay tax on the remainder. If you are self-employed or have taxable income but are not working, your personal allowance(s) will be taken into account when your tax bill is calculated after you have sent in your annual tax return or repayment claim.

For information about tax allowances and who can claim which allowances, see Income tax allowance and amounts.

Tax Reliefs
In addition to personal tax allowances, income spent on certain things, for example, professional subscriptions or the cost of the tools of your trade, can be deducted when calculating tax. This is known as tax relief on outgoings. These reliefs reduce the amount of your taxable income so you pay less tax.

Tax reliefs for employees are spread throughout the year in the same way as personal tax allowances. Tax reliefs for self-employed people and people who have taxable income but are not working are taken into account when their tax bill is calculated after they have sent in their annual tax return or repayment claim.

Value Added Tax

  • VAT is a tax that you pay when you buy goods and services in the United Kingdom. Where VAT is to be paid it's normally incorporated in the price of the goods or service you buy. Some goods don't attract VAT. The Standard Rate is 20 per cent.
  • Companies should register for VAT if the value of your taxable supplies in the past 12 months or less has exceeded the current VAT registration threshold.

Registering for VAT as a NETP – Non Established Taxable Person
You will have to register for VAT if you either:

  • Make any taxable supplies in the UK
  • Have reasonable grounds for believing you will make any taxable supplies in the UK within the next 30 days

Foreign businesses registered for UK VAT selling to UK customers
If you sell to UK customers but are not resident in the UK, do not have a UK office or your company is not incorporated in the UK, you are what HMRC calls a 'non-established taxable person' (NETP).

You may choose to appoint an accountant, tax representative or an agent to deal with HMRC on your behalf about your VAT affairs.

We can help you register for VAT and submit your VAT returns online.

Business Rates

  • A business rate is a tax on the non-domestic property.
  • If you use a building or part of a building for business, you will probably have to pay business rates.
  • The amount of business rates payable is calculated using the rate able value and the multiplier, which is set by the government. Rateable values are based on a previous assessment of the market rent.

Stamp Duties

  • Stamp Duty is the levy you pay when you buy property or shares. You pay 'Stamp Duty Land Tax' (SDLT) when you buy land and either 'Stamp Duty' or 'Stamp Duty Reserve Tax' when you purchase shares.
  • There are two types of stamp duty; first Stamp Duty Land Tax (SDLT) is applicable when you buy property. If you buy property above the threshold price then you pay Stamp Duty.
  • The Second, Stamp Duty or Stamp Duty Reserve Tax when you buy shares. You pay Stamp Duty or Stamp Duty Reserve Tax at the specified rate.

National Insurance

  • National Insurance (NI) is a contributory system of insurance against illness and unemployment, and also providing for retirement pensions and other benefits.
  • Self-employed individuals pay income tax on their profits in addition to PAYE, as well as being liable to pay National Insurance contributions (NIC's).


If you're self-employed:

  • You pay 'Class 2' NICs at a smooth rate weekly amount of £2.75.
  • You also pay 'Class 4' NICs as a percentage of your taxable profits.
  • If your earnings are below the National Insurance threshold, you don't have to pay any Class 4 NICs. Above, the rate is 9%.

PAYE

  • PAYE (Pay As You Earn). The provisional payment of tax on the employee's income, collected by employers on behalf of the government from employees.
  • If you are self-employed individual then you are not affected by PAYE. You will make a self-assessment of your income by completing a tax return.
  • However, if you run a limited company and take a permanent wage then you are the employee. It’s a complicated issue with many rules and you should take professional advice regarding this matter.

Capital Gains Tax

A flat 18% CGT rate is applied by the government on business disposals; this rate has increased to 28% for higher rate tax payers.

Capital Allowances

Capital allowances are the relief on purchase of equipment in the business. The Capital Allowances System is used to write the cost of expensive items against profits over a number of years.

International taxation - Residency and domiciliation

Statutory residence test

From April 6, 2013 the U.K. will have a statutory residence test. The framework has been confirmed and individuals will fall within one of the three test categories:

  • Automatic overseas test (A);
  • Automatic residency test (B); or
  • Sufficient ties test
(A) Automatic overseas test (AOT)
An individual will meet the conditions of the automatic overseas test if one of the following applies:

  • The individual has not been resident in the U.K. in the previous three tax years and will spend less than 46 days in the U.K. in the tax year.
  • The individual has been resident in the UK for one or more of the previous three tax years and will spend less than 16 days in the U.K. in the tax year.
  • The individual is in full time work abroad in the tax year, spends less than 91 days in the U.K. in the tax year and of those days in the UK no more than 20 days (this may increase to 25 days following consultation) are spent working in the U.K.. For these purposes a workday is three hours long (this may increase to 5 hours following consultation) and may include travel time.

If the Automatic overseas test is not met the Automatic residency test has to be considered.

(B) Automatic residency test (ART)
An individual will meet the automatic residence test if:

  • The individual spends 183 days or more in the U.K. in a tax year.
  • All the individual’s homes are in the U.K.
  • The individual works full-time in the U.K.

(C) Sufficient Ties Test (connection factors to the U.K.)
Where an individual does not satisfy the tests in either Part A or Part B of the proposed SRT, Part C will determine their residence status for the year. For this part of the test a distinction is drawn between “arrivers” (individuals who have not been U.K. resident in the previous three tax years) and “leavers” (individuals who have been U.K. resident in one or more of the previous three tax years).

"Arrivers"
Where the individual has been regarded as not resident in the U.K. for all of the three previous U.K. tax years, the ties to be considered are whether the individual has:

  • a U.K. resident family;
  • a substantive U.K. employment (including self-employment);
  • accessible accommodation in the U.K.;
  • spent more than 90 days in the U.K. in the previous two tax years.

The combination of the number of ties the individual has with the U.K. and the number of days the individual is in the U.K. determine whether the individual has become resident. The criteria are as follows:

Days spent in the U.K. Number of U.K. Ties
Fewer than 46 days Always non resident
46 – 90 days Resident if has 4 U.K. Ties
91 – 120 days Resident if has 3 U.K. Ties
121 – 182 days Resident if has 2 U.K. Ties
183 days or more Always resident

"Leavers"
Where an individual has been regarded as resident in the U.K. in at least one of the three previous U.K. tax years, the ties to be considered are whether the individual has:

  • a U.K. resident family;
  • a substantive U.K. employment (including self-employment);
  • available accommodation in the U.K.;
  • spent more than 90 days in the U.K. in either of the two previous tax years with an additional connection:
  • spends more days in the U.K. in the current tax year than in any other single country.

The combination of the number of ties the individual has with the U.K. and the number of days the individual is in the U.K. determine whether the individual has become resident. The criteria are as follows:

Days spent in the U.K. Number of U.K. Ties
Fewer than 16 days Always non resident
16 – 45 days Resident if has 4 U.K. Ties
46 – 90 days Resident if has 3 U.K. Ties
91 – 120 days Resident if has 2 U.K. Ties
121 - 182 days Resident if has 1 U.K. Tie
More than 183 days Always resident

Ordinary Residence and the Statutory Residence Test
As part of the introduction of the Statutory Residence Test, the U.K. Government has confirmed that it intends to abolish the concept of ordinary residence for income and capital gains tax purposes apart from for few circumstances.

Domicile
A person’s domicile is, broadly, his/her permanent homeland. The majority of foreign nationals employed by foreign employers who are working on secondment to the United Kingdom will not be regarded as domiciled in the United Kingdom.

Taxation of short-term visitor
If an employee works in the United Kingdom for a period of less than a year in total, and spends less than six months in the United Kingdom in any one U.K. tax year, the employee will be treated for tax purposes as a short-term visitor. Such an employee is liable to U.K. tax on his/her remuneration attributable to duties performed in the United Kingdom, even if the employer is overseas, but there is unlikely to be any U.K. tax payable on remuneration relating to non-U.K. duties.

However, if the employee remains a resident of his/her home country and there is a double taxation agreement between the United Kingdom and that country, the agreement may exempt the employee from U.K. tax on his/her remuneration provided the following.

  • The employee is not present in the United Kingdom for more than 183 days during the U.K. tax year (or, in some agreements, a rolling 12-month period).
  • The remuneration is paid by, or on behalf of, a non-U.K. employer.
  • The remuneration is not borne by a permanent establishment of that employer in the United Kingdom.

For the purpose of counting days under the 183-day test any day on which an individual is present in the United Kingdom will count as a full day.

It is the stated intention of HMRC to deny treaty relief in cases where a U.K. entity bears the costs for the employee’s services, either directly or by recharge, and the employee is in the United Kingdom for 60 days or more. The U.K. entity will be regarded as the economic employer in such a situation.

Taxation of medium-term (resident but not ordinarily resident) visitor
If an employee works in the United Kingdom with the intention of leaving within three years of arrival (and does not buy accommodation in the United Kingdom or acquire it on a lease of three years or more) and works in the U.K. for a period of less than three years, he/she will generally be subject to U.K. tax on remuneration as follows:

  • Taxed on the portion of the total remuneration relating to duties performed in the United Kingdom, whether as an employee of a U.K. or an overseas employer.
  • If choosing to be taxed on the remittance basis, exempt from tax on the portion of remuneration relating to duties performed outside the United Kingdom (whether for a U.K. or overseas employer), provided the employee does not remit, directly or indirectly, any of that remuneration to the United Kingdom. If remitted, the employee will be taxed on the total amount of the remittance. This situation, where the earnings for overseas workdays is not taxed when not remitted to the U.K. is often referred to as “Overseas Workday Relief”. “Overseas Workday Relief” will continue with some restrictions following the introduction of the Statutory Residence Test.
  • If choosing to be taxed on the arising basis, the portion of remuneration relating to duties performed outside the United Kingdom will be taxed in full (subject to double taxation relief where relevant).

Taxation of longer-term (or other ordinarily resident) visitor
The employee is subject to U.K. tax on all remuneration from a U.K. or overseas employer, even if some duties are performed abroad (unless dual employment contracts are in place and the employee chooses to be taxed on the remittance basis).

Taxation of non-U.K. domiciled individuals
An individual who is resident but not domiciled in the United Kingdom and who chooses to be taxed on the remittance basis is liable to U.K. tax on his/her overseas investment income and capital gains only to the extent that these funds are taken into, or remitted to, the United Kingdom. Otherwise, non-U.K. domiciled individuals are taxed in the same way as those who are U.K. domiciled.

Is there a de minimis number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

Currently there is no de minimis limit. An individual is unlikely to be regarded as resident if they do not step foot in the UK. The Statutory Residence Test will introduce a de minimis limit of 15 days.

What if the assignee enters the country before his/her assignment begins?

Depending on the circumstances, it is possible that residency could commence from the first day in the tax year, or the date the assignment begins, or from the date of an earlier entry to the United Kingdom.

Even if not resident in the United Kingdom until the commencement of the assignment, business trips before that date could give rise to a U.K. tax liability on the related earnings.

Termination of residence
Are there any tax compliance requirements when leaving the United Kingdom?

HMRC should be notified of an individual’s departure, and provided with details to determine his/her residence status in advance of the annual tax return. This will then allow exemption from withholding taxes to be claimed if appropriate.

What if the assignee comes back for a trip after residency has terminated?

This depends on the precise circumstances. It could prolong the period of U.K. residence. Even if it does not, if the trip relates to business, the associated earnings could give rise to a U.K. tax liability.

Communication between immigration and taxation authorities

Do the immigration authorities in the United Kingdom provide information to the local taxation authorities regarding when a person enters or leaves the United Kingdom?

No, not as a matter of routine.

Filing requirements
Will an assignee have a filing requirement in the United Kingdom after he/she leaves the country and repatriates?

If there is a liability to U.K. tax, there is likely to be a filing requirement.

Salary earned from working abroad

Salary earned from working abroad is taxed in the UK unless the employee is taxed on the remittance basis - in which case the following comments apply. Taxable compensation of individuals who, though resident, are not ordinarily resident can be reduced by allocating (usually on a time-spent basis) income to foreign business trips, provided an amount of compensation (at least) equal to that allocated to the business trips is paid and retained outside the United Kingdom.

If a non-domiciled U.K. resident is employed by a non-U.K. resident employer and performs all of his/her duties outside the United Kingdom, the compensation arising is taxable only to the extent it is received in, or remitted to, the United Kingdom. This is so whether or not the employee is ordinarily resident in the United Kingdom. However, if the individual is ordinarily resident and also has an employment for duties performed in the United Kingdom, for the income arising from the other contract to be taxable on the remittance basis, the two employments must be quite separate and, assuming the employers are associated, the compensation for the overseas employment should be reasonable in relation to the time spent working abroad.

Relief for foreign taxes

The United Kingdom has a broad network of double taxation treaties. Usually, an exemption from, or a reduced rate of, U.K. tax will apply where the individual is a resident for treaty purposes of the other state.

If the individual is a resident of the United Kingdom for treaty purposes, relief in respect of income taxable in the other state is generally given by means of a foreign tax credit rather than by exemption.

The U.K. tax legislation provides, in cases where there is no applicable tax treaty, for relief to be given unilaterally by the United Kingdom for foreign tax suffered on foreign income and gains, which are also subject to U.K. tax.

Concessions for expatriates

There are no special tax concessions for expatriates other than the treatment of home leave reimbursements outlined above. However, assuming the foreign national is not a U.K. domiciliary and chooses to be taxed on the remittance basis (see earlier - The Remittance Basis of Taxation), non-U.K.-source investment income and gains are potentially exempt from tax as they would be liable to tax only if remitted to the United Kingdom.
Furthermore, an employee who, though resident, is not ordinarily resident in the United Kingdom and who chooses the remittance basis (see earlier - The Remittance Basis of Taxation) is taxed on income relating to duties physically performed outside the United Kingdom only to the extent that such income is remitted.

Certain expenses such as traveling, housing, and subsistence may be deductible when associated with a short-term assignment of up to 24 months in which the employee is required temporarily to work away from his/her normal or permanent workplace.