United Kingdom: Tax System

Tax Rate For Foreign Companies

Resident companies are taxable in the United Kingdom on their worldwide income.
Non-resident companies are liable for UK corporation tax on profits generated by a UK permanent establishment, as well as trading profits related to UK land dealings or development, and income from UK property rental businesses. Gains from direct and certain indirect disposals of UK property are also subject to UK corporation tax. Additionally, non-resident companies are taxed at the basic rate of 20% on any other UK-source income received, such as rental income, with no allowances provided unless specified by a Double Taxation Treaty (DTT). The UK operates a Non-Resident Landlord (NRL) scheme, where letting agents or tenants withhold income tax at 20% unless the NRL has permission to receive gross rents.

Capital Gains Taxation

Capital gains are included in a company's taxable profits. Gains or losses on the disposal of substantial shareholdings in both UK and foreign companies can be exempt if certain conditions are met. These conditions generally require the selling company to have owned at least 10% of the shares in the company being sold for at least 12 continuous months within the six years before the disposal. The company being sold must be a trading company or the holding company of a trading group for at least 12 months before the disposal, and in some cases, immediately after the disposal. A broader exemption applies to companies held by qualifying institutional investors.

Nonresident companies are generally not taxed on capital gains unless (i) the asset is held through a UK permanent establishment (PE), or (ii) UK land/property or a UK real estate-related asset is disposed of. If a UK company elects to exclude the profits of its PEs, this exclusion may also apply to the gains and losses on certain capital assets of the PE.

Main Allowable Deductions and Tax Credits

For company taxation purposes, total profits are the total of (i) the company's net income from each source (trade, property business, interests, dividends, etc.) and (ii) the company's net chargeable gains arising from the sale of capital assets. The rules governing expense deductibility vary according to the type of income the expenses relate to.
In general, all expenses that are not capital in nature and that are used for trading purposes are deductible. Local municipal taxes are generally deductible. Interest is deductible within the debt cap rules that apply to companies that are members of large groups. Most donations to charities are tax-deductible. Provisions for future costs can be deducted for tax purposes under certain conditions.

The actual and deemed costs incurred by an employing company for providing shares or options to employees are usually deductible, depending on the nature of the share plan and the accounting treatment. This generally allows a subsidiary company to claim a deduction when its employees receive shares or options in the parent company.
Provisions for future costs can be tax-deductible if they involve allowable revenue expenditure, align with acceptable accounting practices, comply with statutory timing rules, and are accurately estimated. This includes bad debts on trading accounts, typically handled under 'loan relationships' rules for financing costs and income. If a bad debt meets UK accounting standards for a specific provision, it should be deductible.

Operating losses can be offset by the profits of the current fiscal year while the exceeding loss can be carried forward to the previous year. Operating losses incurred prior to 1 April 2017 can be carried forward indefinitely and offset by operating profits from future tax years. Operating losses incurred after 1 April 2017 can be offset by any type of profit. In both cases, the maximum carried forward loss offset is broadly limited to GBP 5 million plus 50% of the current year's profits in excess of that amount.
Capital losses can only be offset by capital gains and their carryback is prohibited. For accounting periods ending on or after 1 April 2020, the use of carried-forward capital losses is limited to 50% of gains above a groupwide GBP 5 million allowance per year (shared between capital and non-capital losses).

Large companies can claim a 20% "above the line" R&D credit. SMEs receive an enhanced 186% tax deduction for certain R&D expenditures, but starting 1 April 2024, this merged into the large company scheme, offering a 20% R&D credit instead. Loss-making companies will face a notional tax rate of 19% on the credit. Additionally, a separate enhanced deduction for "R&D intensive" loss-making SMEs has beene introduced retroactively from 1 April 2023.

The patent box regime allows a 10% corporation tax rate on profits from qualifying patents. Creative industry tax reliefs provide up to an additional 100% deduction for qualifying expenditures in film, animation, video gaming, high-end TV, children's TV, orchestral concerts, and theater. New legislation in 2024 will replace current audiovisual and video game expenditure credits, effective 1 January 2024, but existing regimes can be applied until 31 March 2027 for productions starting before 1 April 2025.

Businesses in designated Freeport tax and customs sites benefit from additional tax reliefs, including exemptions from SDLT and business rates, and simplified customs procedures.

Other Corporate Taxes

The main corporation tax rate for ring fence companies involved in oil rights and extraction is 30%, with a 19% rate for small profits, plus a 10% supplementary charge. An additional energy profits levy of 35% applies to relevant profits. Qualifying investment expenditure can receive enhanced deductions through investment allowances.

A 45% electricity generator levy applies to "exceptional generation receipts" of certain low-carbon wholesale electricity generators with annual output exceeding 50 gigawatt hours, subject to a GBP 10 million groupwide allowance.

The diverted profits tax, at 31%, targets multinational companies diverting profits overseas to avoid UK tax. A 4% residential property developer tax is imposed on UK residential property development profits exceeding a GBP 25 million groupwide annual allowance.

An annual tax on enveloped dwellings (ATED) is charged on the acquisition and holding of high-value residential properties (property over GBP 500,000) through a company or other "non-natural" person. The minimum charge is GBP 4,400 for a property valued at GBP 500,000 (minimum value for 2024/25).

A bank levy is applied at 0.1% for short-term chargeable liabilities and 0.05% for long-term chargeable equity and liabilities (does not apply to overseas branches and subsidiaries held by the UK business). The first GBP 20 million or chargeable liabilities is exempt. Bank profits are also subject to a 3% supplementary tax charge on profits above GBP 100 million (reduced from 8% as of April 2023).
Most insurance premiums are taxed at 12% (life assurance and other long-term insurance are exempt).

There are several environmental taxes, including: a Landfill tax, a Climate change levy and an Aggregates levy.

Weekly paid employees contribute 10% in national insurance (NIC) on weekly income between GBP 242 and GBP 967, and 2% on income above this. Employers pay 13.8% NIC on income over GBP 175 per week. Employers must withhold and remit NIC along with employee payroll deductions. Self-employed individuals pay 8% NIC on annual income between GBP 12,570 and GBP 50,270, and 2% on income above this threshold.
Employers must pay 0.5% of their total payroll exceeding GBP 3 million to fund apprenticeships.

Stamp duty of 0.5% applies to UK share transfers and is paid by the transferee. Stamp Duty Land Tax (SDLT) is charged on property transfers in England and Northern Ireland, with rates for residential property ranging from 0% to 12%, and up to 15% for certain properties. Nonresidential property rates range from 0% to 5%. Companies purchasing residential property over GBP 500,000 are subject to a 15% rate, with some reliefs available. Non-UK residents face a 2% surcharge on residential property acquisitions. Scotland and Wales have their own property taxes: Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT), respectively, with different rates and bands. Certain intra-group transfers may be exempt from stamp taxes.

A Digital services tax (DST) is levied at a rate of 2% on the revenues of large businesses that provide a social media platform, search engine, or online marketplace to UK users. The tax applies to companies with an annual turnover above GBP 500 million, of which more than GBP 25 million is linked to the participation of UK users.

Shipping companies can choose to pay tonnage tax in lieu of the normal corporation tax.

For further details, consult the dedicated page on the official governmental portal.

Other Domestic Resources

HM Revenue & Customs

Country Comparison For Corporate Taxation

Source: The World Bank - Doing Business, Latest data available.

Accounting System

Accounting Standards

Financial statements of domestic and foreign public must be prepared in accordance with IFRS Standards (except in the case of foreign companies whose home jurisdiction’s standards are deemed by the UK to be equivalent to IFRS Standards). There are five possible financial reporting frameworks for SMEs, the most common being FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. This framework is based on the IFRS for SMEs Standard with several modifications.

Accounting Regulation Bodies

Financial Reporting Council

Accounting Law

The Companies Act of 2006 and the Third Country Auditors Regulation of 2007 regulate the accountancy profession in the UK.

Difference Between National and International Standards (IAS/IFRS)

IFRS Standards are required for all domestic public companies and listings by foreign companies (except in the case of a foreign company whose home jurisdiction’s standards are deemed by the UK to be equivalent to the IFRS Standards. There are 5 possible financial reporting frameworks for SMEs, which are all based to some extent on IFRS Standards for SMEs.

Accounting Practices

Tax Year

The corporate tax year begins on 1 April. A company’s financial year normally is 12 months’ long and companies may prepare their accounts to any date. A company’s corporation tax accounting period is usually the 12-month period for which it prepares its accounts but special rules apply where the accounts cover a period of more than 12 months. For company accounting periods that straddle the start of the tax year, the taxable income is time-apportioned and taxed in accordance with the rates prevailing in the two tax years that the accounting year overlaps.

Accounting Reports

English companies must keep account books where are registered all the operations of the company and establish annual accounts including an annual report, a profit and loss account, a balance sheet, a table of financial flows, an appendix, an opinion of the auditors, a statement upon losses and earnings recorded, the comparison between the movements of interests of the shareholders and a note upon the result on historical costs basis.

Publication Requirements

Financial statements must be prepared annually.
Small companies (those meeting two of the three following requirements: annual turnover of no more than GBP 10.1 million, balance sheet total not more than GBP 5.1 million and a workforce of no more than 50 employees) may submit a shortened balance sheet and notes, and a special auditors’ report.
Medium-sized companies (those meeting two of the three following requirements: turnover of no more than GBP 36 million and balance sheet total of no more than GBP 18 million and 250 employees or less) may submit as a minimum a profit and loss account, a statement of other comprehensive income, a balance sheet and a statement of changes in equity, a directors’ report, a strategic report, an auditor’s report and notes to the accounts.

Accountancy Profession

Accountants

Only the "Chartered accountants" and "Certified accountants" are authorised and have the possibility given by the Accounting Commission to exercise a mission of audit or auditorship.

Professional Accountancy Bodies

Chartered Institute of Public Finance and Accountancy
Institute of Chartered Accountants of Scotland
Association of Accounting Technicians
Institute of Financial Accountants

Member of the International Federation of Accountants (IFAC)

Yes

Member of Other Federation of Accountants

Member of Accountancy Europe

Audit Bodies

Companies have to seek a statutory auditor to conduct an annual audit of the financial health of their organisation. Subject to meeting certain additional criteria, small companies may be exempt from the requirement to have their accounts audited.
For more information, consult the Financial Reporting Council.

Allowable Deductions and Tax Credits

Tax relief can be claimed on personal allowances (the standard amount is GBP 12,570 for the 2024-25 tax year, which can be reduced for total income over GBP 100,000, or increased in case of a marriage allowance), work or business expenses and certain pension contributions, charity donations, maintenance payments and time spent working on a ship outside the UK. Contributions for pension schemes can be deducted, provided they respect certain conditions.
Income tax reliefs not subject to a specific restriction are capped at GBP 50,000 or 25% of an individual’s income, whichever is greater.

For tax years 2023/24 and 2024/25, the initial GBP 1,000 of dividend income (reduced to GBP 500 for 2024/25) falls under the "dividend allowance" and is taxed at 0%. The "personal savings allowance" provides a 0% tax rate on "savings income," with allowances of GBP 1,000 for basic rate taxpayers, GBP 500 for higher rate taxpayers, and none for additional rate taxpayers. Individuals are allotted GBP 1,000 allowances for both property and trading income, exempting income up to these thresholds from taxation. If gross receipts exceed these amounts, recipients can opt to deduct the GBP 1,000 allowance from gross income instead of actual expenses when determining taxable income, with certain exceptions applying.

Necessary business expenses can be deducted from employment income and are not taxable if paid for or reimbursed by the employer.
Expenses that do not qualify for tax relief include: alimony, medical expenses, social security contributions, council tax and other UK taxes, most insurance premiums, mortgage interest payments (some relief for commercially let properties), fines and penalties (except for fines, such as parking penalties, incurred in the course of a trade), contingent liabilities.

For further information, consult the guide of the UK Government.

Special Expatriate Tax Regime

Where an individual is resident and domiciled in the UK, he or she is subject to UK income tax and capital gains tax on worldwide income and gains. Where an individual is resident but not domiciled in the UK, he or she is also subject to UK income tax on worldwide income but may choose to pay tax on foreign income and capital gains on a remittance basis, subject to a supplementary charge. Non-resident individuals are taxed on UK-sourced income and capital gains realized from the disposal of UK residential property.

Residents who are not domiciled or deemed domiciled in the UK may make a claim for the remittance basis of taxation to apply to overseas income, in exchange for an additional tax liability of GBP 30,000 per annum for taxpayers who have been UK residents for seven out of the previous nine tax years, rising to GBP 60,000 once resident for twelve out of the previous fourteen tax years. Click here for more information.
Expatriate allowances are included in taxable income but may be available for exemption for certain subsistence expenses.

Capital Tax Rate

An Inheritance tax (IHT) is generally applicable upon death, to the value of the estate and gifts made within the previous seven years, subject to reduction for gifts made between four and seven years before death. Where assets are worth more than GBP 325,000, IHT is 40% (20% for certain lifetime transfers). A family home allowance is available for residential property left to descendants (tax-free up to GBP 1 million, gradually reduced for estates worth more than GBP 2 million).
The UK does not levy a net wealth tax. Capital gains are subject to different levels of taxation, for further information click here.

Local authorities apply a property-based tax levied on the occupier of a domestic dwelling at a flat rate per dwelling (properties' owners are taxed on unoccupied dwellings).
The stamp duty land tax (SDLT) is charged in England and Northern Ireland on transfers of real property, with rates varying between 0% and 12% for residential properties (15% if the property is valued at more than GBP 500,000) and 0% to 5% for non-residential properties. Similar taxes - the land and buildings transaction tax (LBTT) and land transaction tax (LTT) - are charged on Scottish and Welsh property, respectively.

Weekly paid employees pay National Insurance Contributions at a rate of 10% (from January 2024) on weekly income between GBP 242 and 967 (plus 2% on income exceeding this amount).
Self-employed individuals pay contributions at 8% on yearly earnings between GBP 12,570 and GBP 50,270 (plus GBP 3.45 per week, and an additional 2% contribution for profits above the upper limit).