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In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies

A company is considered resident for tax purposes if it is incorporated in the UK or if its place of central management and control is in the UK.

A foreign company will be deemed to have a permanent establishment in the United Kingdom if:

  • it has a fixed place of business in the UK through which the business of the company is wholly or partly carried on, or
  • an agent acting on behalf of the company and habitually exercises authority to do business on behalf of the company in the UK.
 

Tax Rate

Main corporate income tax rate, not applicable to profits from oil rights and extraction 19% (where the taxable profits can be attributed to the use of patents, a reduced rate of 10% applies)
Diverted profits tax 25%, applies if multinational companies use artificial arrangements to divert profits overseas in order to avoid UK taxes
(55% in the case of UK ring fence operations, mostly for oil extraction)
 
Tax Rate For Foreign Companies
Resident companies are taxable in the United Kingdom on their worldwide income.
A non-resident company is subject to UK corporation tax only on the trading profits of a UK permanent establishment or the trading profits attributable to a trade of dealing in or developing UK land (even if there is no PE in the UK). From 6 April 2020, non-UK resident companies including those who invest in UK property through collective investment vehicles will need to pay corporation tax instead of income tax on profits from UK property. Any other UK-source income received by a non-resident company is subject to UK income tax at a rate of 20%, without any allowances.
Capital Gains Taxation
Capital gains of a company are considered taxable profits but are exempt if they arise from the disposal of substantial shareholdings in both UK and foreign companies. Substantial shareholding is often defined as an interest in a minimum of 10% of an investee company for a period of 12 months in the six years preceding the purchase. Non-resident companies are generally not subject to capital gains tax unless gains are obtained by their permanent establishment in the UK.
From April 2019, gains from the disposal of UK property and certain UK property-related investment assets by non-residents are subject to UK tax. For disposals prior to April 2019, the scope of the charge is restricted to disposals of UK residential property only, and to narrower categories of non-resident persons.
Capital losses are allowed only as an offset to capital gains.
Gains realised on certain types of assets - such as land and buildings used for a trade - can be deferred where all or most of the proceeds are reinvested in other assets of those types within a certain period (generally three years - so-called "rolled-over").
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 expenses deductibility vary according to the type of income the expenses relate.
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.

An R&D tax credit is available at 13% of R&D expenditure for large companies, while SMEs can claim a tax deduction of 230% of their R&D expenditure. A patent box regime is gradually being introduced over 5 years to allow companies to apply an effective 10% rate to all profits derived from qualifying patents. Special tax reliefs are available for expenditures on the production of movies, animation, video games, high-end TV show and orchestral concerts.

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 carryforward is capped at 50% of profits above an intra-group limit of GBP 5 million per year.
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).

Other Corporate Taxes
A general anti-abuse rule (GAAR) applies across a range of taxes on transactions made after 17 July 2013.

Profits that arise from oil or gas extraction, or oil or gas rights, in the United Kingdom and the UK Continental Shelf ("ring-fence profits") are subject to tax in the United Kingdom (a full rate of 30% for profits over GBP 300,000 and a reduced rate of 19% for profits below that amount). Such activities also attract 100% capital allowances on most capital expenditure. A supplementary tax charge of 10% applies to "adjusted" ring-fence profits in addition to ordinary corporate income tax.

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 3,700 for a property valued at GBP 500,000 (minimum value for 2020/21).

A bank levy is applied at 0.1% for short-term chargeable liabilities and 0.05% for long-term chargeable equity and liabilities. The first GBP 20 million or chargeable liabilities is exempt. Bank profits are also subject to an 8% supplementary tax charge on profits above GBP 25 million.
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.

Social security contributions made by the employer amount to 13.8% on all earnings above GBP 169 per week (the first GBP 3,000 being exempt).
Employers are required to pay 0.5% of their total payroll in excess of GBP 3 million to create a fund to support apprenticeships (with an annual allowance of GBP 15,000 to offset against payment of the levy).

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. As a temporary measure in light of the COVID-19 pandemic, the nil rate bands for SDLT, LBTT, and LTT on purchases of residential property are temporarily increased until 31 March 2021, and an additional 2% surcharge will also apply to the acquisition of residential property by non-resident purchasers from 1 April 2021.
A stamp duty payable by the transferee is charged at 0.5% on instruments effecting sales of shares.

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 500,000, of which more than GBP 25 million is linked to the participation of UK users.

A diverted profits tax, at a rate of 25%, applies where multinational companies use artificial arrangements to divert profits overseas to avoid UK tax.

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
Consult the Doing Business website, to obtain a summary of the taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  United Kingdom OECD United States Germany
Number of Payments of Taxes per Year 9.0 10.1 10.6 9.0
Time Taken For Administrative Formalities (Hours) 114.0 163.6 175.0 218.0
Total Share of Taxes (% of Profit) 30.6 41.6 36.6 48.8

Source: Doing Business - 2017.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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Accounting Rules

 

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 News
Accounting Web
Accountancy Live
 

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
The Institute of Chartered Accountants in England and Wales
The Association of Chartered Certified Accountants
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.
 
 

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Consumption Taxes

Nature of the Tax
Value-Added Tax (VAT)
Standard Rate
20%
Reduced Tax Rate
A reduced VAT rate of 5% applies to: children’s car seats; certain social housing; some social services; electricity, natural gas and district heating supplies (for domestic use only); some energy-saving domestic installations and goods; LPG and heating oil (for domestic use only); some renovation and repairs of private dwellings; some medical equipment for disabled persons; etc.

In light of the COVID-19 pandemic, for the period 15 July 2020-30 September 2021, the 5% reduced rate will also apply to hospitality and tourism, including restaurants; cafes; pubs (ex alcohol); hospitality; hotels; B&B's; home rental; caravan and tent sites; hot take away food; theatres; circuses; amusement parks; concerts; museums; zoos; cinemas; and exhibitions (in any case, served alcoholic drinks will not benefit from the cut). From 30 September 2021 to 30 April 2022, the rate will be 12.5%.

Some goods and services are zero-rated: some social housing; printed books (including e-books); newspapers and periodicals; renovations to private housing (Isle of Man only); collections of domestic refuse; household water supplies (except distilled and mineral water); supplies of food and drink (some exceptions); take away food (if bought on the catering premises); cut flowers and plants for food production; prescribed pharmaceutical products; certain medical supplies for disabled persons; domestic passenger transport; children's clothing and footwear; children’s diapers; live animals destined for human consumption; seed supplies; supply of animal feed; supplies of residential caravans and houseboats; some construction work on new buildings; some supplies of new buildings; sewerage services; motorcycle and bicycle helmets; commercial ship and aircraft stores; intra-community and international passenger transport; some gold ingots, bars and coins, women’s sanitary products.

Exclusion From Taxation
Exempt goods and services include: insurance, finance and credit; education and training; fundraising events by charities; subscriptions to membership organisations; selling, leasing and letting of commercial land and buildings (conditions apply); betting and gaming.
Method of Calculation, Declaration and Settlement
A business can only charge VAT if it is registered with the HMRC. VAT applies to "taxable supplies" such as the sale of goods and provision of services, the sale of business assets, commission, gifts and so on. Different rules apply to imports, exports and charities. Registration is compulsory for businesses whose taxable supplies exceed GBP 85,000 for 2021/22 or where a business expects that its taxable supplies will exceed this threshold within the next 30 days (deregistration is possible if taxable supplies fall below GBP 83,000). If a business does not have a place of business in the UK, the registration threshold does not apply. VAT returns are typically filed every 3 months with the HMRC (monthly in some cases).

For further details, you can consult the VAT guide of the HM Revenue & Customs, which also provides information on the VAT measures taken by the UK government in light of the COVID-19 crisis and of Brexit. In fact, since it left the EU the UK is free to adopt its own VAT rules, with the exception of Northern Ireland, which will operate a “dual”/”mixed” VAT regime and, for the time being, follows EU VAT rules for goods and UK VAT rules for services.

Other Consumption Taxes
Excise duties are chargeable on most hydrocarbon oil products, alcoholic drinks, and tobacco products.
The Soft Drinks Industry Levy (Sugar Tax) is applied at two rates: GBP 0.18 per litre of drink if it contains between 5–8 grams of sugar per 100 millilitres, GPB 0.24 per litre of drink if it contains 8 grams of sugar per 100 millilitres or more.

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

Individuals leaving the United Kingdom by air are required to pay a duty, which is generally included in the cost of the air ticket.

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Individual Taxes

Tax Base For Residents and Non-Residents
A statutory resident test (SRT) is applied to determine if an individual is a resident or non-resident taxpayer of the UK. The test includes a combination of physical presence and connection factors. An individual will be resident in the United Kingdom for a tax year if he/she meets either the "automatic residence test" or the "sufficient tie test".
 

Tax Rate

Income tax rate 2021/22
Progressive rate up to 45%
GBP 0 - 12,570 0%
GBP 12,570 - 37,700 20% (Basic rate)
GBP 37,701 - 150,000 40% (Higher rate)
Over GBP 150,000 45% (Additional rate)
Dividend income
GBP 0 - 12,570 0%
GBP 12,571 - 37,700 7.5%
GBP 37,701 - 150,000 32.5%
Over GBP 150,000 38.1%
 
Allowable Deductions and Tax Credits
Tax relief can be claimed on personal allowances (the standard amount is GBP 12,570 for the 2020-21 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.

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 resident 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%. 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. As a temporary measure in light of the COVID-19 pandemic, the nil rate bands for SDLT, LBTT, and LTT on purchases of residential property are temporarily increased until 31 March 2021, and an additional 2% surcharge will also apply to the acquisition of residential property by non-resident purchasers from 1 April 2021.

Weekly paid employees pay National Insurance Contributions at a rate of 12% on weekly income between GBP 183 and 962 (plus 2% on income exceeding this amount).
Self-employed individuals pay contributions at 9% on yearly earnings between GBP 9,500 and GBP 50,000 (plus GBP 3.05 per week, and an additional 2% contribution for profits above the upper limit).

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
UK Tax Treaties
Withholding Taxes
Dividends: 0% (20% for dividends paid by a real estate investment fund on its tax-exempt rental income), Interest: 20% for non-residents, Royalties: 0% (resident company)/20% (resident individual and non-residents).

Rates can be lower as part of a tax treaty.

Bilateral Agreement
The United Arab Emirates and the United Kingdom are bound by a double taxation treaty.

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Latest Update: May 2022