Media accountants and advisers Moore Kingston Smith answer your questions on doing business in the UK – covering taxes, setting up, employing a workforce and changes to regulations since Brexit.
A. Our quick checklist for initial steps on setting up a business include:
In your first year, you will need to make sure you have the following covered:
When employing your team, you need to make sure you have the following covered:
Q. What are the first steps I need to take to set up a business in the UK?
For individuals who are not domiciled in the UK (i.e. do not have their permanent home in the UK) the rule can be modified so that their non-UK income is taxed in the UK on the ‘remittance basis’.
This means that you only pay UK tax on the income or gains you bring to the UK. Non-UK domiciled individuals who are being taxed on this basis will not have the benefit of the personal allowance nor the annual exempt amount for capital gains tax purposes (see below).
Once an individual has been resident for more than seven of the previous nine years, an annual remittance basis charge will apply, starting from £30,000 per annum.
Anyone who has been resident in the UK for 15 or more out of the previous 20 tax years will be deemed to be UK domiciled for Income Tax, Capital Gains Tax and Inheritance Tax purposes.
UK residents and certain non-residents are entitled to personal allowances, although these are restricted/removed for income above £100,000.
The personal allowance is deducted from taxable income before the tax charge is calculated. The standard personal allowance is £12,500, and the rates vary between 20% and 45%.
For non-resident individuals, there is generally no CGT liability. The one exception to this is for the disposal of UK residential property. HMRC must be notified of the sale within 30 days of completion through the submission of a tax return.
CGT is a tax on the profit when an asset that has increased in value is sold. This applies to assets used by a UK branch or agency. For residents, CGT starts at a basic rate of 10%, rising to 28%.
Q. If I am resident but not domiciled in the UK, what income tax will I be subject to?
A. All employees in the UK are subject to Income Tax and National Insurance Contributions so an employer is required to operate Pay As You Earn (PAYE) as part of their payroll.
This is HMRC’s system to collect Income Tax and National Insurance, meaning that it is deducted from the employee’s gross pay before reaching the employee themselves.
Moore Kingston Smith can operate your PAYE through its payroll system. Alternatively, you would need to choose your payroll system to record details, calculate pay and deductions and report to HMRC monthly under the Real Time Information regime
NIC is essentially a tax on earnings.
Employers currently pay NIC at the rate of 13.8% of employees’ gross salary above £8,788 per year, whilst employees pay additional NIC at a rate of 12% of salaries between £9,516 and £50,000 and 2% on all earnings above that. Meanwhile, self-employed individuals are liable to lower rate NICs.
The Government has introduced an allowance of £4,000 per year that some businesses can offset against their employer’s NIC liability.
Expatriate tax is an area where advice must be sought well in advance of an employee coming to or leaving the UK as, often, steps must be taken prior to arrival or departure to ensure that opportunities to claim deductible living expenses, exemptions from National Insurance and relief for non-UK work days are not missed, and to ensure that the employer’s PAYE and NIC obligations are met as appropriate.
Q. What tax considerations are involved with employing a workforce in the UK?
A. For businesses seconding or planning to send employees to work temporarily in the EU, the feasibility of transfers will often be driven by costs related to social security, state pension and benefits entitlements, alongside how best to minimise the risks of getting the related cross-border compliance wrong.
The new rules ensure workers who move between the UK and the EU only have to pay into one country’s social security system. The agreement also seems to continue with state pension contribution aggregation that allows all contributions paid in any country to be counted for meeting qualifying periods for certain benefits e.g. state pensions.
The new rules also appear to provide reciprocal healthcare both for short-term trips and longer-term secondments. Although the NHS has continued to issue EHICs to EU nationals resident in the UK, and in general existing EHICs will remain valid until their expiry date, the Government has also promised a UK Global Health Insurance Card (GHIC) for UK citizens.
Note that EHICs will cease to be valid in Norway, Iceland, Liechtenstein or Switzerland.
The new rules apply from 1 January 2021.
The UK and EU countries.
Norway, Iceland, Liechtenstein and Switzerland for which different approaches will be required. There is also a separate agreement for employees moving between Ireland and the UK.
The new rules apply to UK national employees seconded to work temporarily in the EU for up to 24 months, and EU national employees seconded to work in the UK for up to 24 months. This only applies where the EU country has agreed to this arrangement.
Before the Brexit agreement, the EU social security regulations allowed home and host authorities to agree continuing home-country coverage for secondments of up to five years. The new rules do not include similar provisions.
For secondments of periods of more than 24 months, in the absence of any separate agreement, you will have to pay into the social security system in the country where the work takes place and not the home country.
It remains to be seen if a similar agreement to extend continuing home-country contributions beyond 24 months is included in any subsequent bilateral agreements that might be reached. There is also no protection for family benefits (including child benefit) and no facility to export unemployment benefits.
The rules for multi-state workers are to remain more or less the same. Employees will be covered by the legislation of the state of residence if they carry out a substantial part of their activity in that state. If this is not the case, employees will most likely fall under the legislation of the country in which their employer is situated.
In the absence of any guidance of what is meant by a substantial part of their activity, it is assumed that substantial means 25% or more of an employee’s work activity. On this basis, the majority of multi-state worker A1s issued before 1 January 2021 will continue to be valid and you should continue to apply for these as necessary.
The new rules do not apply to secondments or assignments which began before 1 January 2021, provided there is no change in the employee’s circumstances. There is no clarity in terms of what is meant by a change in the employee’s circumstances and it is anticipated this will be clarified in due course.
Current certificates will have an end date and UK NIC should be paid until the certificate expires.
The UK has a separate reciprocal social security agreement with Ireland that enables social security coordination after 31 December 2020 on the same terms currently in place for UK-Irish moves.
Norway – employees remain in home-country social security scheme for temporary postings of up to three years.
Switzerland – employees remain in home-country social security scheme for temporary postings of up to two years.
Iceland – employees remain in home-country social scheme for temporary postings of up to one year.
Liechtenstein – has no special rules and there is a possibility of double social security contributions. Any secondments from the UK would need to pay UK NICs for the first 52 weeks.
Q. Following Brexit, what are the new rules for employees seconded between the EU and UK?
A. Brexit means several changes to the rights of EU citizens and their families to live and work in the UK, as follows:
Brexit will affect the steps employers are obliged to take to be able to demonstrate that they are preventing illegal working:
Employers should ensure that they take the following practical steps to protect themselves:
Q. Following Brexit, what are the rights of EU citizens & their families to live & work in the UK?
Before bringing staff into the UK, you need to ensure that they have the legal right to work here. The government has an online tool to help you establish their eligibility: https://www.gov.uk/legal-right-work-uk.
In light of the UK leaving the EU on 31 December 2020 an implementation period was agreed. This has meant that there will be no changes to right to work checks in the UK until after 30 June 2021. As such, EU citizens can continue to provide an EU authorised document until this date.
The Home Office has also confirmed that employers will not be required to carry out retrospective checks on current employees. If the employee had the right to work in the UK at the time they were employed then you will not be required to carry out this check again, unless time-limited, even when the rules change.
After this date, the list of acceptable documents, which can be found here - https://www.gov.uk/government/publications/right-to-work-checklist - will change. As such, this list will be updated on or around 30 June 2021. At this time, if the employee does not have an authorised document that will provide them with the right to work in the UK then you can choose to obtain a sponsor licence. Further information on obtaining visa sponsorship can be found here: https://www.gov.uk/uk-visa-sponsorship-employers.
Q. Following Brexit, what is the employer’s position on recruiting staff from the EU?
A. The UK has a number of schemes in place to incentivise businesses. These include:
The UK’s R&D tax credit regime is one of the most attractive in the world. The repayable credit under the SME scheme is 14.5%.
The scheme gives higher rates of corporation tax relief on allowable R&D costs. It also includes a repayable tax credit in some cases, which can often be a lifeline to early stage businesses.
To enhance the possibilities of qualifying for this relief, you need to consider carefully how you are structured and must meet the HMRC criteria, which look at four key aspects:
The Patent Box is a tax incentive available for a UK company or an overseas company subject to UK Corporation tax by virtue of a Branch or Permanent Establishment, on the use of existing and development of new, innovative patented products.
Patent Box is an optional regime that companies elect into to benefit from the Patent Box tax rate. Where a company elects into the Patent Box regime, their worldwide profits from the exploitation of eligible patents will be subject to a lower UK corporation tax rate of 10% instead of the main rate of corporation tax, currently at 19%.
Expenditure on certain assets that you acquire to use in your business can qualify for capital allowances. Capital allowances allow you to deduct the cost of these assets off against taxable income. ‘Plant and machinery’ assets that qualify can include anything from office furniture, IT equipment and certain fixtures in buildings, such as lifts.
The UK tax regime offers a 100% initial allowance (annual investment allowance) for qualifying expenditure up to £1 million per year incurred before 1 January 2022 (reverts to £200,000 per year thereafter).
The UK offers generous tax credits for certain businesses in the creative sector where certain conditions are met. The sectors covered are film production, ‘high-end’ TV, children’s TV, animation, video games, theatre productions and certain orchestras.
Q. What tax incentives can an eligible company benefit from in the UK?
A. The two principal taxes that you will need to be aware of when doing business in the UK are Corporation Tax and Value Added Tax.
It is not just UK resident companies that have to pay UK corporation tax. Overseas entities conducting a business in the UK through a permanent establishment (broadly a place of business) here will be liable too.
UK companies benefit from an advantageous rate of corporation tax, currently at 19%. Therefore, you need to ensure that your structure is set up in such a way as to maximise any tax reliefs and to minimise any tax payable – this is something that should be considered as early in your planning process as possible.
Key timings that you need to consider to ensure you comply with the regulations are:
VAT is charged on the taxable supply of goods and services in the UK and on their import into the UK.
Any trader who expects turnover to exceed £85,000 (as at 1 April 2020) a year has an obligation to register for VAT. The main rate of VAT is currently 20% and VAT returns are generally prepared quarterly and must be filed electronically.
It is the place of supply that governs whether there is an obligation to register for UK VAT and there are a few exemptions, which means VAT can often be a complex area. It is, therefore, important to establish where you stand before your business embarks on any sales of goods or services, either in the UK or to the UK.
Q. What tax considerations do I need to know about when doing business in the UK?
A. Following the end of the Brexit transition period, companies no longer have the benefit of automatic exemption from withholding taxes on payments between the UK and EU member states on dividends, interest and royalties under the EU Interest and Royalties Directive.
For payments made from UK companies to associated companies in EU member states, there should be no withholding taxes on payments of dividends, interest or royalties because the UK has implemented the EU interest and royalties directive into UK law.
However, the position is not as straightforward for payments made from EU member states to UK companies. Since 1 January 2021, following the end of the transition period, withholding taxes are potentially due on payments of interest, dividends and royalties from EU member states to UK companies.
Relief for withholding taxes may be available in accordance with the double tax agreements between the UK and each member state. UK companies receiving payments from EU member states should therefore review all payments to ascertain whether there will be any irrecoverable withholding taxes, or if there is a treaty in place which reduces withholding tax liabilities, to ensure that any relevant claims or applications are made.
The position is likely to change in the coming months as the EU continues to scrutinise the Agreement and EU member states may introduce legislation on withholding tax on payments to UK companies.
Q. Following Brexit, where do we stand with withholding taxes on payment between UK and EU companies?
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