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Tax Issues for Start-up

For organisations planning to set-up a business in the United Kingdom, the key tax issues might encompass:

  1. Corporation tax compliance
  2. Employment taxes
  3. Value added tax.

Let’s understand each in detail

Key Tax Issues for Setting up Business in the UK

Tax Issues 1: Corporation tax compliance

Key points to be considered for corporation tax compliance are mentioned below

Who is liable to pay United Kingdom corporation tax?

  • An organisation that is registered in the United Kingdom, is accountable for corporation tax on its global profits and actionable gains, with credit given for taxes paid out of the country. Earnings and losses generated from an overseas permanent establishment (PE) of a United Kingdom organisation might be left out from the charge to United Kingdom tax by creating an unchangeable choice
  • A United Kingdom PE of a foreign organisation is accountable for United Kingdom corporation tax on business income generated via the United Kingdom establishment, earnings from assets or privileges held in the United Kingdom, and chargeable earnings on the selling of assets located in the United Kingdom
  • The corporation tax rate for the fiscal year beginning 1 April 2018 was 19%. The United Kingdom Government has already sanctioned a decrease in the earlier corporation tax rate to 17%, for the fiscal year beginning 1 April 2020
  • An organisation is considered to be a United Kingdom resident if it is registered in the United Kingdom or controlled and managed from the UK

Registering for corporation tax in the UK

  • Post registering an organisation with Companies House, the organisation must be registered with the United Kingdom tax establishments, Her Majesty's Revenue and Customs (HMRC), for corporation tax – registration must be done in-between three months from operating or starting a business. This comprises of advertising, buying, employing people, selling, and renting a property
  • In order to register an organisation online, with HMRC, for corporation it is imperative that an organisation has a 10-digit Unique Taxpayer Reference (UTR). HMRC usually sends the Unique Taxpayer Reference by post to the organisation’s registered address within a few days from the organisation being listed with Companies House
  • When the Registrar of Companies agrees to take the registration of an organisation or a United Kingdom establishment, it notifies HMRC of the presence of the new organisation. HMRC will typically send a new organisation request for information form entitled CT41G to the organisation to attain facts about the new organisation, comprising particulars of date of annual accounts, business start date, and nature of activities. In case this form isn’t complete, HMRC will assume the accounting periods for tax based on the organisation’s inception date and accounting reference dates for legal accounting drives

Corporation tax payment dates

  • An organisation that is termed as ‘large’ for United Kingdom corporation tax purposes must make tax disbursements through the three-monthly instalment payments system. A large organisation is one whose earnings for an accounting period are at a yearly rate in excess of ‘higher limit’ — presently £1.5mn — in force at the closure of the accounting period
  • For accounting periods closing on or post 1 April 2015, if an organisation has associated 51% group corporations, the £1.5mn threshold is decreased by apportioning that figure by the number of associated 51% group corporations plus one
  • The number of payments and dates will rely on the duration of an accounting period. For accounting periods of 12 months, corporation tax is normally payable in four quarterly instalments, two of which are due before the end of the accounting period. In 2019, new rules will be applicable to the biggest corporations/groups with earnings in excess of £20mn
  • HMRC is liable to charge interest on late or poorly paid instalments. For corporation tax purpose, this interest is tax deductible
  • If an organisation is not within the instalment system, then it will be required to pay corporation tax nine months and one day post the closure of an accounting period

Tax Issues 2: Employment Tax

Key points to be considered for employment tax compliance are mentioned below

Initial assessment

  1. Businesses in the United Kingdom must pay its staff at least the National Minimum Wage (£7.83 an hour)
  2. A Disclosure and Barring Service (DBS) verification will be required if staff will work in a field

Employment taxes, returns and PAYE

  • Employers are liable for deducting national insurance and income tax from employee’s take-home pay
  • When paying workers through the payroll, deductions need to be made under PAYE
  • Employers also have yearly reporting responsibilities comprising – submitting a year-end document to HMRC by 19 April, sending distinct forms P60 to each employee, sending forms P11D, P9D and P11D(b) to HMRC, sending forms P11D and P9D to employees by 6 July

Tax Issues 2: Value Added Tax

Key points to be considered for Value Added Tax compliance are mentioned below

Scope of Value Added Tax

  • Value Added Tax is applicable for supply of merchandises or services made in the United Kingdom by a taxable individual, an intra-European Union purchase of goods from a different European Union Member State by a taxable individual, reverse-charge facilities received by a taxable individual in the United Kingdom, on import of goods from a country outside the European Union, irrespective of the position of the importer
  • For Value Added Tax drives, the United Kingdom is made up Great Britain, Northern Ireland, and the Isle of Man. It does not consist of Gibraltar or the Channel Islands
  • A ‘taxable individual’ is any individual or entity that is required to be listed for Value Added Tax
  • In the United Kingdom, the word ‘taxable supplies’ talks about supplies of merchandises and services that are eligible under VAT, comprising the zero rate. VAT rates are zero rate (0%), reduced rate (5%), and standard rate (20%)

VAT registration

  1. The Value Added Tax registration limit for United Kingdom established organisations is presently £85,000 for a year. An organisation must register for Value Added Tax if its taxable gross revenue is in excess of the VAT registration limit in a 12 month period
  2. A Nil registration limit is applicable for organisations which are not set-up in the United Kingdom. As a result, such organisations that make a taxable supply in the United Kingdom are needed to register for Value Added Tax, irrespective of the worth of the supply
  3. An organisation can voluntarily register for VAT if its taxable gross revenue is less than the VAT registration threshold
  4. European Union VAT has certain rules applicable for business-to-consumer (B2C) purchases of digital services. Providing such services to European Union customers are subject to Value Added Tax in the Member State where the purchaser belongs

VAT payments and returns

  1. VAT returns are by and large submitted four times a year. VAT return quarters are divided into three cycles i.e. January, April, July and October; February, May, August and November; March, June, September and December
  2. VAT returns must usually be submitted by the last day of the month subsequent to the end of the return period
  3. It is not necessary for United Kingdom Value Added Tax registered businesses to submit a twelve-monthly VAT return in addition to their usual periodic (monthly or three-monthly) VAT returns
  4. HMRC’s Making Tax Digital (MTD) initiative came into effect, for Value Added Tax, on 1 April 2019. Now, businesses with gross revenue in excess of VAT limit will have to maintain their records digitally (as of now this is only applicable for VAT purpose)

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