Corporate taxation and compliance
Establishing corporate residence in the UK and implications
UK law requires companies resident in the UK to pay tax on their worldwide income. UK incorporated companies are generally treated as UK resident. Additionally, companies incorporated overseas will be treated as UK resident if they are centrally managed and controlled from the UK. Non-resident companies will also be liable to UK corporation tax, on profits of their UK business, if they have a Permanent Establishment (PE) in the UK from which a trade is carried on. The meaning of a PE for UK tax purposes is largely based on the OECD model. A PE will exist where a company has a fixed place of business in the UK or there is an agent acting on behalf of the company, in the UK, with authority to conclude business on the company’s behalf. No PE will exist if the actions undertaken in the UK are deemed to be preparatory or auxiliary to the company’s trade. Establishing whether a company has a UK PE will depend on the specific facts and circumstances of each company and its overall trade, as well as the activities undertaken in the UK. Companies resident in the UK or those with a PE in the UK will be required to register with UK Companies House and HMRC, the UK tax authority, and submit annual accounts and Corporation Tax returns within the statutory deadlines. For companies with specific trades or investments, there may be additional tax filing requirements.
Optimising corporate structures for UK tax purposes
Once it is established that a company wishes to do business from the UK, there are broadly two options for setting up that business: either as a limited company (subsidiary of overseas parent) or as a branch. The choice of which structure is optimal will depend on a number of factors specific to the business and will include legal and commercial considerations, as well as tax. Whilst the tax filing requirements are similar for a branch and a subsidiary, there can be tax advantages to each structure. Losses incurred in a branch may be available to offset profits of the overseas company. The use of losses from a subsidiary is more restrictive and losses can typically only be carried forward for us against future profits of the UK company.
Maximising claims for tax relief
A number of generous UK tax reliefs are also available for companies operating in certain industries and meeting qualifying conditions e.g. Research & Development claims, Creative Industry tax. These claims can potentially produce large tax savings and, with extensive experience in these areas, we can provide tailored advice to ensure claims are optimised.
Tax compliance for non-resident companies and landlords
Non-resident companies without a UK permanent establishment are subject to UK tax if: • they receive rental income from UK property; or • have profits of a trade from dealing in or developing UK land; or • have disposed of an interest in UK property or land; or • have disposed of shares in a UK property rich company. The company is required to notify HMRC of chargeability to tax within 3 months of the trade commencing or within 3 months of disposal, where they are not currently within the scope of UK corporation tax. The non-resident company is required to file a Corporation Tax return with supporting accounts (in English), to HMRC, within statutory timescales. The Non-resident Landlords Scheme is a scheme for taxing the UK rental income of non-resident landlords. Letting agents, or the tenant if no agent, of a non-resident landlord must deduct tax from the landlord’s UK rental income and pay this tax to HMRC quarterly. An application can be made to HMRC to receive the rental income gross. Relief for the tax withheld may be claimed by the non-resident landlord within their corporation tax return.
Other UK tax reporting requirements
There are a number of other UK tax reporting requirements which may be applicable to overseas companies, whether or not they trade in the UK. The list below is not exhaustive and specific advice should be taken for each company: • VAT: please see our VAT summary for details • Payroll Taxes: please refer to our Payroll summary for further information • Annual Tax on Enveloped Dwellings (“ATED”): companies owning residential property valued in excess of £500,000 will be required to submit an annual return and pay ATED tax on that dwelling. A number of reliefs are available which can reduce the tax charge to nil but a return must still be filed. • Companies involved in property development should understand their obligations under the Construction Industry Scheme (CIS) in relation to sub-contractors; • Similarly, for companies buying or leasing land and property, advice should be taken in respect of Land & Buildings Transaction Tax (LBTT) and Stamp Duty Land Tax (SDLT); • Companies making interest payments to individuals must withhold income tax and file CT61 returns to HMRC.
Key Contact
John Rodger
John Rodger is a Senior Tax Partner with more than 20 years’ experience at Chiene + Tait advising a wider range of clients, both in the UK and overseas, on corporate and employment tax matters.
John and his team can provide advice on:
- Establishing corporate residence in the UK and implications;
- Optimising corporate structures for UK tax purposes
- Maximising claims for tax relief
- Tax compliance for non-resident companies and landlords
- UK employment tax obligations
- Other UK tax reporting requirements