KNOWLEDGE BASE

MARKET ENTRY INFORMATION

Doing Business in Britain

Overview About Britian Setting up a Business in Britian Taxation

CORPORATE INCOME TAX

Companies that are incorporated in the United Kingdom or Foreign companies where their central management and control is in the UK, are subject to tax at prevailing rates on their worldwide income including ordinary income and capital gains, although capital gains tax is applied after relief for inflation. Non resident companies are taxed on the income of a branch carrying on a trade in the United Kingdom and on UK sourced investment income and on chargeable capital gains on the sale of trading assets situated in the United Kingdom.

United Kingdom companies pay dividends out of their post tax profits and the payment of dividend is not subject to withholding tax regardless of where the recipient is resident. The recipient of a dividend is provided with a tax credit equivalent to the 10% of the gross amount.

The computation of profits for taxation purposes often disallows such items as depreciation of capital purchases and entertaining although capital allowances are available for most qualifying plant and machinery purchases and range from between 40% and 100%.

Builders do not generally attract capital allowances although a 3% allowance is extended to Industrial and Agricultural buildings and hotels.

Corporation Tax Rates

Taxable Profits 2012-13
First £300,000 20%
On Profits over £1,500,000 24%

The Corporate Tax Rates are due to reduce 22% from 1st April 2014.

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PERSONAL INCOME TAX

United Kingdom citizens who are normally resident and domiciled in the United Kingdom pay income tax on their worldwide income at the prevailing rates shown below.

Individuals who are Non UK domiciled are only taxable (subject to special rules) on UK sourced income or on foreign sourced income which is remitted to the United Kingdom.

Personal Income Tax - Rates and Allowances

Income Tax Allowances 2012-13 (£)
Personal Allowance £8,105
Personal Allowance for people aged 65-74 £10,500
Personal Allowance for people aged 75 and over £10,660
Income limit for age-related allowances £25,400
Married couple's allowance for people born before 6 April 1935   Not Applicable
Married couple's allowance – aged 75 or more £7,705
Minimum amount of married couple's allowance £2,960
Blind person's allowance £2,100

The rate of relief for the continuing married couple’s allowance and maintenance relief for people born before 6 April 1935, and for the children’s tax credit, is 10%.

Taxable Bands 2012-13 (£)
Basic Rate 20% £34,370 - £150,000  
Higher Rate 50% (due to reduce to 45% in April 2013) Over £150,000

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OTHER TAXES

Capital Gains Tax

Capital Gains Tax is charged at 18% on the disposal or sale of capital assets. Taper relief is no longer available. Entrepreneurs relief is available on qualifying disposals of business.

It may be possible for a non-UK domiciled individual to avoid capital gains tax on the disposal of shares in a UK company if they are held in an offshore trust.

Inheritance Tax

Inheritance Tax (“IHT”) is charged at 40% on death and at 20% on certain lifetime transfers. Each individual has an exemption, currently £325,000 for the tax year 2012/13. Individuals domiciled in the UK are subject to IHT on their worldwide assets whereas non-UK domiciled individuals are generally only subject to IHT on their UK assets. There are a wide range of exemptions and reliefs which may be available to mitigate IHT charges.Inheritance Tax (“IHT”) is charged at 40% on death and at 20% on certain lifetime transfers. Each individual has an exemption, currently £325,000 for the tax year 2012/13. Individuals domiciled in the UK are subject to IHT on their worldwide assets whereas non-UK domiciled individuals are generally only subject to IHT on their UK assets. There are a wide range of exemptions and reliefs which may be available to mitigate IHT charges.

National Insurance Tax

National Insurance Tax is a payroll tax used to fund the Welfare system. It consists of both employers and employees contributions. The employee suffers a deduction of some 12% of salary, on amounts between £107 and £817 per week and 2% on salary in excess of £817 per week. The employer pays 13.8% of salary in excess of £107 per week with no upper limit.

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