PKF International Limited Doing Business in the UK LOCAL KNOWLEDGE, GLOBAL EXPERTISE Important Disclaimer This publication should not be regarded as offering a complete explanation of the matters that are contained within it and all information within this document should be regarded as general in nature. While significant care was observed in creating this publication, the possibility exists that certain information may, in time, become outdated. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken (or not undertaken) on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly, no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF UK and Ireland is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. © PKF International Limited All Rights Reserved. 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II DOING BUSINESS IN THE UK Contents Foreword 1 Demographic and Environmental Overview 2 Geography and Population 2 Political System 2 Economics 3 Brexit 3 Northern Ireland 4 Application of customs tariffs under the TCA 5 Services 6 Recommendations 6 Covid 7 Exchange Controls 8 Regulatory Environment 8 Legal systems 8 Money laundering 8 Bribery Act 2010 9 Criminal Finances Act 2017 10 Data Protection 11 Diversity Pay Gap Reporting (Gender and Ethnicity) 12 Competition 12 Acquisitions and Mergers 13 Disclosure 14 Forms of Business Organisation 15 Companies 15 Place of Business or Branch 16 Partnerships 17 Joint Ventures 17 Trusts 17 Financial Reporting and Accounting 19 Statutory Accounting Requirements and Principles 19 Requirement to keep accounting records 19 Applicable accounting frameworks 20 Companies Act requirements 20 Audit Requirements 20 Who needs an audit? 20 DOING BUSINESS IN THE UK III Business Finance 22 Debt Funding 22 Equity Finance 22 Private Equity 23 Business Angels 23 Flotation 23 Grants 24 Alternative finance 24 Introduction and Summary of Taxation in the UK 25 Overview of Taxes within the UK 25 Administration 25 Summary of Key Points of UK Taxation 25 Devolved tax powers 28 Tax Implications of the Form of Business in the UK 29 1. Operating through a UK Company 29 Payment of corporation tax 30 Non-resident landlords 30 Digital services tax 30 Capital gains 30 Transfer pricing 31 Value Added Tax and customs duties 31 National Insurance Contributions 33 Apprenticeship Levy 33 Fringe Benefits Tax (FBT) 34 Benefits in kind 34 Local taxes 34 Other taxes 34 Determination of taxable income 34 Other administration issues 39 2. Operating through a branch or agent in the UK 42 3. Selling into the UK 43 A. Direct Selling from Abroad 43 B. Selling into the UK through a UK based agent 45 C. Selling into the UK through a UK based distributor 46 D. Selling into the UK through e-commerce 46 Direct tax issues 46 VAT issues 47 IV DOING BUSINESS IN THE UK Ceasing to have a presence in the UK 49 A. Disposal of a business or subsidiary 49 B. Winding-up a company or striking a company off the register at Companies House 50 C. Company migration 51 Repatriation of Profits 51 Treaty and Non-Treaty Withholding Tax Rates 51 Foreign personnel in the UK 52 Business Immigration to the UK 52 Visas for Sole Representatives of an Overseas Company 53 Employees 53 Investors 53 Entrepreneurs 53 Employee rights 54 Pensions 54 Healthcare in the UK 54 UK taxation of individuals 55 Introduction 55 Residence and Domicile 55 Rebasing 56 Applicable tax rates 56 Available exemptions 56 Interaction with tax treaties 57 Trading exemption 57 Other factors on residence and domicile 57 Individuals leaving the UK 58 Allowances and deductions 58 Capital Gains 60 Inheritance Tax 60 Taxation of land and buildings 62 Sale of Land or Buildings 62 Growth in Land Value 63 Rental Income 63 Plant and machinery 64 Construction Industry Scheme 64 Stamp Duty Land Tax, Land and Buildings Transactions Tax and Land Transaction Tax 65 DOING BUSINESS IN THE UK V Value Added Tax 65 VAT liability - commercial property 65 VAT liability - residential property 66 Place of supply 66 Business Rates 66 Appendix 1: Tax rates and allowances in the UK for 2020/21 68 Tax Rates, Allowances and Reliefs 68 Income Tax 68 Income Tax Reliefs and Incentives 72 National Insurance Contributions 73 Capital Gains Tax 74 Inheritance tax (IHT) 75 Capital Allowances 76 Value Added Tax 77 Insurance Premium Tax 79 Corporation Tax 79 Stamp Taxes 79 Appendix 2: List of treaty and non-treaty withholding tax rates 83 Brexit 83 Dividends 83 Interest 83 Royalties 84 Other 84 Non-UK tax residents 84 Appendix 3: Useful websites 87 Government 87 Taxation 87 Other 87 PKF Contact Details 88 VI DOING BUSINESS IN THE UK Foreword This publication provides an overview of the most important aspects of doing business and investing in the UK and we trust that you find it informative and useful. The UK remains one of the most attractive places in the world to invest in, and trade with, ranking in the Top 10 for Ease of Doing Business assessed by the World Bank. It continues to receive the most foreign investment of any country in Europe and has one of the most competitive tax regimes in the world. Key partners for inward investment continue to be the USA, Japan, China, India and Australia. The UK also remains an active outward investor, and whilst circa 50% of this currently goes to Europe, other key partners include the Americas, China and Australia. If you are considering setting up, investing in or acquiring a UK business or trading in the UK, your next step should be to talk to us. The PKF UK network of firms have a great deal of experience in helping businesses cross borders. As one of the top networks of accountants and business advisers in the UK, with offices in all the major business centres, we provide a comprehensive range of services to inward investors across a broad range of business sector, including: • Auditing of UK and foreign subsidiaries and holding companies • Corporate finance advice with regards to acquiring / disposing of subsidiaries and fund raising • Business advice regarding setting up of operations in the UK and selling into or out of the UK • Taxation compliance and advice services • Outsourcing and bookkeeping We specialise in advising growing and entrepreneurial owner-managed businesses, AIM and Main Market companies and UK subsidiaries. Our aim is to work closely with our clients to understand their goals and help to achieve them. DOING BUSINESS IN THE UK 1 Demographic and Environmental Overview Geography and Population The United Kingdom of Great Britain and Northern Ireland (more usually referred to as the United Kingdom or the UK) is a state consisting of the nations of England, Scotland, Wales and Northern Ireland. Also, under UK sovereignty, though not part of the UK itself, are the Crown dependencies of the Channel Islands and the Isle of Man. These dependencies pursue their own policies over taxation, employment, health and education, but are subject to UK control on matters such as defence. The UK is an island of 243,000km². Its population in 2021 was 68 million, virtually the same as France yet in an area less than half the size. The language spoken is English and London is the largest city and capital. Its time zone is GMT or GMT+1 for Daylight Saving Time/British Summer Time. Political System The UK is a constitutional monarchy. The constitution is uncodified and partly unwritten, comprising constitutional conventions, statutory law and common law. The head of state is the Monarch who since 1952 has been Queen Elizabeth II (for more information see www.royal.gov.uk), although this is a largely ceremonial role. Parliament is at the centre of the UK’s political system (see www.parliament.uk). It is the supreme legislative body and the UK Government is drawn from and answerable to it. Parliament is made up of the House of Commons and the House of Lords. The House of Commons consists of 650 Members of Parliament, elected in general elections held at least once every five years and using the first-past-the-post voting system. A Conservative majority government was formed following the December 2019 election. The House of Lords comprises a (non-elected) mixture of hereditary and appointed members. It scrutinises bills that have been approved by the House of Commons and, while it is unable to prevent Bills passing into law, acts as a check on the House of Commons that is independent from the electoral process. The political head of the country is the Prime Minister, who must have the support of the House of Commons.