by Jay Redman | Oct 30, 2021 | UK Updates
UK Income Tax Rules: A Quick Guide to the UK Corporate Tax System
The United Kingdom (UK), like every other country in the world, has a UK Corporate Tax System regime that it applies to incorporated companies and other bodies that include clubs and associations. The UK corporate tax regime is not applicable to trusts as well as partnerships and individuals.
At present, it does not apply to foreign or non-resident companies as well as landlords that receive rental profits from the property they own in the UK. Instead, they are subject to income tax rules.
This corporation tax regime in the UK can be described as a self-assessment regime, which means that taxpayers are responsible for calculating their taxable profits as well as reliefs, which may be applicable in any period.
Similarly, rules on tax adjustments are necessary rules on anti-avoidance rules from Her Majesty’s Customs and Revenues (HMRC).
There are some specific tax benefits as well as specific rules that may apply to a group of companies. Meanwhile, each entity is required to prepare a tax return in order to calculate its tax liability.
It is not currently possible to submit the ‘groups’ tax return.
Who is included in the UK corporate tax system?
Companies that fall within the UK corporate tax regime are regarded as tax residents in the UK, provided that they are permanently established. A tax resident is used to refer to a company that is incorporated in the UK.
This is the case in the absence of a treaty that allows double taxation for the company in another country. Specific tax advice should be sought in such circumstances.
Rules on permanent establishments
Companies that are non-resident in the UK are equally subject to corporation tax, provided that they have activities in the UK, which are the same as that of a UK establishment. It equally takes into account double taxation.
Corporation tax is imposed on permanent establishments in the UK, but this is limited to profits that are derived explicitly from the UK.
Calculation UK corporation tax
Corporation tax is usually designed to ensure companies pay the right amount of tax for the accounting period, based on their financial statements.
However, there are usually exceptions for when a company starts its operations or if there is a change to the accounting system. For accounting periods that exceed 12 months, HMRC requires more than one tax return.
How the UK Scheduler system works
Under the scheduler system, a company’s worldwide profits are subject to UK tax, and tax reliefs are available in part or for all of its foreign income.
The current system of taxation identifies a number of sources of income, and there are subtle differences at times.
These sources include but are not limited to income from trading activities, property business activity, and non-trading profits or losses that could result from a loan relation, for example, the interest banks receive.
Meanwhile, expenses from management and dividends are equally included in this category.
UK tax incentives and tax deductions
Each budget tends to have a range of tax incentives to ensure that businesses can operate properly and support domestic economic activity. They include tax credits and allowances for Research and Development.
Under such a scheme, the relief the company can claim is contingent on its size as well as its activities. The SME scheme allows for deductions for up to 130% of the qualifying R&D expenditure.
So, if the company spends £100, it will receive £230 worth of tax relief. Meanwhile, not all investments in R&D are productive or lead to marketable products in the marketplace.
Sometimes, such R&D investments may result in losses, which are calculated at 14.5% of the loss in question. As a result, the total R&D credit can be up to 33.5%. You can find more information here.
HMRC is currently consulting on how to merge the R&D tax from SMEs as well as large companies. In the past, both schemes were separate, but it is judged to be inefficient.
The consultation in question is used to determine the viability of the scheme and ensure that only businesses that are innovating in the UK can benefit from such as scheme.
Corporation Tax: Patent Box
The patent box enables companies to apply for a lower rate of corporation tax on their profits, which may arise from exploiting the dividends or payouts from patented innovations in the UK or across the world.
These rules were first phased in from 2013 as well as April 2017, when the relevant rate is set at 10%. This is considered a generous relief as its definition is quite drawn to include a range of activities.
Tax reliefs for the creative industry
Such reliefs are described as solely designed for the creative industry and enable qualifying companies to reclaim a larger deduction on possible tax repayments in a manner similar to the R&D relief cited above.
There are seven reliefs that are available to businesses, and these can be found here.
How do you pay corporation tax?
Companies are required to settle their corporation tax liability electronically, and there are currently a number of options that are available to them.
They include setting up direct debits, BACs, and CHAPS. There is more information on the HMRC’s Making Tax Digital as well as penalties. If you need professional help, check out Sterlinx Global.
Frequently Asked Questions
What are CFC (Controlled Foreign Company) rules?
The CFC rules have been in place for a number of years and were equally revised as part of the corporation tax road map reforms, from January 2013. A CFC can be described as a non-resident company that is subject to UK corporation tax.
What is Diverted profits tax?
by Jay Redman | Oct 25, 2021 | Tax & Accounting
Even if you only have a small business, it is important to hire an accountant for your accounting needs. If you don’t know when to start, continue reading this blog.
Tax Professional: When Should You Hire an Accountant
Do I need an accountant given I’m an entrepreneur? You may be asking this question even if you are a small business and we will be answering yes. When do you know that the time has come for you to hire an accountant? At what stage of your development do you absolutely need to have one and should you reach out for help or find an independent accountant.
Every business across every sector needs an accountant to ensure that you pay the right amount of taxes, keep your records in order and equally ensure that you do not fail any audits from HMRC. Some accountants merely play the role of implementing payroll, managing expenses, and revenues.
Regardless of your accounting needs, it is important to have an accountant and this article will give you a general overview of how to think about this. It can be confusing and costly, but our fool-proof guide will help you navigate your new unchartered waters.
Research from the business community illustrates that many small businesses are unsure about whether to hire an accountant, if at all. This guide provides you with useful information about hiring an accountant and when to do so.
Starting a business needs a great deal of financial information and data, and it is better to have a professional take care of all this as you may be too busy focusing on other things such as marketing and sales.
For small businesses, the chances are that you are swamped with financials after starting your business. This is why it is important for you to get a tax professional to take care of your vital accounting and financial needs while you focus on successfully running your business.
Accounting is just about growing your business and paying the right taxes
As a small business or entrepreneur, you are always looking for ways to save money. While some may consider an accountant to be an unnecessary expense, they are equally essential in ensuring that your tax returns are not filled with errors.
The best accountants tend to look for ways for businesses to save money, and such an approach can help you grow your business and expand effectively.
Do they Add Value to your Business?
Small businesses can equally benefit from more than just recording transactions and abiding by every rule from HMRC. Hiring an Accountant is equally useful in ensuring that you plan how and when you expand and where you can create more opportunities.
Accountants may add value to your business by increasing your revenue or lowering your expenses. They can equally plan your cash flow effectively and help you identify new market opportunities.
Accountants Make running your business easier
Hiring an accountant can ease the running of your business, and they tend to be hired late. A common problem is usually engaging an accountant very late, which does not leave them enough time to identify and prevent the lasting problems from costing the business more.
From when you start to when you begin operating, it is easier to employ an accountant.
What if you’re a limited liability company
This will depend on the role you play within the limited liability company. If you have a financial background and can draw up accounts, then the early stage of the business is something you may handle.
However, as your business expands, the administrative requirement may increase over time, requiring some additional manpower.
However, a business’s initial and early days tend to be preoccupied with planning, marketing, and generating sales activities.
Remember that the initial function of your business is to generate income, which requires the skills of an accountant.
The main purpose of your finance function
The key point of your accountant is to tell you how well your company is doing. It is important to have a system that you can regulate on a constant basis in order to monitor performance and review your key performance indicators.
You should use these figures as a decision-making metric to better equip you for revenue and expense decisions. An accountant can equally perform finance functions as needed, but it is important to understand the various functions of financiers and accountants.
However, your business may only need one, so do not hesitate to find the right mix of skills for what you are looking for. For example, you may need help with wrongly charged VAT or refunds, which require someone that has the skill to automate as well as notify HMRC in your Gateway account.
Frequently Asked Questions
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What questions to ask when hiring a new accountant?
You need to ask them if they are certified or have a finance background. Secondly, it is important to know what software they are accustomed to using and whether that will suit your company’s needs. For example, VAT automated receipts and linking bank payments are useful features.
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What questions to ask when hiring a new accountant?
In the initial days of operating, you may not need an accountant as you will be preoccupied with planning, marketing, etc. However, once the business begins generating revenues, you may need to hire an accountant. The timing is different for everyone.
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Location of Your Accountant
Your accountant can be located anywhere, but it is important to hire an accountant who has a strong grasp of your jurisdiction’s accounting laws and practices. You can have regular face-to-face meetings and/or skype and zoom meetings if you prefer.
Conclusion
There are a few reasons why you may need an accountant, and none of these reasons is identical.
However, once you register your business and begin making a sale, it is imperative that you have an accountant to record your expenses and revenues and equally pay the right amount of tax.
It is important to assess your needs, your budget, and the right tools to accompany your entrepreneurial journey.
For Accounting help and services, check out Sterlinx Global.
by Jay Redman | Oct 20, 2021 | European VAT
Are you getting ready for your tax? If you are a non-UK resident, it’s best to look for tax preparation services that can help you out. Continue reading to know more.
Tax Preparation Services: Establish your tax residence status
As a general rule, expats will be expected to pay into the United Kingdom’s (UK) National Insurance system once they begin working in the country and tax preparation services can be helpful. This is necessary to fund the costs of health insurance and welfare as well as other social programs.
Even if you no longer reside in the U.K., you may be required to file a tax return with HMRC. The tax regulations for UK citizens and non-residents are considerably different, and determining your tax residency status in the UK is one of your first tasks.
It’s crucial to keep in mind that even if you live in another country, you could still be a UK tax resident. This article looks at ten tips for non-EU residents on tax preparation services.
HMRC uses the Statutory Residence Test to assess whether you are a tax resident. Non-residents make one of the most common and often costly blunders of reading about it on the Internet and making their judgments about their residency status.
It can be difficult to determine your tax residency status, therefore you should always obtain assistance from an experienced accountant. Making a mistake might result in penalties and unexpected tax bills.
Do the Statutory Residence Test (SRT)
The SRT took effect on April 6, 2013. Read RDRM11000 onwards for further details on the entire test. You can use the exam to determine your residency status for a given tax year, sincere that each tax year is considered independently.
Three automatic overseas tests to consider if you are a non-UK resident
- First Automatic Test: If you lived in the UK for one or more of the three tax years before the current tax year and spent fewer than 16 days in the UK during that year, you will be a non-UK resident for the tax year.
- Second Automatic Tax Year: If you didn’t live in the UK for any of the previous three tax years and spent less than 46 days in the UK during the tax year, you’ll be a non-UK resident for the tax year.
- Third Automatic Test: You’ll be a non-UK resident for the tax year if you work full-time outside the UK during that time and:
- You spend fewer than 91 days in the UK throughout the tax year;
- You work for more than 3 hours in the UK on less than 31 days;
- There is no significant break from your overseas work.
When are you considered a UK resident?
If you have or have had a house in the UK for all or part of the year and the following conditions apply, you will be a UK resident for the tax year:
- There was or was at least one 91-day period when you had a residence in the UK.
- You have been present in that home for at least 30 days at any time during the year.
- You didn’t have an overseas house at the time and spent less than 30 days in it.
What is your domicile?
When it comes to calculating your international income for UK tax reasons, your domicile is crucial. Domicile is determined by UK law and refers to a person’s long-term, permanent residence. At the moment of your birth, your domicile of origin was the same as your father’s.
Foreign Income could be subject to tax
The amount of tax you pay on your international earnings is determined by your resident and domicile status in the UK. If you are a UK resident, you will be taxed on all of your investment income, regardless of where it is earned.
What is the sufficient ties test?
If you’re still confused about your residency status after studying the preceding tests, you should consider the sufficient ties exam. It determines if you have sufficient ties to the UK to be considered a resident. The following are examples of ties:
- Family members in the UK (for example, a spouse or children)
- Accommodation is defined as a place to stay that is available to you for 91 days, excluding hotels.
- In the UK, 40 working days of 3+ hours a day or more are required.
- In at least one of the preceding two tax years, you spent more than 90 days in the UK.
- During the tax year, you spent more days in the UK than in any other country.
You can split your time between two countries
You may be entitled to apply split-year treatment to reduce your tax burden if you left or arrived in the UK during the tax year and meet specified conditions about your unique case.
Frequently Asked Questions
Can your UK day count be reduced?
There are scenarios where HMRC could decide to reduce your day count. For example, due to unusual circumstances, your UK day count may be decreased to account for days spent in the UK that did not generate economic activity.
What are split years?
You’ll be a UK resident for the entire tax year, although it may be split between the UK and an overseas portion. If there is an actual or deemed departure from the UK during a year in which you are a UK resident, you must evaluate whether any of the split years cases 1-3 applies.
What are the penalties for filing my tax return late?
If your tax return is up to three months late, you will be charged a £100 late filing penalty. If you pay your tax bill late or later, you’ll have to pay more and late payments will incur interest charges.
Conclusion
If you do not live in the UK full time, you should ensure that you pay taxes for the number of days you reside in the UK. This article explains ten things to help you effectively prepare for UK taxation as a foreign entrepreneur or expat. For Tax related help and services, check out Sterlinx Global.
by Jay Redman | Oct 15, 2021 | Uncategorized
Paying VAT by Bacs has a couple of benefits and knowing them can help you track your payments. Read this blog to know more about them!
Pay VAT by Bacs: Top 5 Benefits of Paying VAT by Bacs — Make your life of VAT tax easier to track your records of payment
Unless a company is indebted to HMRC or gets frequent payments, it is customary to file quarterly VAT returns. Both the VAT return and payment must now be submitted online, and payments must be received by HMRC seven days after the end of the month after the end of the VAT period (not only sent).
There are several ways to make your VAT payments to HMRC. In this article, we look at the benefits of using the Bacs system. Bacs refers to Bank Automated Clearing and is used by a range of businesses to pay their VAT bills.
There are several advantages to using the Bacs to pay your VAT bill, but the article looks at five advantages of using the “Bankers’ Automated Clearing Services” (Bacs).
The meaning of Bacs
Bacs is the abbreviation for ‘Bankers Automated Clearing Services.’ Bacs Payment Schemes Limited, a membership organisation of 16 of the UK’s biggest banks, operates and manages Bacs payment services.
Direct Debit payments accounted for 4.5 billion in 2020, while Direct Credit payments accounted for over 2 billion.
What is Bacs?
In the United Kingdom (UK), a Bacs payment is one of the most common bank-to-bank transfers. Direct debits, in which one party has been given authority to withdraw money from another party’s bank account.
Direct Credit is where one party deposits money in the other party’s account.
Bacs Direct Debit
A Direct Debit is an order to a bank from a client to collect payments from their account as long as the customer is informed of the payment amounts and dates in advance. A customer authorises this payment by filling out a Direct Debit Mandate form online or offline.
The organisation can receive money from you automatically once you’ve been approved (provided that they comply with the scheme rules).
The Direct Debit Guarantee ensures that clients are protected against fraudulent payments, making it the safest method of payment in the UK. Direct Debit has long been seen to be a payment method reserved for major organisations.
However, with the introduction of Direct Debit providers such as GoCardless, businesses can now take advantage of the benefits of Direct Debit.
This is achievable without having to go through the time-consuming and difficult procedure of obtaining a sponsor bank and obtaining a Service User Number.
What is bacs direct debit used for?
Direct Debit is commonly used to make recurring payments such as home bills, subscriptions, memberships, and charitable donations. It may, however, be used for a lot more, including one-time payments.
In the U.K, Direct Debit is a popular payment method as 90% of the UK population uses Direct Debit to pay at least one regular bill. Direct Debit was used to make 4.4 billion payments in 2018, with overall payments estimated at 4.4 billion.
This is why the HMRC requires businesses to make their VAT payments through Bacs. It is the most commonly used method of payment.
Is Bacs safe?
1) Bacs payment is a very safe means to collect and make payments, and it’s known all over the world for its secure electronic payment delivery: Since 1968, Bacs has been in charge of the clearing and settlement of automated payments in the United Kingdom.
2) Bacs makes use of Bacstel-IP, an SSL-encrypted system. It also necessitates the use of a secure, encrypted password, and the system is constantly monitored to ensure that data and user authorisation are legitimate.
3) Only approved organisations are permitted to collect Direct Debit payments, and the Direct Debit Guarantee protects customers from any fraudulent payments.
How long does Bacs take?
Payments made through Bacs Direct Credit and Direct Debit follow a three-day cycle and take three working days to clear.
Payments are sent to Bacs on the first day, processed by banks the next day, and concurrently deducted from the sender account and credited to the recipient account on the third day.
Payments take less than 2 hours on average with the Faster Payments Service.
Five advantages of Paying VAT by Bacs
1) Lower transaction costs compared to credit and debit cards.
2) Recurring payments are easy to set up.
3) Customers are protected by the Direct Debit Guarantee against payments made in error or fraudulently.
4) Unlike credit and debit cards, which can be stolen, lost, or expire, a Direct Debit can be used indefinitely. As a result, the number of rejected payments is reduced. Direct Debit payments have a success rate of 95-100%, compared to only 80-95% for credit cards.
5) Bacs Direct Credit is a lot easier payment method to administer than certain other payment methods, such as cheques, because most of the process, including remittance and reconciliation, is automated.
Using Bacs Direct Credit results in some immediate cost savings, and any firm with a UK bank account can use Bacs Direct Credit.
6) Another significant advantage of Bacs Direct Credit is improved cash flow. You have more control and management of money leaving your business by using it to process regular payments.
This makes precise planning and forecasting much easier.
Frequently Asked Questions
Are Bacs payments expensive?
Setup expenses are £5,000 plus the cost of Bacs-approved software, which is normally £2495 or more. You’ll also be charged transaction costs, which can range from £5 to £50 plus additional bank fees.
Disadvantages of Bacs
Direct Debit payments take three working days to process, thus they are not ideal for same-day payments. While it is safe, it can be challenging to set up unless you have a UK bank account for HMRC payments.
What is CHAPS?
Faster Payments and CHAPS can also be used to send money from one bank to another. Faster Payments enables near-real-time transfers between UK bank accounts. CHAPS, on the other hand, is a same-day payment system for high-value transactions (e.g. for buying property).
Conclusion
There are several ways to pay your VAT bill. However, Bacs is easier and involves less effort ad your dues can be directly taken from your account by HMRC.
Furthermore, you have a greater chance of paying your VAT bill on time, which is efficient but can equally spare you additional fines from HMRC.
Bacs Direct Credit is one of the most widely used payment methods in the UK. Each year, around 2.1 billion payments are made using this method.
by Jay Redman | Oct 10, 2021 | UK Updates
Reasons when Closing a UK-based Company
There are several reasons why you may want to close your company. You may be leaving the UK and moving to another country, or you may be retiring and want to take a break from it all.
Whatever the case, you are required to have the agreement of the company’s directors or shareholders to close a limited liability company. How you close a limited liability company depends on whether you have bills to pay, are in debt, or don’t owe any suppliers, businesses, or individuals.
If the company is considered solvent, you may apply to strike off the company from the UK register of Companies. As a director, you can equally start what is known as members’ voluntary liquidation. Remember that the cheapest way to strike off a company is to close it.
In the event that the company can’t pay its bills, the money owed to other individuals, businesses, or third parties legally comes before that owed to the board of directors or shareholders.
Under such circumstances, you must liquidate your company, or you may be forced to liquidate it by regulators or the competent authority. If you apply for a voluntary company arrangement, you will be able to avoid liquidation.
How about a Scenario where there is no Director?
In the event that a director has passed away due to unforeseen circumstances, you can appoint a new director. This is required in order for you to effectively strike off a company from the UK register of companies.
It may be more challenging to manage the company’s assets in such an event, especially if the managing director has passed.
Under such circumstances, shareholders must agree to appoint a new director who will manage the winding down of the business in question. They may equally need to vote on the person in question.
Remember that the estate’s executor can appoint a director, which does not require a vote as long as the company’s articles allow for that if the sitting director passed away.
The appointed director can close a company but must ensure that they pay corporation tax and file a tax return with HMRC even if there is no director.
Making the Company Dormant
You do not have to close your company if it is dormant or it is no longer trading. You can leave it open as long as it can carry out its business functions, maintains trading activities, or receives income.
Under such circumstances, your company may still be registered at the company’s trading house. In such a case, you still need to send your annual accounts and confirmation statements to the relevant authority or Companies House.
Remember that you do not always have to close a dormant company; you can keep it dormant for as long as you want.
Putting Your Company into Administration
If your company cannot repay its debts, you can put it into administration. In such a circumstance, you are protected from legal action. Nobody can help you with the process of winding down your company if it has not repaid its debts in full.
However, administration means that your company does not have to repay its debts immediately.
Appointing an Administrator
As a company, you may appoint an administrator who must be a professional insolvency practitioner. You will have to pay some fees if you choose such an option.
How Exactly Does Administration Work?
The chosen administrator will first begin by writing a letter to all your creditors and Companies House to notify them of the appointment. They’ll equally publish this in the Gazette.
After this, your administrator will try to stop your company from being wound up or liquidated and then try to pay much of your debts from your assets. The appointed administrator has eight weeks to come up with the statement of intent.
During the period where your company is in administration, the administrator in question will run your business as they have control over your affairs.
Frequently Asked Questions
How to declare insolvency?
Write a statement that says the companies’ directors cannot pay their debts with the current interest rate. Be sure to include the name and address of the company and how long you may take to pay such debts a year before liquidation.
What are the three types of liquidation?
There are three types of liquidation, which are creditors, compulsory, and members’ voluntary liquidation.
