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Tax Specialist Group
Corporate Tax Guide: United Kingdom
United Kingdom

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The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
United Kingdom
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
Currently 20%, reducing to 19% from 1 April 2017 and then 17% from 1 April 2020.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
Companies incorporated and resident in the UK subject to tax on worldwide income.
Non-UK companies subject to UK corporation tax if permanent establishment in the UK or centrally managed and controlled in the UK.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
UK has Diverted Profits Tax which subjects profits diverted from the UK, and relating to UK activity, to corporation tax of 25%.
UK-resident companies with foreign branches can elect for exemption from corporation tax on profits made by those branches.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
Limited (Ltd and Plc) companies, unlimited companies, companies limited by guarantee.
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
UK companies pay corporation tax on disposals of chargeable assets. Indexation allowance available to increase base cost of asset.
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
  • Group companies can transfer losses to profitable companies within the same group.
  • Assets can be transferred between group companies at no gain, no loss.
  • Group companies can elect to account for VAT as if they were one taxable entity.
  • Transfers of shares and property within a group are exempt from stamp duty and stamp duty land tax.
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
  • Capital allowances: Relief for expenditure incurred on plant, machinery, fixtures and fittings.
  • Research & Development: Enhanced tax-deductible costs for eligible expenditure or generation of tax credit which can be offset against corporation tax liability.
  • Patent Box: 10% corporation tax rate applied to any profits generated as a result of a patented product.
  • Creative Industry Tax Reliefs: Increase in allowable expenditure in relation to films, animations, high-end television, children’s television, video games, theatre and orchestra.
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
Worldwide Debt Cap rules currently apply to large groups.
Interest deductions restricted to 30% of a group’s UK EBITDA as from 1 April 2017 for groups whose net interest expense exceeds £2 million.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
Requirement for profits and losses to be calculated for tax purposes by substituting an arm’s length provision for an actual provision where certain criteria are met.
Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
Applicable to non-resident UK companies controlled by UK resident company to prevent diversion of UK profits to countries with low tax rates.
Applicable to UK company with at least a 25% interest in the CFC.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
No withholding taxes on dividends paid by UK companies.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
Relief for profits subject to foreign tax by way of Double Tax Treaty. Usually by way of a reduction against the UK tax liability by reference to the same profits
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
  • Trading losses: Set against total profits in the current period, carry back up to 12 months against total profits or carry forward against future trading profits from the same trade.
  • Non-trading losses: Set against total profits in the current period, carry back up to 12 months against other non-trading losses or carry forward against future non-trading profits.
  • UK property losses: Can either be set against total profits in the current year or against future profits.
  • Loss rules changing as from 1 April 2017 so that losses carried forward can be offset against different activities but the losses will be restricted to 50% of profits, subject to a £5 million allowance per group.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
Comprehensive network of Tax Treaties, TIEAs and LOBs.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
Interest – 20%
Royalties – 20%
Dividends – 0%

Certain countries will be subject to a different rate of withholding tax depending on the provisions of the relevant Double Tax Treaty.
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
Any year-end is allowed; however, the chargeable period cannot exceed 12 months.
This is the due date for filing a tax return. Where extensions are available, this is noted.
Later of:
  • 12 months from end of accounting period
  • 3 months from issue of CT603 (notice)
The typical tax instalment requirements are noted.
Mandatory for companies with profits above £1.5million.
4 instalments:
  1. 6 months and 13 days after the first day of the accounting period
  2. 3 months after the first instalment
  3. 3 months after the second instalment (14 days after the last day of the accounting period)
  4. 3 months and 14 days after the last day of the accounting period
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
Profits up to £1.5 million: 9 months and 1 day from the end of the accounting period.
Profits above £1.5 million: Instalments (see above).
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
  • Amendments to CT600: HMRC have 9 months from the date the return was filed and the company has 12 months from the due filing date.
  • Enquiries: For small companies, they must be made by 12 months from the day after the return is received; larger companies have 12 months from the due filing date.
If a country has exchange controls, this is noted, together with the main requirements.
No.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
Goods and services separated and charged at different rates: Standard rate 20%.
Reduced rate 5%. Zero-rated 0% and some are exempt.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
Purchases of residential property incur 3% up to £125,000, 5% between £125,000 and £250,000, 8% between £250,000 and £925,000, 13% between £925,000 and £1.5 million, and 15% over £1.5 million.
Where company purchasing residential property caught by ATED, 15% rate applies to value over £500,000.
Purchases of non-residential property incur 0% up to £150,000, 2% between £150,000 and £250,000, and 5% over £250,000.
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
Generally, none.
Where significant, other taxes are noted.
32.5% tax on outstanding loans made by company to its participators.
ATED charge where company acquires certain UK residential property.
Non-resident companies subject to UK tax on UK property interests; form of tax depends on type of property and status.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
In accordance with GAAR.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
Shareholders generally liable to capital gains tax at 28% on sale of company, but tax rate can be reduced dependant on personal circumstances.
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
Generally, none.
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Tribunal system in place where disagreements with HMRC cannot be resolved.
31. Other
Other important aspects of the tax system are noted.
N/A