Presentation on theme: "Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold."— Presentation transcript:
1Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold
2Agenda Kingston Smith – Introduction Branch vs Subsidiary Employment TaxesCorporation TaxVAT
3About us Top 20 UK Accountancy Firm Fastest Growing amongst the top 20 56 Partners /500+ EmployeesISO 9001 accredited7 offices in and around LondonEstablished in 1923
4Kingston Smith Rated as “Accountant of the year” for the PLUS market. Amongst the top accountants for AIM listed companiesDiverse range of services via associated companiesInternational presence in over 50 countries through KSi (www.ksi.org )Expertise in varied industry sectors
5Indian clientsHave worked with some of the well recognized Indian clients, majority of them from the Technology sector.Dealing with Indian clients for the last 20 years.Client base consists of large business houses as well as the SME and small start up firms.Have developed a niche India practice, where we have people, who understand both India and UK, to bring the best to you.
7Branch vs Subsidiary BRANCH SUBSIDIARY Same legal entity as non-UK companyNon-UK company liable under contractsSubject to UK Corporation Tax on UK “Permanent Establishment” profitsSUBSIDIARYSeparate legal entityLiability ring fenced in the UK within subsidiarySubject to UK Corporation Tax on Worldwide Income
8Branch vs Subsidiary BRANCH SUBSIDIARY Taxed at 28% UK Branch profits can qualify as “IT enabled export” income for purposes of Indian Corporation Tax exemptionsDouble tax relief given in India for UK Corporation Tax paidSUBSIDIARYTaxed at 28%Dividends paid to Indian company cannot qualify as “IT enabled export” incomeNo double tax relief for UK Corporation Tax paid (effective tax at approx 50%)
9Branch vs Subsidiary BRANCH SUBSIDIARY No withholding tax on profits paid from UK20% withholding tax on interest– can be reduced under certain tax treatiesInterest and royalties to “parent” company not tax deductibleSUBSIDIARYNo withholding tax on Dividends paidSameInterest and Royalties to “parent” deductible if “arm’s length”
10Branch vs Subsidiary BRANCH SUBSIDIARY No statutory audit requirement Must file non-UK (audited) financial statements on public recordCan be perceived to be a “weak” presence in the UKSUBSIDIARYStatutory audit required if criteria metMust file UK GAAP financial statements of subsidiary on public recordA “strong” presence in the UK
11Branch vs Subsidiary BRANCH SUBSIDIARY Can be time consuming to registerMust have at least one UK based representativeSUBSIDIARYSimple to incorporateMust have at least one director (not necessarily UK based)
12Branch vs Sub - Conclusion Branchesdouble tax relief availabledo not ring-fence UK liabilitiesmust disclose non-UK financial statementsdo not need a separate auditperceived to be a “weaker” UK presenceSubsidiariesCould be double tax relief problemsneed UK GAAP financial statementmay need to be audited (= additional cost)simple to incorporateperceived to be a “stronger” UK presence
14Employment Taxes UK Taxes on employment income: Income Tax at 0%, 20% and 40%Employee’s Social Security at 0%, 11% and 1%Employer’s Social Security at 0% and 12.8%
15Employment Taxes Taxation of an individual earning £40,000 per annum… Salary ,000Income Tax (6,800)Social Security (3,800)Net Salary ,400…plus Employer’s Social Security of £4,400Therefore, total cost to the employer of £44,400
16Employment Taxes - Planning Social Security ExemptionFor individuals on secondment from India to the UK, there is no liability to Social Security for the first 52 weeksThis is an immediate saving of £3,800 for the employee and £4,400 for the employer (based on previous example)
17Employment Taxes - Planning Claim for overseas work daysIf employee spends some time working outside of the UK, the salary corresponding to the proportion of work days spent outside of the UK can be excluded provided that it is not remitted to the UK
18Employment Taxes - Planning Example – an employee earning £40,000 but spending 2 days a week (i.e. 40%) working in various European countries…Salary , (only £24,000 taxable)Income Tax (4,800)Social Security ( ) (52 week exemption)Net Salary ,200This represents a £5,800 tax saving for the employee and a £4,400 saving for the employer
19Employment Taxes - Planning Claim for living expensesIf an employee is seconded temporarily to the UK and the secondment is expected to last for less than 24 months then certain living expenses are tax deductible
20Employment Taxes - Planning Tax Deductible Living Expenses:Accommodation costsSubsistence (3 meals a day, 7 days a week)Council Tax (approx. £150/month)Utility Bills (Gas, Electricty and Water rates)Home to Office travel costsNon Tax Deductible Expenses:School feesFamily costsHome telephone, broadband and cable TV
21Employment Taxes - Planning Example – an employee earning £40,000 is seconded to set up a UK office which is expected to take 18 months. Living in London, he spends around £1,800 per month on deductible expenses.He also spends 2 days a week travelling to the European offices.
22Employment Taxes - Planning The taxable salary is reduced by 40% for overseas workdays and then by a further £21,600 for qualifying living expenses:Salary , (only £2,400 taxable)Income Tax (480)Social Security ( ) (52 week exemption)Net Salary ,520This represents a £10,120 tax saving for the employee and a £4,400 saving for the employer
23Employment Taxes - Planning Other issues:Tax Equalisation to pass cost savings to the employer but don’t forget immigration issuesShare OptionsIndian salariesWatch out for Americans!
25Corporation Tax Profits subject to Corporation Tax as follows: Up to £300, – at 21%Between £300,000 and £1,500,000 – at 29.75%Above £1,500, – at 28%Watch out for groups as this will reduce above profit slabs
27Corporation Tax How do you calculate UK profits? It depends… Are you providing services from the UK to India or the end client?
28Corporation Tax UK Branch as Service Provider to India Indian Company Provides ServicesProvides ServicesIndiaUKUK BranchUK Client
29Corporation Tax UK Branch as Service Provider to UK Client Indian CompanyCost AllocationProvides ServicesIndiaUKUK BranchUK ClientProvides Services
30Corporation Tax Transfer Pricing Rules will apply: If providing service to India – consider “Cost-Plus” modelIf providing service to Client – consider “Comparable Uncontrolled Price” modelSeek advice early on!
32Value Added Tax (“VAT”) VAT is charged at 15% on certain supplies made in the UKThis means that most UK businesses charge VAT on their sales invoices and incur VAT on their costsThe net of VAT charged and incurred is payable/recoverable from HM Revenue & Customs
33Value Added Tax (“VAT”) It is very important to understand your liability for VAT in the UK as failure to charge VAT when due can result in large penalties and liabilitiesSimilar, failure to register for VAT when eligible to register can result in non-recovery of VATAs always, take advice early on
34Contact Details Tim Stovold Chandru Iyer Partner International BDM Kingston Smith LLPDevonshire House60 Goswell RoadLondon EC1M 7ADTelephoneFax