Tax essentials

With tax incentives and low corporation tax, the UK is a very affordable place to do business. Here’s an overview of what you need to know.

1. Corporation and income tax

Corporation tax
You will be asked to pay corporation tax on the profits your UK business makes. You are required to calculate your own company tax liability and file an annual return of your results over the company’s accounting period. You should seek specialist advice on the best way to do this for your business.

Income tax
Income tax is generally deducted from an employee’s salary on a monthly basis, through an employer-run system known as
‘Pay As You Earn’ (PAYE), and automatically paid to HM Revenue & Customs (HMRC). As an employee, you will pay between 0% and 45% tax, depending on your earnings.

You should seek professional advice for calculating income tax liabilities for foreign nationals.

With the right advice from London & Partners, with tax incentives and low corporation tax, the UK is a very affordable place to do business.
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2. Value Added Tax (VAT)

VAT is the UK sales tax. If the annual turnover of your UK business exceeds £85,000 a year you are required to register with HM Revenue & Customs (HMRC) and pay this tax on your sales.

The VAT rate applicable depends upon the goods or services you supply. The standard rate is currently 20%. A reduced rate of 5% or a rate of zero can also apply.

VAT legislation is complex. Make sure you seek expert advice in order to pay the correct rate of VAT.

3. Pay As You Earn (PAYE)

PAYE is the system used to calculate income tax on an employee’s pay. As an employer, you are responsible for withholding income tax and National Insurance Contributions (NIC). HMRC provides a ‘Tax Code’ that reflects the employee’s personal circumstances to collect the correct amount of income tax from pay during the year.

You will need to register as an employer with HMRC to be issued with an employer reference and PAYE guide.

4. National Insurance

National Insurance is a type of social security. Both employers and employees are subject to National Insurance contributions as a percentage of the gross salary paid to an employee.

As an employer, you must calculate this amount and pay it to HMRC every month, along with the PAYE tax.

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