Corporate tax in the UK is a kind of tax that is paid by corporations on their income or assets. Corporation tax is basically the direct corporate tax being charged on the assets or income of corporations. In the UK, corporation tax is only charged on those companies which are active and on individuals who are related to those active companies. However, this tax can also be charged on businesses which operate across the UK and are based within the UK as well.
Classified Category Of Business
Business entities in the UK can be classified into two categories: those which are resident in the UK and those that are non-domestic in nature. A company that is domiciled in the UK has all the privileges and benefits of corporate tax in UK, but does not have to pay the corporate tax in UK. Similarly, a company that does not have any permanent establishment in UK and is incorporated either by the UK or by some other country, does not have to pay any kind of tax in UK on its assets or income. This is known as non-domestic corporation tax.
In addition, some other taxes are levied on those companies that do not have any permanent establishments in UK but do have offices or branches in various parts of the world, and are thus able to reduce the rate of corporation tax by availing the allowances and special reliefs offered by the UK authorities.
UK Corporate Tax
The basic function of UK corporate tax regime is to implement tax law in UK and facilitate economic growth by maintaining tax collection. Corporate tax in UK is characterized by several different types of tax structures, including the basic corporation tax regime, the intra-company transfer tax regime, the full corporation tax regime, the National Insurance contribution regime and the international taxation regime. These different schemes have different rates of taxation and have different implications for companies. It is therefore mandatory and important for every company to know about all these schemes and know its position in UK corporate tax regime.
Don’t Make this Mistakes
Most companies make mistakes while calculating their corporate tax returns by using improper methods or shortcuts. They do this either due to lack of knowledge or unwillingness to commit to follow the rules and regulations regarding UK tax laws. There are several methods that can be used to minimize the tax liability. Most companies however, prefer to hire professional tax accountants, especially those who are experienced and proficient enough to perform the calculation in such a way that the company gets maximum deductions and profits. This way they ensure correct accounting, and at the same time help in minimizing UK corporate tax liability.
Online Accounting Firms
There are many accounting firms that claim to provide excellent corporate tax services. Some of these firms may offer their services directly. Some others may provide their services through independent agencies. These firms, however, charge fees for the calculations and accounting advice provided to the client. Some firms also claim to guarantee the compliance with UK corporate tax laws by their respective clients.
Some other factors that have an impact on UK corporate tax rates are the rates of inheritance, capital gains and dividends paid by the corporations to their shareholders. The inheritance tax rate is often too high in the UK for some people to afford. Capital gains tax also has some very high rates. Many small and medium sized businesses find it difficult to invest in the large stock markets because the rate of dividends they are eligible to receive is very low. Similarly, many of them find it difficult to attract and retain the top executives because the rate of inheritance tax charged on them is very high.
Annual Corporate Tax Rates
Companies usually ask the auditor to provide annual estimates of the corporation’s accounts. These estimates are based on the previous year’s figures. The results of such estimates are used to fix the annual corporate tax rates for the coming year. If there is an increase in the estimated profit, the corporate tax rates will drop.
Double taxation occurs when a particular company pays taxes in more than one country. It is termed as double tax residence. The UK tax resident company is liable to pay taxes in countries like Ireland, Bermuda, and Hong Kong. However, a company is not necessarily liable to pay taxes in these countries if it operates in countries that have lower corporate tax rates than the UK based company. This is known as the “special beneficiary treatment”.