carrying on business in the uk and related tax, accounting and company law matters tim stovold

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Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

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Page 1: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Carrying on business in the UK and related tax, accounting and Company Law matters

Tim Stovold

Page 2: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Agenda

Kingston Smith – Introduction

Branch vs Subsidiary

Employment Taxes

Corporation Tax

VAT

Page 3: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

About us

Top 20 UK Accountancy Firm

Fastest Growing amongst the top 20

56 Partners /500+ Employees

ISO 9001 accredited

7 offices in and around London

Established in 1923

Page 4: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Kingston Smith

Rated as “Accountant of the year” for the PLUS market.

Amongst the top accountants for AIM listed companies

Diverse range of services via associated companies

International presence in over 50 countries through KSi (www.ksi.org )

Expertise in varied industry sectors

Page 5: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Indian clients

Have 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.

Page 6: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

BRANCH VS SUBSIDIARY?

Page 7: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Branch vs SubsidiaryBRANCH

Same legal entity as non-UK company

Non-UK company liable under contracts

Subject to UK Corporation Tax on UK “Permanent Establishment” profits

SUBSIDIARY

Separate legal entity

Liability ring fenced in the UK within subsidiary

Subject to UK Corporation Tax on Worldwide Income

Page 8: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Branch vs Subsidiary

BRANCH Taxed at 28%

UK Branch profits can qualify as “IT enabled export” income for purposes of Indian Corporation Tax exemptions

Double tax relief given in India for UK Corporation Tax paid

SUBSIDIARY Taxed at 28%

Dividends paid to Indian company cannot qualify as “IT enabled export” income

No double tax relief for UK Corporation Tax paid (effective tax at approx 50%)

Page 9: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Branch vs Subsidiary

BRANCH

No withholding tax on profits paid from UK

20% withholding tax on interest– can be reduced under certain tax treaties

Interest and royalties to “parent” company not tax deductible

SUBSIDIARY

No withholding tax on Dividends paid

Same

Interest and Royalties to “parent” deductible if “arm’s length”

Page 10: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Branch vs SubsidiaryBRANCH

No statutory audit requirement

Must file non-UK (audited) financial statements on public record

Can be perceived to be a “weak” presence in the UK

SUBSIDIARY

Statutory audit required if criteria met

Must file UK GAAP financial statements of subsidiary on public record

A “strong” presence in the UK

Page 11: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Branch vs Subsidiary

BRANCH

Can be time consuming to register

Must have at least one UK based representative

SUBSIDIARY

Simple to incorporate

Must have at least one director (not necessarily UK based)

Page 12: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Branch vs Sub - Conclusion Branches

– double tax relief available– do not ring-fence UK liabilities– must disclose non-UK financial statements– do not need a separate audit– perceived to be a “weaker” UK presence

Subsidiaries– Could be double tax relief problems– need UK GAAP financial statement– may need to be audited (= additional cost)– simple to incorporate– perceived to be a “stronger” UK presence

Page 13: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

EMPLOYMENT TAXES

Page 14: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment 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%

Page 15: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes

Taxation of an individual earning £40,000 per annum…

£Salary 40,000Income Tax (6,800)Social Security (3,800)Net Salary 29,400

…plus Employer’s Social Security of £4,400

Therefore, total cost to the employer of £44,400

Page 16: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes - Planning

Social Security Exemption For individuals on secondment from India to

the UK, there is no liability to Social Security for the first 52 weeks

This is an immediate saving of £3,800 for the employee and £4,400 for the employer (based on previous example)

Page 17: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes - Planning

Claim for overseas work days

If 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

Page 18: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes - Planning Example – an employee earning £40,000 but

spending 2 days a week (i.e. 40%) working in various European countries…

£Salary 40,000 (only £24,000 taxable)Income Tax (4,800)Social Security ( - ) (52 week

exemption)Net Salary 35,200

This represents a £5,800 tax saving for the employee and a £4,400 saving for the employer

Page 19: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes - Planning

Claim for living expenses

If 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

Page 20: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes - Planning Tax Deductible Living Expenses:

– Accommodation costs– Subsistence (3 meals a day, 7 days a week)– Council Tax (approx. £150/month)– Utility Bills (Gas, Electricty and Water rates)– Home to Office travel costs

Non Tax Deductible Expenses:– School fees– Family costs– Home telephone, broadband and cable TV

Page 21: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment 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.

Page 22: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes - Planning The taxable salary is reduced by 40% for

overseas workdays and then by a further £21,600 for qualifying living expenses:

£Salary 40,000 (only £2,400 taxable)Income Tax (480) Social Security ( - ) (52 week

exemption)Net Salary 39,520

This represents a £10,120 tax saving for the employee and a £4,400 saving for the employer

Page 23: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Employment Taxes - Planning Other issues:

– Tax Equalisation to pass cost savings to the employer but don’t forget immigration issues

– Share Options

– Indian salaries

– Watch out for Americans!

Page 24: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

CORPORATION TAX

Page 25: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Corporation Tax

Profits subject to Corporation Tax as follows:– Up to £300,000 – at 21%– Between £300,000 and £1,500,000 – at

29.75%– Above £1,500,000 – at 28%

Watch out for groups as this will reduce above profit slabs

Page 26: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Corporation Tax

Non-tax deductible expenses:– Client entertaining– Capital Acquisitions (i.e. cost of cars,

equipment, etc…)– Depreciation

Extra Tax deductible expenses:– Capital Allowances (Tax Depreciation)– Research & Development relief– Stock Option Scheme deductions

Page 27: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Corporation Tax

How do you calculate UK profits? It depends…

Are you providing services from the UK to India or the end client?

Page 28: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Corporation Tax

India

UK Branch as Service Provider to India

UK

IndianCompany

UK Branch

Provides Services

UK Client

Provides Services

Page 29: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Corporation Tax

India

UK Branch as Service Provider to UK Client

UK

IndianCompany

UK Branch

Provides ServicesUK Client

Provides ServicesCost Allocation

Page 30: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Corporation Tax

Transfer Pricing Rules will apply:– If providing service to India – consider

“Cost-Plus” model– If providing service to Client – consider

“Comparable Uncontrolled Price” model

Seek advice early on!

Page 31: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

VALUE ADDED TAX

Page 32: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Value Added Tax (“VAT”)

VAT is charged at 15% on certain supplies made in the UK

This means that most UK businesses charge VAT on their sales invoices and incur VAT on their costs

The net of VAT charged and incurred is payable/recoverable from HM Revenue & Customs

Page 33: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Value 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 liabilities

Similar, failure to register for VAT when eligible to register can result in non-recovery of VAT

As always, take advice early on

Page 34: Carrying on business in the UK and related tax, accounting and Company Law matters Tim Stovold

Contact Details

Tim Stovold Chandru IyerPartner International [email protected]

[email protected]

Kingston Smith LLPDevonshire House60 Goswell Road

London EC1M 7AD

Telephone +44 20 7566 4000Fax +44 20 7566 4010