The place to do business

The UK has always been an exciting place to do business. Inward investors have long been attracted by the UK’s world-leading universities and companies, innovation, talent, dynamic financial centre and global commercial reach.

Plus, from a simple tax perspective, the UK offers numerous attractive benefits for overseas companies. For example, Britain remains a relatively low-tax economy with a stable tax system and a favourable corporate tax rate: companies with profits over £1.5m currently pay a tax rate of 28 per cent. The UK has no regional (or state) income taxes, unlike other nations; and it has lower social security contributions than most European countries.

PricewaterhouseCoopers recently produced a tax report for the World Bank, and the UK came out very favourably in the international rankings – in the top 20

Mike Curran

Partner

Pricewaterhouse Coopers

Mike Curran is a partner at PricewaterhouseCoopers. He says: “PricewaterhouseCoopers recently produced a tax report for the World Bank, and the UK came out very favourably in the international rankings – in the top 20. We are still a relatively economical country for businesses that are looking to set up here. Plus, our tax system is transparent - costs are not hidden – and it is straightforward.”

Steve Collins is Director of Taxation at UK-based chartered accountants, Francis Clark. He points out that the robust nature of the tax system – which has operated successfully for decades – should not be underestimated. He says: “The UK has a system of company and capital gains taxation which has been in place since the 1960s; plus, we have a system of taxing personal income which has been in place since the 19th century. There are and always will be tweaks to this – but the longevity of our tax system has ensured that it is clear, understandable and stable.”

The UK corporate tax rates are as low as anywhere in Europe

Steve Collins

Director of Taxation

Francis Clark

The UK has specific and strong corporate and personal tax benefits which attract inward investment. Says Steve Collins: “The UK corporate tax rates are as low as anywhere in Europe. High earner executives earning up to an income of £150,000 are taxed at 40 per cent which is relatively low; while, for lower earners, a starting rate of 20 per cent is relatively low. And our VAT, at 15 per cent, is lower than most European countries.” Businesses that make both taxable and exempt supplies operate a partial exemption method to calculate the VAT they can recover on their costs and purchases. From April 2009, the operation of the VAT standard partial exemption method was simplified, reducing compliance costs for up to 120,000 mainly smaller businesses.

The UK tax system has no exchange controls to prevent profits from being paid overseas; plus, it has entered into double tax agreements with most modern economies (and enjoys a place among the most extensive network of double tax treaties in Europe). These treaties ensure that overseas businesses locating to the UK will not have their income taxed twice; but where a double tax agreement is not in place, the UK offers unilateral relief: i.e. credit for tax already paid abroad.

Generous tax allowances, such as Research and Development tax credits, encourage greater R&D spending in order to promote investment in innovation. By March 2007, HM Revenue and Customs reported that over 36,000 claims had been made, over 30,000 under the Small and Medium Enterprises (SME) scheme and over 6,000 under the Large scheme, amounting to £3billion of support claimed.

Says Steve Collins: “Allowances such as these encourage businesses to invest. If a company is involved in R&D, it can claim its R&D expenditure against its profits for tax purposes. Not every country does this; but it is a very good idea and helps encourage certain types of beneficial expenditure to be undertaken in the UK.” The 2008 Finance Bill increased the tax deduction relating to the R&D scheme available for small to medium enterprises (SMEs) and large companies to 175 per cent and 130 per cent respectively. In April 2008, new annual investment allowance expenditure legislation was introduced, allowing the first £50,000 expenditure on plant and machinery to be eligible for 100 per cent capital allowances.

Substantial shareholdings relief, meanwhile, has been called “one of the most valuable reliefs currently to be found in UK corporate taxation” and enables a UK parent to sell an investment in a subsidiary tax-free. Legislation in 2002, meanwhile, effectively allowed UK companies to take relief for Intangibles bought post-2002, which they could not do previously.

Attracting inward investment is important to the health of any economy. A fair and stable tax system is a key element in ensuring that companies from overseas continue to do business in the UK.