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Successfully addressing FISCAL bureaucracy on moving to the UK
Over the last quarter century the UK as a centre for inward business investment has successfully shed its former notoriety for high levels of personal and corporate taxation, and a poorly trained, unmotivated workforce bolstered by non-competitive work place practices. The consequence has been an influx of foreign controlled business investments ranging in size from the multi-national enterprise to the opportunist entrepreneur
Whatever the scale of operation, the potential business investor is faced with a bewildering array of technical issues and decisions to be dealt with prior to commencing the activity. “Cool Britannia” has its fiscal bureaucracy. Set out below are a list of immediate issues facing an investor.
INITIAL DECISIONS
A decision has to be made on the business structure for the investment. General commercial considerations may require a limited liability British registered company and corporation tax will normally then be due on income and gains at a maximum rate of 30%. Alternatively, a branch operation may permit greater informality and flexibility and, subject to the scale and nature of activities, a UK taxable presence may be avoided.
Depending upon the business structure selected, basic compliance matters must be attended to: mandatory registration for VAT if annual taxable turnover is over £54,000; filing requirements and the need for an annual audit for a limited liability company with an annual turnover exceeding £1 million; registration of a payroll tax and national insurance contributions deduction scheme for staff under the Pay As You Earn system; annual returns of tax deductions made and benefits in kind provided.
STRATEGIC DECISIONS
Having addressed the day-to-day issues there are some more strategic matters to address.
A foreign-based investor may want some home-based representation in the UK. This may take the form of a long-term assignment or a shorter-term secondee deployed on a temporary basis. Such individuals may require professional support with tax filings in their home state as well as the UK and may need assistance with immigration regulations. The person who becomes a permanent resident is likely to move onto a remuneration package similar to that of local nationals. Temporary secondees may need to be induced to relocate on the basis of a special benefits package.
There may also be a desire to structure a remuneration package that provides employees with a capital interest in the enterprise. Recent changes in UK tax law in relation to capital gains tax on “business assets” have revolutionised the approach to share incentive planning and it is now usually more tax efficient for employees to be granted shares outright rather than share options.
THE UK AS A TAX HAVEN
Despite the levels of bureaucracy in the UK, the regime is substantively fiscally benign.
Foreigners working in the UK can escape UK income tax and capital gains on foreign assets provided the funds are not remitted to the UK.
Top rates of income tax of 40% for individuals and 30% for companies compare very favourably with rates in comparable jurisdictions.
The abolition of Advance Corporation Tax on dividends in April 1999, coupled with new rules to exempt from tax capital gains on the sale of substantial shareholdings promised from 1 April 2002, is transforming the corporate tax regime in the UK; a number of transatlantic investors are choosing UK resident holding companies as their medium for corporate investment into Europe.
There are many opportunities and pitfalls for those intending to undertake business in the UK. Addressing fiscal issues at the outset can have a significant effect on the success of your business.
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