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The United Kingdom (UK) consists of four countries: England, Scotland, Wales, and Northern Ireland. Their capitals are London, Edinburgh, Cardiff, and Belfast, respectively. London is the worlds’ leading commercial, financial, and cultural center. The UK has significant contributions to the world’s economy, especially in the technology industry, and has an independent and developed trading economy that was at the forefront in the 19th century Industrial Revolution. Moreover, UK was an active member of the European Union until 2020 and has signed a number of trade agreements with a number of countries. It was a member of The General Agreement on Tariffs and Trade (GATT) since 1948 and thereafter member of the World Trade Organization (WTO) from 1995.
According to the World Bank business survey, UK is ranked at top in Europe in terms of ease of doing business and fourth in the world. Its open market and diversified economy create opportunities for new investors to access its domestic market and use the location as a gateway to the rest of the world. Due to the following factors UK has become a favorite place for multinational companies to do business:
Ease of doing business
One of the largest benefits of doing business in the United Kingdom is the ease of doing business. UK has one of the highest ease of doing business scores out of all the countries in the world. There are several opportunities available for foreign investors in different sectors from advanced manufacturing to IT. The restrictions to start a new business are relatively low and favorable compared to other developed countries.
Manageable taxation system
Taxation system of UK is pretty simple compared to other foreign markets. Moreover, as the UK has signed double taxation agreements through various treaties with other countries. Most UK based companies are not liable to pay corporation tax on foreign dividends.
Recruiting skilled employees
Having qualified workers, country has a flexible market with regulations designed to protect employees. The UK’s overall cost of labor is lower than other countries such as France, Ireland, Netherlands and Germany. UK is one of the only European countries expected to have labor supply growth in the next 15 years.
For a new startup, a strong infrastructure is important to the overall growth in any country. In case of UK, there are ongoing infrastructure improvements in areas including energy, transportation, waste management, and telecommunications.
Lower to manageable regulations
It is well known that the UK is free to establish its own regulations in sectors such as tax, finance and legal, tailored to its own needs. Agreements can be varied on a country to country basis. This could increase competition, which in turn provides a great opportunity for growth.
Universal entry point for the world
The United Kingdom is a major gateway to the rest of Europe. As a key trading partner within the European Union (EU), and with links to the member states of the Commonwealth. England, Scotland, Northern Ireland and Wales are perfect locations for launching business operations on a global scale.
Simple Tax Regime
In UK, the basic taxes include income tax, property taxes, capital gains, UK inheritance taxes, and Value Added Tax (VAT). Many of these are progressive taxes, meaning that those with higher incomes pay a higher rate.
Personal income tax
The country charges income tax at graduated rates, with higher rates of income tax applying to higher bands of income. However, tax is charged on total income, from all earned and investment sources less certain deductions and allowances. Tax levied on personal income on following rates:
- Income starting 0 to 5000 GBP is liable to 6tax at a rate of 0%;
- Income from GBP 0 to 37,700 GBP is liable to basic tax at a rate of 20%;
- Income from GBP 37,701 to 150,000 GBP is liable to Higher rate of tax at a rate of 40%;
- Income over 150,000 gbp is liable to Additional rate of tax at a rate of 45%
There are no local taxes applicable on income in the United Kingdom.
In the United Kingdom, the resident companies are liable to pay tax on their worldwide profits, while non resident companies are subject to UK corporation tax on the trading profits attributable to a UK Permanent Establishment (PE), the trading profits are attributable to:
- trade of dealing in or developing UK land,
- on gains on the direct and certain indirect disposals of UK property,
- on UK property rental business profits plus UK income tax on any other UK source income.
Local income taxes
There are no local or provincial taxes are applicable on corporate income.
Following types of business organizations are available in the United Kingdom:
Public Limited Company (PLC)
A public limited company can sell shares or debentures to the general public. These companies usually start as private limited companies before being re-registered as a PLC in order to raise capital. However, this type of company requires at least two directors and a company secretary.
Private Company Limited by Guarantee
This type of companies limits its guarantors’ liability to a pre-agreed amount that they must pay at the winding up of the company. There is no share capital, and therefore no shareholders, required in case of a private company limited by guarantee. Members of the company are guarantors and are often only liable for a nominal sum in case of winding up of the company.
Private Company Limited by Shares
This type of company is the most frequently used in the UK. In private company limited by shares, the amount for which shareholders are liable in the event that the company is winding up is limited to the reserves of the company. In this company, shareholders are only responsible for company debts up to the value of their shares.
Private Unlimited Company
In this company, the shareholders have unlimited liabilities. There is no formal restriction on the amount of money a shareholder can pay when a company goes insolvent. A company can rely on any of its shareholders to completely settle the company’s debt.
Limited Liability Partnership (LLP)
A limited liability partnership is a business form or incorporated bodies where partners have limited liabilities. In a limited liability partnership partners have the freedom to organize traditional partnership, however, the liability of the partner is limited.
Community Interest Company (CIC)
These companies are set up for businesses that seek to benefit the community rather than the shareholders or members of the company. They can be either public or private and can be limited by share capital or guarantee.
Right to Manage Company (RTM)
This company is usually set up to transfer powers for specific purposes such as the maintenance and repair work of a building from the landlord to the leaseholders. All RTMs must be set up as a special kind of private company limited by guarantee.
Societas Europaea (SE)
This type of business entities can be established in all European Economic Area. SEs are a type of public limited company which can be formed as a subsidiary of another company or as a holding company. SE companies can also be created by mergers or from an existing PLC.
Moreover, UK was an active member of the European Union until 2020 and has signed a number of trade agreements with a number of countries. It was a member of The General Agreement on Tariffs and Trade (GATT) since 1948 and thereafter member of the World Trade Organization (WTO) from 1995.
Author: Chandrawat & Partners
Date: April 2022
Topic: Doing Business in UK
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