Corporation Tax Rates in the UK

There’s no better time to set up a business in the UK. The UK’s exit from the EU, combined with an expected post-pandemic lift to the economy, makes business in Britain an attractive proposition.

However, there’s a more concrete reason why opening up in the UK deserves strong consideration. Corporation Tax (tax on company profits): Britain currently enjoys one of Europe’s lowest rates of corporation tax. It is true that before long, the rate of tax is set to rise, but the tax rate will still be low relative to other European countries.

In this article, we’ll look at comparative tax rates across Europe, how the UK’s tax rates are set to rise and how we can help you through the maze of regulation when setting up your company in the UK.

Tax rates across the EU

There is a huge breadth of tax rates throughout the EU – ranging from Portugal at 31.5% to Hungary at 9%. The UK is well towards the lower end of the tax spectrum, with a rate currently set at 19%. Other noteworthy tax rates include Germany at 29.9% and France, 28.4%. The average rate of Corporation Tax in the EU is currently 21.7%. Countries lower than the UK’s rate include Lithuania (15%) and Ireland (12.5%). You can see the Corporate Tax rates here

Recent history has seen an overall decline in tax rates throughout the world. Europe is no exception, with the average tax rate dropping from 31.6% in 2000 to its current level of 21.7%.

So clearly, for many reasons, but specifically, the low rate of Corporation Tax, the UK is an attractive destination for overseas companies. However, the UK government has set the tax rate for the financial year starting 2023 as follows

  • for companies declaring a profit in excess of £250,000 – 25%
  • for companies showing a profit between £50,000 and £250,000 – 25% reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
  • companies declaring a profit of less than £50,000 will still pay the current rate of 19%

Will my company have to pay Corporation Tax?

Any company which operates in the UK but which is based overseas must pay UK Corporation Tax only if:

  • it has a permanent establishment in the UK
  • the economic activity that generates its profits is carried out in the UK

 These criteria are not as clear cut as you might think.

A permanent establishment is where a company has a presence in a country through which trade is carried out. There are two types of permanent establishment:

  • a fixed place of business
  • a dependent agent

A fixed place of business is assumed to be a building or a site which the non-resident’s personnel have at their disposal – a site which they use to carry out the non-resident’s business. This could be, for example, an office, a factory or a shop.

 A dependent agent is an individual who is not independent of the non-resident company and regularly carries out business for the company, usually by concluding contracts on its behalf.

The location of economic activity can be even harder to define. Many different elements contribute to a multinational’s economic activity. It can include sales, employees, technology, physical assets and intellectual property. However, just having customers in the UK doesn’t mean that a company is carrying out its economic activity here. A famous example is Google, with their European HQ in Ireland, with a low tax rate, but with customers spread throughout Europe.

Helping overseas companies to set up in the UK

Here at AccountsCo, we’re well placed to support your company in its endeavours to set up in the UK. We have the experience and the know-how to help you with all UK aspects of international trade, tax, VAT and law – from initial consultancy through to incorporating (creating) a standalone company. We’ll also provide guidance with tax and other registrations right through, if necessary, to company closure. Also, our international team understands the overlap of different countries tax rules, which means we can help you navigate through the complexities of international business.

Find out more. Get in touch, and remember  – we’re here to help.

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