With global access and digital business making it easier than ever to launch a startup in the most advantageous areas, founders are migrating wide and far to take advantage of British talent, tax breaks, and other lures.
For U.S. founders looking to move to the U.K., or international operators considering between the two, there are a few tax and accounting basics that you need to be aware of alongside the different business and social cultures.
Making A Business in the U.K.
Starting a business in the U.K. is pretty simple for those with a Tier 1 (Entrepreneur) visa or other accreditation. Register the business with Companies House and open a UK bank business account, and you’re pretty much there.
Then, along with the complex work of hiring a team, setting up a production site, or office, or creating a remote organization, you need to understand the basics of taxation, small business bookkeeping, and accounting to U,K. standards, before the costs mount and revenue comes in.
Resolving tax and legal issues can take up a fair proportion of a startup’s time, and using an independent accountant is a great way to get started, without the expense of hiring your own in-house team.
If your business crosses borders, you can also seek advice to pay tax in the most efficient way and avoid double-taxation issues. Firms expanding globally can often find a U.K. base provides competitive advantages, even after the issues caused by Brexit.
A Quick Guide to U.K. Business Taxes
In the U.K, most businesses are set up as Limited companies, similar to an LLC in the U.S. This helps limit liability, and automatically ensures the organization is charged at business and not personal tax rates. Other benefits include the kudos of being a limited company, making it easier to hire and transfer ownership, as well as raise capital.
All companies in the UK pay business tax on a sliding scale. In the U.K., typical companies (excluding oil and gas, banks, and a few other exceptions) pay a 19% tax on modest profits up to £50,000 ($62,529), 26.5% on profits between £50,001 – £250,000 and 25% tax on profits over £250,000 ($312,643) as businesses grow.
The UK’s Value Added Tax (VAT) rate is a 20% rate charged on most goods (excluding some children’s, health, safety, and service products) at the point of sale. A business must register if their taxable turnover is more than £90,000, or can voluntarily register if lower, but they expect their VAT bill to grow.
Tax relief is available in various guises, including research and development (R&D Tax Credits for larger or research-intensive firms). Investments (through an Annual Investment Allowance), green technology, charity donations, and other methods. Smart accounting advice can help small but growing businesses minimize their tax bill in a legitimate manner.
There may also be regional benefits for setting up away from the main UK cities, London, Birmingham, Glasgow, etc. Various Local Enterprise Partnerships exist to advise on these matters. Unlike the U.S., U.K. business taxes are consistent across the counties and nations, but there are some regional county-level tariffs and business rates to look out for.
Once your business is set up and operating, paying U.K. business taxes is a largely automated affair with pro-forma tax filings using business or tax software (QuickBooks is as popular here as it is in the U.S.), centered around Company Tax Returns (form CT600) and your business accounts.
The Future of Business and Taxation
In an uncertain world, being flexible enables a business to operate in the most competitive manner, both in terms of tax, and generating revenue, whatever happens with political changes and the impact of Trump’s tariff war, and other challenges.
As the business grows, opportunities like outsourcing can address business challenges, and impact your tax burden, improving the efficiency of operations, while providing access to low-cost talent wherever you are based.
Even though it sounds simple, U.K. business taxation is an issue worth seeking advice on, as getting it wrong can incur costly fines. And the most efficient route to paying your taxes might not be obvious without some expert knowledge, and ways to turn the system to your advantage, whatever market or region you are operating in.
