Tax requirements for businesses moving from USA to the UK

If you run a business based in the USA and you are looking to move to the UK in the near to mid-term, it helps to be aware in advance of the differences inherent in the taxation systems that you will encounter on either side of the Atlantic.

In this article, we will have a quick run-down of the various tax burdens on businesses and explain a little more about them in order that your planning can be as smooth as possible.

US Taxes

Businesses operating in the US are subject to a wide range of tax requirements and regulations, perhaps more so than in most countries in the world. The level of red tape can be quite bewildering to those who are new to it and it can make it more difficult to start a successful business.

US taxes are rendered more complicated because of the duality of both State and Federal taxation, as well as any more local taxes that can cover an area such as an individual city or county within a State. As well as these differing levels of tax, there can also be tax on income generated from business activities and this will also vary by State.

In some US states such as Nevada and Florida, there is no State tax incurred and this can make those states much more attractive to businesses. Both the US and the UK have progressive income tax systems, though the US tends to have a lower rate of personal income tax on higher earnings.

UK Taxes

If a business is planning to move from the US to the UK, it will need to be aware of the tax requirements for doing business in the destination country. There are some key considerations and these include tax rates, tax credits or incentives offered by the government, tax filing and payment deadlines, and any special tax reporting requirements for foreign businesses operating in the UK.

Overall, tax requirements for businesses moving from the US to the UK can be complex and can vary depending on a wide range of factors. Businesses will need to work closely with tax professionals in order to ensure that they are meeting all applicable tax obligations and taking advantage of any tax-saving opportunities available in the UK.

The UK has a double tax treaty with the US with respect to taxes on Income and on Capital Gains.

Corporation Tax

In general, businesses in the UK will be subject to corporation tax at a rate of 19% on any profits made. This is a tax based on profits rather than company turnover, so it is imperative to keep good accounts and ensure that all expenses and legitimate business costs are taken into account when calculating the amount due.

Businesses in the UK may also be eligible for various tax reliefs and tax credits, which can reduce the overall amount of tax that they are liable for and this is something that should be explored carefully in order to obtain the maximum advantage.

One such example, is that if the taxable profits can be attributed to the exploitation of patents, the amount of corporation tax liability will be reduced to 10%.

The new Government has announced that the rate of corporation tax rate will remain at 19% for the foreseeable future to stimulate growth in the economy.

Value Added Tax (VAT)

Value Added Tax or VAT is another key tax consideration for businesses in the UK. VAT is a tax on goods and services that is charged at different rates depending on the type of product or service being supplied.

Businesses will need to become VAT registered with HM Revenue and Customs (HMRC) if their annual turnover exceeds the threshold of £85,000 per annum, and they will need to charge VAT on all taxable supplies of goods and services that they make. It is possible to apply for an exemption if you can show that going over the threshold was a temporary blip which is unlikely to be repeated the next year.

Employer's National Insurance (Class 1 Secondary NI)

Companies with salaried employees will have to pay employers' national insurance for their staff. Any employee earnings over a certain threshold attract a National Insurance contribution from the employer/company at a rate of 13.8% in 2022/23. This cost can mount up depending on the number of employees at the business and their combined wage bill.

There are also a number of other taxes that businesses may be required to pay in the UK, such as, stamp duty land tax, and capital gains tax.

Research and Development Tax Relief

Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field.

Research and development tax relief is available to small and medium-sized enterprises which allows companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total of 230% deduction.

Annual Investment Allowance (AIA)

The AIA is a 100% capital allowance for qualifying expenditure on plant and machinery up to a specified annual limit. The initial allowance was set at £200,000 but this was extended to £1m and will expire on 31 March 2023.

Next Steps

When moving a business from the US to the UK, it is important to work with tax professionals who are well-versed in the tax requirements for each country. These experts can help businesses understand and meet their tax obligations, make informed tax-saving decisions, and minimize any tax liabilities that may arise as a result of their move.

Given the complexities involved, it is advisable to seek professional tax advice as early as possible in the process to ensure a smooth transition from the US to the UK. Here at Lawrence Grant we have a strong track record in helping businesses to navigate the differing taxation systems as well as assisting our international clients with advice on establishing bank accounts and all of the necessary information to enable audit, bookkeeping and compliance measures.

Contact us today to make an appointment and find out how we can help to make the process of moving as simple and painless as possible for you and your business.