UK tax for foreigners
It is not easy to understand the UK tax system if you are a foreigner. It is because the UK has an active tax code since 2009. The UK tax code has reached 11,520 pages. UK taxation involves making payment to Her Majesty’s Revenue and Customs (HRMC) and the local councils. It is the duty of the local councils to get tax collections from council tax and businesses.
UK tax history
Personal income is the largest source of revenue in the UK. Insurance contributions come second with value added tax (VAT) coming second and corporation tax taking the fourth place. Income tax first came into being in 1842 during the Napoleon wars. Companies became a part of the tax system in 1965. Between 1979 and 2007, the personal income was reduced from 33% to 20%. After being introduced in 1973, the value added tax (VAT) got increased from 10% to 20%. The change was effective from 2011.
Foreigners who want to start a business in the UK may find it hard to understand the tax terms used. Some of the terms that foreign nationals should know of are the tax year, accounting period, financial year and personal tax year. The tax year is usually different for individuals and businesses. The financial year usually starts from April 1st to 31st march. Tax regulations and budgeting follow the next financial year. The accounting period of any company can be the calendar year or financial year. The accounting period is a 12-month period during which the corporation tax is calculated. The personal tax, on the other hand, starts from April 6th to April 5th.
UK VAT principles
The value added tax is usually regulated by the value added tax act of 1994. There are three different rates for the VAT; the standard rate which is 20%, the zero rate which is 0% and the reduced rate which is 5%. Additionally, some goods and services are VAT tax exempt. Businesses are required to have a registration threshold of 83,000 pounds every financial year. Businesses can reclaim VAT for a given time limit which is usually six months for services and four years for goods bought before the VAT registration date. Businesses are required to submit their VAT returns after every three months. The returns have to be submitted online only. As for the filing and payment deadline for VAT, it is in the 1st calendar month and then seven days after the VAT accounting period comes to an end. The closing date for the HRMC to receive the VAT payment is 7th of the second month after the VAT accounting period.
UK corporation tax principles
Corporation tax is regulated by the corporation tax act 2010. The foreign companies and limited companies have to pay corporation tax on their taxable profits. The taxable profit normally includes; investment, trading profits, and gains from selling the assets. For a foreign company that has a branch in the UK, it has to pay corporation tax on the profits it receives from the activities it does in the United Kingdom.