Services for UK inbound businesses

The most relevant tax issues depend largely on your business’s nature, growth stage, and profitability.

For loss-making or early-stage businesses, the focus is usually on cash preservation. From a tax perspective, that often means prioritising R&D tax claims optimisation and other tax reliefs while minimising any VAT and payroll tax leakages.

For larger, profitable inbound businesses, the focus is tax risk management, compliance and tax governance. As the business grows and teams expand, it becomes increasingly important to put robust controls and processes in place to manage tax risks. Making sure the tax or finance teams know about these plans early on is key to managing the business’s tax risks, both in the UK and internationally.

We help with a wide range of key tax considerations:

• R&D tax relief – ensuring claims are maximised but robust, mitigating the risk of HMRC enquiries that can be costly and delay repayment of tax credits
• VAT recovery – ensuring an appropriate VAT recovery method is agreed with HMRC (if necessary) and applied correctly
• Payroll and employment taxes – understanding the obligations for seconded and permanent UK workers, obtaining appropriate clearances and considering reward equalisation
• Transfer pricing and profit fragmentation – ensuring appropriate policies and documentation to justify an arm’s-length price for related party transactions
• Interest deductibility – helping with restrictions on interest deductibility involving potentially complex interactions with different tax rules, according to how the UK operation is funded
• Efficient cash extraction – including considerations around applying withholding tax relief and ensuring a future-proof and flexible structure

We help UK inbound businesses at all stages of growth identify and maximise tax opportunities and manage and mitigate tax risks. Find out more about our business tax services.

There are pros and cons to using both a subsidiary company and a branch. The tax implications of both will often be an important aspect of the wider commercial decision.

The initial administration involved in setting up a company can be greater than for a branch, but a company offers a stronger foothold in the UK and is often advantageous when looking to trade with local businesses.

All UK companies are required to prepare and file annual accounts with Companies House, and as the company grows in size, an audit may also be required. Although a branch is not required to prepare statutory accounts in the UK, in most cases the business will need to publish the parent company accounts through Companies House.

Profits of the UK subsidiary or allocable to the UK branch should be subject to corporation tax, and the UK tax due is likely to be similar for both. There may, however, be local tax considerations, such as the use of losses and cash repatriation. Your business may need to confirm whether or not double tax relief is available on branch profits taxed in the UK and the resident territory. The UK does not impose withholding tax on dividends paid by a UK company, and profit extraction for a UK subsidiary is, therefore, rarely an issue.

Whichever route you take, your business will still be required to register with Companies House in the UK, as well as with HMRC for tax purposes.

Find out more about our International tax services.

Commercial factors will be the primary influence when deciding where to grow your business. Regulatory restrictions may require an EU presence, but expansion to the UK remains an attractive option for many businesses. It is an excellent location for attracting investment, and corresponding tax reliefs are substantial for investors and investees.

The UK has an excellent double tax treaty network with jurisdictions worldwide to help prevent double taxation for businesses operating in multiple territories and to allow profits to be distributed to and from the UK without triggering tax charges. The UK does not enforce withholding tax on distributions, so a UK subsidiary can often be tax efficient from a profit extraction perspective.

There are also excellent tax incentives for innovative companies. If your business undertakes research and development activities, it may qualify for R&D tax relief. The rules are complex but generally allow companies undertaking qualifying activities to obtain significant additional tax deductions or, in some cases, cash credits from the UK tax authorities based on expenditure related to these activities.

Under current legislation, medium-sized profit-making companies can obtain an additional 130% deduction for qualifying expenditure in calculating profits chargeable to corporation tax. For loss-making companies or those where this deduction exceeds taxable profits, a tax credit for 14.5% of any excess can be claimed as a cash payment from HMRC. For larger companies, a 13% tax credit is usually available on qualifying expenditures.