• UK Company Formation
• UK Corporate Tax

The United Kingdom has a structured tax system for companies, which includes various rates and regulations depending on the size and type of the business. Here is an overview of the main elements related to company tax rates in the UK as of 2024:

Corporation Tax
Corporation tax is the primary tax paid by UK companies on their taxable profits. The rate can vary based on the size of the company and its profits.
 
1. Main Rate (Effective April 2023)
- 25%: This rate applies to companies with profits over £250,000.
 
2. Small Profits Rate
- 19%: This lower rate applies to companies with profits up to £50,000.
 
3. Marginal Relief
- Companies with profits between £50,000 and £250,000 pay a gradually increasing rate that bridges the gap between the small profits rate and the main rate. Marginal relief helps to ensure that companies with profits within this range do not face a sudden jump in tax rate.
 
Other Relevant Taxes and Allowances
 
1. Value Added Tax (VAT)
- Standard Rate: 20%
- Reduced Rate: 5% (applicable to certain goods and services)
- Zero Rate: 0% (applicable to some specific goods and services)
 
2. National Insurance Contributions (NICs)
- Employers are required to pay Class 1 NICs on their employees' earnings above a certain threshold.
- The rate for employers is generally 13.8% on earnings above the secondary threshold.
 
3. Business Rates
- This is a tax on property used for business purposes. The rate varies depending on the property's location and its rateable value.
 
4. Research and Development (R&D) Tax Credits
- Small and medium-sized enterprises (SMEs) can claim a higher rate of relief on qualifying R&D costs, which can be up to 33%.
- Large companies can claim the Research and Development Expenditure Credit (RDEC) at a rate of 13% of qualifying R&D expenditure.
 
5. Capital Allowances
- Companies can claim capital allowances on certain expenditures, which can reduce their taxable profits. This includes the Annual Investment Allowance (AIA) which allows businesses to deduct the full value of certain assets up to £1,000,000.
 
6. Patent Box Regime
- Profits earned from patented inventions and certain other innovations can be taxed at a reduced rate of 10%.
 
Recent Changes and Considerations
 
- Super-Deduction: Introduced to encourage business investment, it allows companies to claim 130% capital allowances on qualifying plant and machinery investments made between April 1, 2021, and March 31, 2023.
- Digital Services Tax (DST): A 2% tax on the revenues of large digital companies that derive value from UK users, applicable to businesses with global revenues over £500 million and UK revenues over £25 million.
 
It's essential for companies operating in the UK to stay updated on tax regulations, as rates and policies can change.
 
Research and Development (R&D) tax relief is a government incentive designed to encourage companies to invest in innovation. In the UK, there are different schemes available depending on the size and type of the company.
 
R&D Tax Relief Schemes
 
1. R&D Tax Relief for Small and Medium-sized Enterprises (SMEs)
- Eligibility: Companies with fewer than 500 staff and either a turnover of under €100 million or a balance sheet total under €86 million.
- Benefit: SMEs can claim an additional 130% deduction on qualifying R&D costs. This means for every £100 of qualifying costs, the company can deduct £230 from its taxable income.
- Payable Credit: If the company is loss-making, it can surrender the loss for a payable credit worth up to 14.5% of the surrenderable loss.
 
2. Research and Development Expenditure Credit (RDEC)
- Eligibility: Large companies and SMEs that have been subcontracted to do R&D work by a large company or have received a grant or subsidy for their R&D project.
- Benefit: RDEC offers a tax credit worth 20% of qualifying R&D expenditure (effective from April 2023). This credit is taxable, resulting in a net benefit of around 15% after accounting for corporation tax.
 
Qualifying Criteria for R&D Relief
 
To qualify for R&D tax relief, the project must:
- Seek to achieve an advance in science or technology.
- Involve overcoming scientific or technological uncertainties.
- Be related to the company’s trade, either existing or intended.
 
Qualifying Expenditure
 
Qualifying costs for R&D tax relief typically include:
- Staff Costs: Salaries, wages, employer NICs, and pension contributions for staff directly involved in R&D activities.
- Materials and Consumables: Costs of materials and utilities used up in the R&D process.
- Software: Software costs directly related to the R&D project.
- Subcontractor Costs: A portion of subcontractor costs if they are directly involved in the R&D work.
- Prototype Costs: The cost of producing prototypes and testing them.
 
Claim Process
 
1. Identify Qualifying Projects and Expenditures: Determine which projects and costs are eligible for R&D tax relief.
2. Compile a Technical Report: Document the scientific or technological advancements and uncertainties addressed by the R&D activities.
3. Prepare Financial Calculations: Calculate the enhanced expenditure and the amount of relief or credit due.
4. Submit the Claim: Include the R&D claim in the company's Corporation Tax return (CT600) along with the supporting documentation.

Recent Changes
 
- R&D Tax Relief Reforms (2023): The UK government announced changes to modernize the R&D tax relief system, focusing on areas like data and cloud computing costs, to ensure the schemes keep up with technological advancements.
 
Due to the complicated nature of taxation, it is crucial that you understand the taxation criteria and how it will impact your plan as a whole. Working with our experts can help streamline thess processes, providing valuable insights and tailored strategies to ensure successful outcome. Don’t hesitate any longer. Apply to become a client today to work with our experts on legal strategies to overcome barriers.
 

back | top