Doing Business in the United Kingdom Part III

Today, we’ll focus on that topic that sparked the colonists’ decision to break away from England: taxes. Our goal is not to provide tax or legal advice, just to make sure U.S. companies are aware of the different levels of taxes applicable to businesses in the U.K., to ensure that they have the accounting software that can address U.K. taxes.

Step #4: Make sure your accounting software can track the VAT you pay when you buy goods and services – as well as the VAT you charge when selling goods and services. This can be especially complex if you supply a range of goods and services that are VAT-exempt such as insurance, finance, some medical, educational and training services. For some tech companies, the hardware they sell could be taxed under VAT while the training they provide might be VAT-exempt. And, of course, the four different rates of VAT (standard or 20%; reduced rate or 5%; zero rate; and exempt) apply to different types of goods and services, according to Business Link, the U.K. government’s online resource for businesses, which makes tracking and calculating VAT more complicated. Make sure you understand the rules and that your accounting software can follow them.

Step #5: Understand the U.K.’s taxes, and make sure your accounting system can track the other various taxes you may owe. For example, there’s the Corporation Tax, which is applied to any taxable profits arising from your U.K activities. Additionally companies are responsible for the Corporation Tax Self Assessment, which places the responsibility on the company to work out how much in taxes your company must pay. One key issue: the deadline for paying Corporation Tax varies, depending on the taxable profit your company makes – so you need an accounting system that triggers reminders. You’ll also have to pay a business rate tax based on the property being used for business; there are different multiplier rates depending on the type of building (pubs, hotels, or working from home) as well as where in the U.K. you operate: City of London has a different rate from Greater London or from England (outside of London), Northern Ireland, Scotland and Wales. There are also different rates for small businesses.

There are other taxes that can be complicated, including environmental taxes, the Stamp Duty Reserve Tax, employment taxes that include Income Tax and employee National Insurance Contributions (NICs) using a system knows as PAYE (Pay As You Earn). Some of these taxes are routine, some are more variable and complex: The point is this: make sure the accounting system you select can handle the complexity.

Ok, enough about taxes.

Tomorrow, we’ll tackle tips on U.S. GAAP, U.K. GAAP and IFRS