Doing business in the UK – A tax perspective

Businesses coming to the UK from a tax perspective

Once you’ve decided to expand your business into the UK, the next step is to focus on tax considerations.

There are two key concerns for you to consider:

• Your structure and compliance
• Paying people

Employment taxes

Running a business in the UK means dealing with various employment taxes that affect your bottom line. For 2025-26, employers will see National Insurance Contributions increase from 13.8% to 15%, with the threshold dropping from £9,100 to £5,000. You’ll also need to handle income tax through PAYE, statutory payments for employees on leave, and student loan deductions. These requirements change annually, so staying on top of the latest rates and thresholds is essential.

The good news is that some changes work in your favour, including the Employment Allowance increasing to £10,500 and enhanced Small Employer Relief rising to 108.5%. There’s also new support like Statutory Neonatal Care Payment for employees with babies requiring specialist care. Getting your payroll right is crucial for compliance and managing cash flow effectively. For complete details on current rates, thresholds, and all the changes for 2025-26, check out our payroll guide.

A company

The headline rate of corporation tax is 25%, with a reduced rate of 19% applicable to profits below £50,000. Profits between £50,000 and £250,000 are subject to a gradual increase in the tax rate, reaching the full 25% for profits exceeding £250,000.

The UK corporation tax legislation provides for a number of valuable reliefs, meaning that businesses could reduce their taxable profits, lower their overall tax liability, and reinvest to support growth and innovation.

Some of the reliefs available include:

Research and development

Many UK businesses are missing out on valuable R&D tax relief simply because they don’t realise their everyday problem-solving activities might qualify. You don’t need to be in a lab or have a formal R&D department; what matters is whether your work involves technical challenges that skilled professionals cannot easily resolve using existing knowledge. If you’re developing new processes, improving efficiency, or overcoming technical uncertainties in your business, there could be significant tax benefits available.

The rules have become more complex in recent years, with eligibility now depending on factors like company size, funding sources, and accounting periods. The relief can provide substantial returns, ranging from around 15% to 27% of qualifying expenditure depending on your circumstances. However, understanding the different schemes and ensuring your activities meet the criteria requires specialist knowledge. For a detailed breakdown of what qualifies and how the current schemes work, see our R&D guide.

Capital allowances

Full expensing is a tax relief that allows UK businesses to deduct the full cost of qualifying capital expenditure in the year it’s incurred. This reduces a company’s tax liability and frees up cash flow and is available for companies subject to corporation tax.

Substantial shareholding exemption

This provides for a complete exemption from corporation tax on the sale of shares in subsidiary companies, where conditions are met.

Dividends

The UK does not impose corporation tax on the receipt of dividends (subject to anti avoidance) and does not withhold tax on the payment of dividends to shareholders, no matter who or what those shareholders are, i.e., individuals, companies, etc.

Withholding taxes

When considering where to establish for tax purposes, you must always take into consideration withholding taxes. The UK imposes withholding tax on two payments:

• Interest – tax is withheld at the rate of 20%
• Royalties – tax is withheld at the rate of 20%
• However, these are only headline numbers. The UK has one of the widest double tax treaty networks of any country. Often the withholding taxes are reduced significantly and in a large number of cases to nil.

Patent Box

The UK operates a Patent Box regime which reduces the rate of corporation tax to 10% on qualifying profits deriving from the exploitation of patented intellectual property.

Compliance

UK companies are required to file annual accounts with UK Companies House, which is a public register for all UK companies. The usual filing deadline is 9 months after the year-end, but this can be shorter depending on the size of the company and some other requirements. All UK companies must file accounts and a UK corporation tax return along with any accompanying documentation to HMRC within 12 months of the company’s year-end.

Corporation tax is payable nine months and one day after the end of the accounting period, unless the company is large (or very large), in which case the tax is payable in quarterly instalments throughout the accounting period. It follows that taxes on the quarterly instalment regime are paid on projections (at least initially).

Whether your company is large or very large is based on thresholds, which are adjusted by the size of your group and the length of your accounting period.

Transfer pricing

UK transfer pricing compliance requirements ensure that transactions between connected parties adhere to the arm’s length principle as outlined in the OECD Transfer Pricing Guidelines and UK legislation.  UK companies must maintain sufficient records to demonstrate that their transfer pricing complies with the arm’s length principle. Specific requirements vary by group size.

All companies must keep records to deliver a correct and complete tax return, including evidence that related party transactions are priced at arm’s length.

HMRC expects documentation to show how prices were set and to provide evidence of arm’s length compliance.

Since April 2023 UK entities within multinational enterprise (MNE) groups with consolidated revenues of more than €750 million requires documents including a Master File and Local Files.

There are no filing requirements. Transfer pricing documentation is not submitted with tax returns but must be provided to HMRC within 30 days upon enquiry. Penalties apply for non-compliance.

VAT

The UK operates a sales tax: value added tax (VAT) on certain supplies of services or goods. The standard rate of UK VAT is currently 20%, which applies to the majority of VATable supplies, unless the reduced rate (currently 5%) or zero-rating is applicable. There are a number of supplies, that can include the provision of financial services, or the rental of residential property, that may be exempt from VAT. Where a business makes wholly exempt supplies, it is unable to register for UK VAT, with the VAT on costs being irrecoverable.

A UK established business that makes wholly VATable supplies in excess of £90,000 in any given 12-month period, (or expected to make in the following 30 days) must register for UK VAT and charge VAT on their supplies. By registering for VAT, a business is also able to reclaim VAT that the business has incurred. A UK VAT registered business must file VAT returns on a quarterly (sometimes on a monthly) basis and pay any VAT by the due date.

Please be aware, if you are a non-UK business, and you’re selling VATable goods in the UK, and you have no place of business in the UK (i.e. are a non-established business), then the registration threshold is reduced from £90,000 to nil.

Since 1st January 2021, the UK formally left the EU, accordingly the UK no longer forms part of the EU VAT system. That said, our rules are still fairly similar. The main changes relate to the importing/exporting of goods to and from the EU. This can have major implications as moving goods into the UK from the EU, may need consideration to the duties payable, which was not applicable when the UK was part of the EU.

VAT is a highly complex area, and you do not always require a UK entity, UK offices, or people in the UK to be liable to register for VAT. For example, if a non-UK business is selling goods into the UK, and it is acting as the importer into the UK, that non-UK business will likely have to register for VAT in the UK in order to sell those goods.

It is therefore important to understand whether there is a mandatory or voluntary UK VAT registration requirement, or where a UK VAT registration is not possible, looking at mitigating VAT on costs.

What next?

Gravita has a team of experts ready to guide overseas companies through the intricacies of UK tax regimes. Every business is unique, so seeking professional advice early is crucial to making the most of available opportunities.

Get in touch to schedule an initial call and start exploring your options.