Setting up a Business in the UK: Plan the Tax Now, Benefit Later

Starting a new business is very time consuming, especially if the UK is new to you, with different rules and regulations. Dixcart UK can assist with your accounting, tax, legal and immigration requirements as one offering, so that you can focus your time on building your business and not having the same conversations twice with different professional advisors.

In this note, we consider the tax considerations when setting up a business in the UK.  There is no aspect of tax planning that is made better by delaying the discussions with your advisor until a later date. The maximum benefit will be enjoyed the earlier the planning takes place – so let’s chat: hello@dixcartuk.com

The opportunities to plan are not exhaustive but in this note we look to touch on some areas of planning that are often overlooked, but could easily have derived some tax savings, had the planning taken place as soon as possible.

Personal financing – Business Investment Relief and Inheritance Tax

Most businesses, start with someone having an idea or seeing an opportunity in a new market place. The business plan and concept often need proving and so personal financing is required. Raising monies, more broadly, is considered further below, but for an individual entrepreneur, who is resident but not domiciled in the UK, looking to invest monies into a new business, there is the option to claim Business Investment Relief (BIR) when investing into qualifying trading companies. 

  • The full detail of the relief is outside the scope of this note but essentially foreign income and gains that are brought into the UK by UK resident non-domiciled individuals taxed on the remittance basis, will usually be subject to UK tax. However, where such income and gains are remitted to the UK by the individual to invest in qualifying companies, no tax charge will arise on those foreign income and gains, provided the conditions for BIR are met.

The benefit of course means that taxes are not immediately triggered, and in addition other non-taxable monies are preserved for personal expenditure.

  • As well as this relief, another consideration individuals should have when setting up a UK business, is inheritance tax. Shares in a UK company will be considered to be a UK situs asset and therefore, if held personally, and subject to whether Business Property Relief might apply, could be subject to UK inheritance tax.  Dixcart UK are very experienced in planning for such matters and would be happy to discuss this further.

Other financing – Enterprise Investment Scheme

EIS fund raising is designed to help your company raise money to grow your business. It does this by offering tax reliefs to individual investors who buy new shares in your company.

Up to £5 million each year (£10m for Knowledge Intensive Companies), and a maximum of £12 million (£20m for Knowledge Intensive Companies) in your company’s lifetime, can be raised through the use of EIS. This includes amounts received from other venture capital schemes.

Comprehensive advice regarding the scheme rules will ensure that your investors claim and retain EIS tax reliefs relating to their shares. Dixcart UK can manage the whole process, from pre-approval to the issue of the EIS certificate.

More information on the opportunities available for businesses and investors can be found here: https://www.dixcartuk.com/seis-and-eis-the-opportunities-available-to-investors-and-fund-raisers-alike/

Corporation Tax

Corporation tax, like most taxes  in the UK, is complex and the detail cannot be explained in these short paragraphs.  We have therefore provided a summary of the rules and, as you will see, identified some areas of planning that are interesting for new businesses in particular.

When a new company is incorporated, HM Revenue and Customs will, in most cases, issue a tax reference number to the company at its registered office.

A company tax return, is filed by companies to report their income, profits and corporation tax figures to HMRC.

The company will need to file a company tax return once a year, but – unlike with self-assessment tax returns – there is not a universal deadline. Instead, the due date for your return will depend on your company’s accounting period and is typically due 12 months after that date.

Corporation tax is payable on profits for the same accounting period and the main rate is currently 25%. The deadline for payment is 9 months and 1 day after the end of the accounting period, although there are provisions in place for companies with large profits to make payments on a quarterly basis.

Unlike individuals, companies don’t receive any kind of tax-free allowance, and therefore all profits are taxable. However, there are a number of expenses and deductions that can be claimed to reduce your bill.

A Number of Corporation Tax planning opportunities

  • Research and Development Tax Credits

New businesses very often invest in a range of research projects, as part of the start-up phase. This is of course a cash cost and puts pressure on a company’s cash flow. The UK rules offer the opportunity to receive money back from the tax authority!

R&D Tax Relief is a Government backed incentive designed to encourage innovation and increase spending on Research and Development activities, for companies operating in the UK.

For SMEs, a deduction of 230% of the amount spent on R&D can be made from taxable profits, reducing the corporation tax due. For loss making companies, the scheme allows up to 33.35% of a company’s R&D spend to be recovered as a cash repayment.

Claims are, however, often overlooked because; business owners over-estimate the level of innovation that is required in order to claim, do not know about the relief, or simply suspect that it is too good to be true!

Please visit our note for more information here: https://www.dixcartuk.com/our-services/tech-sector-specialists/rd-tax-credits/

  • Losses

As is often the case with new businesses, the initial years can be difficult to gain market share and overcome the initial high expenditure. It is very common for businesses therefore to make a loss in the early years.

Relief may be available where you operate your business through a company and you make a loss. The loss may be set against total profits of the current or previous accounting periods or may be carried forward and set against future trading income from the same trade.

A trading loss is computed in the same way as a trading profit and normal rules apply. However, it should be noted that trading income does not include any chargeable gains, so chargeable gains are not taken into account when computing the loss.

  • Capital Allowances

The UK gives tax relief for businesses in the form of a deduction against profit for expenditure on certain capital items.

Recent Budget announcements in 2023 mean that on top of the normal allowances business will now be able to claim:

  • Full expensing – which gives 100% relief, in the year of expenditure, to companies on qualifying new main rate plant and machinery investments, from 1 April 2023 until 31 March 2026
  • The 50% First-Year Allowance for expenditure by companies on new special rate (including long life) assets until 31 March 2026.
  • Electric Vehicles

Business owners and employers who provide their employees with company vehicles before March 2025, can enjoy substantial tax benefits in the next few years, for making the switch to pure electric vehicles, in advance of the 2030 non-electric ban on new vehicles in the UK.

Please visit our website to read a case study on how these benefits can work: https://www.dixcartuk.com/dixcart-uk-can-advise-on-the-favourable-tax-treatment-available-to-employers-who-change-company-vehicles-to-electric/

Other tax considerations

Other than corporation tax considerations for a new business, Dixcart can also assist with; VAT planning and compliance as well as running compliant payrolls for companies to ensure that all of the appropriate tax obligations are met. 

Any business looking to start trading and employing people will have compliance requirements and failing to adhere to the rules can result in penalties. So let’s talk and get it right from the start!

How we can help you

Dixcart UK provides solutions and assistance to the business community in the UK and worldwide. 

We can:

  • Assist with incorporating your business
  • Assist with tax compliance and planning, including the aspects of UK tax covered in this note
  • Offer bookkeeping, accounting and auditing services
  • Offer employment and payroll advice and compliance
  • Provide immigration advice, if you are looking to relocate yourself or staff to the UK
  • Support all of the accounting and company secretarial activities of running a business
  • Advise in relation to commercial legal matters including contractual matters and commercial property.

Further Information

For further information about Dixcart UK, please visit us at www.dixcartuk.com.

If you have any questions regarding the above, or require any assistance, please do not hesitate to contact Peter Robertson: hello@dixcartuk.com.

The information provided within this document is for general informational purposes only. While every effort has been made to ensure its accuracy, no responsibility can be accepted for inaccuracies. Readers are advised that laws and practices may change over time. This document is provided solely for informational purposes and does not constitute accounting, legal, or tax advice. Professional advice should be sought before making any decisions based on the contents of this document.