United Kingdom taxation

UK corporation tax

Resident companies are taxable in the United Kingdom on their worldwide profits (subject to an opt-out for non-UK permanent establishments [PEs]), while non-resident companies are subject to UK corporate tax only on the trading profits attributable to a UK PE plus UK income tax. In practice, for many companies, the application of a wide range of tax treaties, together with the dividend exemption, makes the UK corporate tax system more like a territorial system.

General corporation tax rates

The normal rate of corporation tax is 19% for the year beginning 1 April 2017. It is proposed that this rate will fall to 17% for the year beginning 1 April 2020.

Where the taxable profits can be attributed to the exploitation of patents, a lower effective rate of tax applies. The rate is 10% from 1 April 2017. Profits can include a significant part of the trading profit from the sales of a product that includes a patent, not just income from patent royalties. This scheme was revised from June 2016.

Income tax for non-resident companies

A non-resident company is subject to UK corporation tax only on the trading profits of a UK PE. Any other UK-source income received by a non-resident company is subject to UK income tax at the basic rate, currently 20%, without any allowances (subject to any relief offered by a double tax treaty [DTT], if applicable).

This charge most commonly arises in relation to UK rental income earned by a non-resident landlord (NRL). The United Kingdom therefore operates an NRL scheme that requires the NRL’s letting agent or tenants to withhold the appropriate tax at source unless they have been notified that the NRL has applied for and been given permission to receive gross rents.

Proposed changes

Legislation was introduced in the Finance (no 2) Act 2015 to reduce the main rate of CT for all non-ring fence profits to 19% for Financial Year 2017, to set the rate at 19% for Financial Years 2018 and 2019. Finance Act 2016 has set the CT rate for Financial Year 2020 as 17%.

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