1. Carrying on business in the UK and related tax, accounting and Company Law matters
Tim Stovold

2. Agenda Kingston Smith – Introduction Branch vs Subsidiary
Employment Taxes
Corporation Tax
VAT

3. About us Top 20 UK Accountancy Firm Fastest Growing amongst the top 20
56 Partners /500+ Employees
ISO 9001 accredited
7 offices in and around London
Established in 1923

4. Kingston Smith Rated as “Accountant of the year” for the PLUS market.
Amongst the top accountants for AIM listed companies
Diverse range of services via associated companies
International presence in over 50 countries through KSi ( )
Expertise in varied industry sectors

5. Indian clients
Have worked with some of the well recognized Indian clients, majority of them from the Technology sector.
Dealing with Indian clients for the last 20 years.
Client base consists of large business houses as well as the SME and small start up firms.
Have developed a niche India practice, where we have people, who understand both India and UK, to bring the best to you.

6. BRANCH VS SUBSIDIARY?

7. Branch vs Subsidiary BRANCH SUBSIDIARY
Same legal entity as non-UK company
Non-UK company liable under contracts
Subject to UK Corporation Tax on UK “Permanent Establishment” profits
SUBSIDIARY
Separate legal entity
Liability ring fenced in the UK within subsidiary
Subject to UK Corporation Tax on Worldwide Income

8. Branch vs Subsidiary BRANCH SUBSIDIARY Taxed at 28%
UK Branch profits can qualify as “IT enabled export” income for purposes of Indian Corporation Tax exemptions
Double tax relief given in India for UK Corporation Tax paid
SUBSIDIARY
Taxed at 28%
Dividends paid to Indian company cannot qualify as “IT enabled export” income
No double tax relief for UK Corporation Tax paid (effective tax at approx 50%)

9. Branch vs Subsidiary BRANCH SUBSIDIARY
No withholding tax on profits paid from UK
20% withholding tax on interest– can be reduced under certain tax treaties
Interest and royalties to “parent” company not tax deductible
SUBSIDIARY
No withholding tax on Dividends paid
Same
Interest and Royalties to “parent” deductible if “arm’s length”

10. Branch vs Subsidiary BRANCH SUBSIDIARY No statutory audit requirement
Must file non-UK (audited) financial statements on public record
Can be perceived to be a “weak” presence in the UK
SUBSIDIARY
Statutory audit required if criteria met
Must file UK GAAP financial statements of subsidiary on public record
A “strong” presence in the UK

11. Branch vs Subsidiary BRANCH SUBSIDIARY
Can be time consuming to register
Must have at least one UK based representative
SUBSIDIARY
Simple to incorporate
Must have at least one director (not necessarily UK based)

12. Branch vs Sub - Conclusion
Branches
double tax relief available
do not ring-fence UK liabilities
must disclose non-UK financial statements
do not need a separate audit
perceived to be a “weaker” UK presence
Subsidiaries
Could be double tax relief problems
need UK GAAP financial statement
may need to be audited (= additional cost)
simple to incorporate
perceived to be a “stronger” UK presence

13. EMPLOYMENT TAXES

14. Employment Taxes UK Taxes on employment income:
Income Tax at 0%, 20% and 40%
Employee’s Social Security at 0%, 11% and 1%
Employer’s Social Security at 0% and 12.8%

15. Employment Taxes Taxation of an individual earning £40,000 per annum…
Salary ,000
Income Tax (6,800)
Social Security (3,800)
Net Salary ,400
…plus Employer’s Social Security of £4,400
Therefore, total cost to the employer of £44,400

16. Employment Taxes - Planning
Social Security Exemption
For individuals on secondment from India to the UK, there is no liability to Social Security for the first 52 weeks
This is an immediate saving of £3,800 for the employee and £4,400 for the employer (based on previous example)

17. Employment Taxes - Planning
Claim for overseas work days
If employee spends some time working outside of the UK, the salary corresponding to the proportion of work days spent outside of the UK can be excluded provided that it is not remitted to the UK

18. Employment Taxes - Planning
Example – an employee earning £40,000 but spending 2 days a week (i.e. 40%) working in various European countries…
Salary , (only £24,000 taxable)
Income Tax (4,800)
Social Security ( ) (52 week exemption)
Net Salary ,200
This represents a £5,800 tax saving for the employee and a £4,400 saving for the employer

19. Employment Taxes - Planning
Claim for living expenses
If an employee is seconded temporarily to the UK and the secondment is expected to last for less than 24 months then certain living expenses are tax deductible

20. Employment Taxes - Planning
Tax Deductible Living Expenses:
Accommodation costs
Subsistence (3 meals a day, 7 days a week)
Council Tax (approx. £150/month)
Utility Bills (Gas, Electricty and Water rates)
Home to Office travel costs
Non Tax Deductible Expenses:
School fees
Family costs
Home telephone, broadband and cable TV

21. Employment Taxes - Planning
Example – an employee earning £40,000 is seconded to set up a UK office which is expected to take 18 months. Living in London, he spends around £1,800 per month on deductible expenses.
He also spends 2 days a week travelling to the European offices.

22. Employment Taxes - Planning
The taxable salary is reduced by 40% for overseas workdays and then by a further £21,600 for qualifying living expenses:
Salary , (only £2,400 taxable)
Income Tax (480)
Social Security ( ) (52 week exemption)
Net Salary ,520
This represents a £10,120 tax saving for the employee and a £4,400 saving for the employer

23. Employment Taxes - Planning
Other issues:
Tax Equalisation to pass cost savings to the employer but don’t forget immigration issues
Share Options
Indian salaries
Watch out for Americans!

24. CORPORATION TAX

25. Corporation Tax Profits subject to Corporation Tax as follows:
Up to £300, – at 21%
Between £300,000 and £1,500,000 – at 29.75%
Above £1,500, – at 28%
Watch out for groups as this will reduce above profit slabs

26. Corporation Tax Non-tax deductible expenses:
Client entertaining
Capital Acquisitions (i.e. cost of cars, equipment, etc…)
Depreciation
Extra Tax deductible expenses:
Capital Allowances (Tax Depreciation)
Research & Development relief
Stock Option Scheme deductions

27. Corporation Tax How do you calculate UK profits? It depends…
Are you providing services from the UK to India or the end client?

28. Corporation Tax UK Branch as Service Provider to India Indian Company
Provides Services
Provides Services
India UK
UK Branch
UK Client

29. Corporation Tax UK Branch as Service Provider to UK Client Indian
Company
Cost Allocation
Provides Services
India UK
UK Branch
UK Client
Provides Services

30. Corporation Tax Transfer Pricing Rules will apply:
If providing service to India – consider “Cost-Plus” model
If providing service to Client – consider “Comparable Uncontrolled Price” model
Seek advice early on!

31. VALUE ADDED TAX

32. Value Added Tax (“VAT”)
VAT is charged at 15% on certain supplies made in the UK
This means that most UK businesses charge VAT on their sales invoices and incur VAT on their costs
The net of VAT charged and incurred is payable/recoverable from HM Revenue & Customs

33. Value Added Tax (“VAT”)
It is very important to understand your liability for VAT in the UK as failure to charge VAT when due can result in large penalties and liabilities
Similar, failure to register for VAT when eligible to register can result in non-recovery of VAT
As always, take advice early on

34. Contact Details Tim Stovold Chandru Iyer Partner International BDM
Kingston Smith LLP
Devonshire House
60 Goswell Road
London EC1M 7AD
Telephone
Fax