- Overview: United Kingdom (UK)
- Global HR Compliance
- Global PEO and payroll
- Work permit for hiring expats via PEO
- Expand without a company set up
- Contractor vs. employee: which is better?
Global PEO and Payroll in the United Kingdom (UK)
Getting your business up-and-running in the United Kingdom can be challenging, especially if you do not speak the native language. Establishing your own business entity in the UK is an option to be considered as you expand abroad. But before you invest valuable resources in setting up business in the UK, you should be fully aware of the risks involved.
Acumen’s Global PEO and Payroll solution was designed especially for companies like yours, to smooth the way for quick, easy and risk-free business operations in the UK, without having to establish a legal business entity.
Acumen International – Your Professional Employer Organization in the United Kingdom
Navigating the the UK legal system and adhering to regulations governing employment and taxation can be challenging for businesses, especially if you are not a native the UK speaker. Partnering with Acumen International as a global Professional Employer organization (PEO) provides you with the local knowledge and support you need to conduct business in the UK without concern for legal and compliance risks.
Whether you represent international client companies or you are taking your own business operations abroad, Acumen International’s Global PEO and payroll service allows you to hire and payroll local and expat employees in the UK. With Acumen in your corner, you can quickly and easily onboard and compensate your employees without risk of legal repercussions.
International Global Payroll and Taxation in the United Kingdom
Employment related taxes
Personal Income tax (PIT). If an individual is resident and domiciled in the United Kingdom, they will be taxed on their worldwide income and capital gains.
If an individual is not UK resident, they will usually be taxed on their UK-source income, but will not generally be taxed on capital gains, other than in respect of UK property/’property-rich’ companies or carried interest, even if the asset is located in the United Kingdom. Gains in respect of UK residential property owned by non-residents have been subject to UK CGT at 28% for a number of years, and the tax charge has been extended to all UK property disposed of by non-UK residents and also shares in ‘property-rich’ non-UK companies from April 2019.
In addition, where the asset is used for business purposes in the United Kingdom through a UK branch or agency, any gains are also subject to UK CGT. There are also special rules for income and capital gains tax where a person has become non-UK resident but returns to the United Kingdom within, broadly, five years.
If an individual is resident but not domiciled (and not deemed domiciled) in the United Kingdom, they can elect for the remittance basis of taxation, in which case their non-UK investment income and capital gains are only taxed if they are remitted to the United Kingdom. This is an area of the UK tax regime that has been considerably modified over the last few years and is covered in more detail below.
Personal income tax rates. Income tax is charged at graduated rates, with higher rates of income tax applying to higher bands of income. Tax is charged on total income (from all earned and investment sources) less certain deductions and allowances. The main allowance is the personal allowance, which is GBP 12,500 in 2019/20 and 2020/21. Most individuals can claim a personal allowance, unless they are claiming the remittance basis (see below) or their income is over GBP 100,000. The net amount after allowances is usually referred to as an individual’s taxable income. The graduated rates of income tax vary slightly depending on whether the income is from earnings or investments.
Income tax bands and rates are as follows:
|Tax rate band||Income 2020/21 (gbp) (no change from 2019/20)||Income 2019/20 (gbp)|
|Starting rate for savings: 0% *||0 to 5,000||0 to 5,000|
|Basic rate: 20%||0 to 37,500||0 to 37,500|
|Higher rate: 40%||37,501 to 150,000||37,501 to 150,000|
|Additional rate: 45%||over 150,000||over 150,000|
The 0% starting rate is for savings income only. If non-savings income (which takes up the first ‘slice’ of income) is above this limit, then the 0% starting rate will not apply.
Note that dividends are always treated as the top slice of income and will be taxed at an individual’s highest marginal tax rate. ‘Savings income’ is the next slice down, and other income (such as earnings) will be the lowest slice. The most common form of ‘savings income’ is interest, but certain other forms of income are also included.
A dividend allowance applies to the first GBP 2,000 of an individual’s dividend income in 2020/21. The allowance operates as a 0% tax rate.
The dividend allowance does not reduce total income for tax purposes. Dividend income that is within the ‘allowance’ still counts towards an individual’s basic and higher rate limits.
Social security contributions. Social security payments are termed ‘national insurance contributions’ (NICs) in the United Kingdom. These are payable by employers, employees, and those that have their own trades (the self-employed).
The main rate of NIC applies to employees’ salaries (excluding benefits in kind) up to GBP 962 per week for 2020/21 (the ‘upper earnings limit’) (GBP 962 in 2019/20). No contributions are payable on the first GBP 183 per week (GBP 166 in 2019/20); thereafter, between GBP 183.01 and GBP 962 per week, contributions amount to 12%. Earnings above the upper earnings limit attract a 2% charge.
All individuals who are self-employed pay contributions at 9% on earnings between GBP 8,632 and GBP 50,000 per annum. Profits above the upper limit attract a 2% contribution. Self-employed individuals also pay a flat-rate, Class 2 contribution of GBP 3 in 2019/20 (2.95 in 2018/19) per week.
Relief against income tax is not generally available for NIC.
Child benefit is a non-contributory social security benefit which is generally payable for children or qualifying young people for whom an individual is responsible. Child benefit is no longer available for wealthier families.
Non-payroll taxes in the United Kingdom
The standard VAT rate of 20% applies to most goods and services, apart from domestic fuel and power and certain other reduced-rate supplies, which are subject to VAT at 5%.
Certain small traders (supplies less than GBP 150,000 per annum) with a limited range of expenses may adopt a special flat-rate scheme, which computes VAT at a sector-specific flat rate.
Most exports, most food, most public transport, most books and publications (including, from 1 May 2020, e-publications), and certain essential goods and services are zero-rated. Some supplies are exempt, the main categories being the grant of certain interests in land, insurance, financial services, betting and gaming, education, certain sports services, cultural services, and health and welfare. Zero-rating is preferable to exemption because the VAT on costs incurred in making a zero-rated supply can be recovered while that incurred in making an exempt supply cannot.
VAT is chargeable on the supply of most goods and services made in the United Kingdom by ‘taxable persons’ in the course of business, when their taxable turnover exceeds the registration thresholds. Taxable persons include individuals, companies, partnerships, clubs, associations, or charities.
Taxable persons who are not normally resident in the United Kingdom, do not have a business establishment in the United Kingdom, and, in the case of companies, are not incorporated in the United Kingdom, but who make taxable supplies, sales to unregistered persons in the United Kingdom, or acquisitions of goods in the United Kingdom above the relevant limits, may be required to register and account for VAT in the United Kingdom.
If the value of taxable supplies is over a specified limit, registration for VAT is compulsory unless the taxable supplies made are wholly or mainly zero-rated, in which case it is possible to apply for exemption from registration. A zero VAT registration threshold applies for businesses not established in the United Kingdom.
The rules applying to VAT and territoriality are different to those applying to direct tax in that they derive from the principles of the place of supply in EU law, as enshrined in European Commission (EC) VAT Directives. Having determined that a supply of goods or services has taken place, the second condition to be determined, if the transaction is to fall within the scope of UK VAT, is whether the supply takes place within the United Kingdom. The place of supply rules are different for goods and for services. A person or business belonging outside the United Kingdom, with no place of business in the United Kingdom, may, nevertheless, be liable to UK VAT registration where the place of supply of those goods or services is in the United Kingdom.
For services, the basic rule is that services are treated as made where the customer ‘belongs’ or is established for VAT purposes, and the customer is responsible for accounting for the VAT due via the reverse-charge procedure. However, this is subject to a number of special rules and exceptions. Determining where a business is established for VAT purposes is based on EU law criteria.
For business-to-consumer (B2C) supplies, the basic rule is that services are treated as made where the supplier ‘belongs’ or is established for VAT purposes. B2C supplies of telecommunications, broadcasting, and electronic services are taxed where the customer is located or is normally resident.
VAT returns and payments. VAT returns must be completed at pre-set intervals (usually every three months). Larger companies may be required to file monthly returns or make monthly payments on account. All businesses are required to file VAT returns online and make electronic payments. Smaller enterprises can apply for annual returns. VAT returns are usually required to be filed 30 days after the end of the period.
With effect from 1 April 2019, businesses with taxable turnover above the UK VAT registration threshold are required to keep and preserve digital records and provide VAT returns using compatible software. This is done via an ‘application programming interface’ (API), which enables taxpayers to communicate electronically with HMRC.
Annual accounting is available for taxable persons with annual turnover (taxable supplies, excluding VAT) not exceeding GBP 1,350,000.
Cash accounting is available for taxable persons with annual turnover (taxable supplies, excluding VAT) not exceeding GBP 1,350,000.
In addition, a flat rate scheme operates for small businesses and is intended to simplify VAT accounting procedures.
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How Acumen’s International PEO and Payroll Service can Benefit Your Business in the United Kingdom
Compensating your local and expat workforce in the United Kingdom and closely adhering to the UK taxation requirements can divert your attention and resources from activities that help your business grow. A reliable global employment solution like Acumen’s Global PEO and Payroll service can take a substantial burden off your shoulders so you can focus on running your company.
Outsourcing the administrative and compliance tasks involved in employee payroll is one approach, but we have a better solution. Acumen International offers a global PEO and payroll solution that goes beyond outsourcing. We hire and compensate your global workforce on your behalf, and take care of all the details of payroll while ensuring full compliance with the UK labor and taxation laws.
It is important to note that Acumen does not provide international global payroll services as a standalone solution, but only as a part of our global PEO and Payroll solution.
Our comprehensive global PEO and payroll services are just some of the benefits of partnering with Acumen International. We make it easy for you to achieve your business goals in the UK by officially employing and compensating your best selected global talent – both locals and expats – without concerns for legal and compliance risks faced by global employers.
Disclaimer: Any of the above information is subject to changes imposed by the UK laws. To get the latest updates on taxation in the UK and in 190 countries worldwide, contact Acumen’s team of global employment experts.