Tag Archives: U.K. tax strategy

The United Kingdom Headquarters for your Business

Having a United Kingdom headquarters for your business can save you taxes. With the new tax law,  the U.K. has a special tax advantage. 

United Kingdom claims U.S. LLC is a tax haven company

United Kingdom is beating America as the better business country

With the exit from the European Union, Britain has been able to have its own tax policy.  The U.K. plans to reduce its corporate tax rate from 20% to 17%.   Unlike the U.S., the U.K. does not have a state income tax.  

E-commerce and other cloud-based business have a special tax planning advantage by being in the U.K.   The U.K.’s income tax treaties with Western Europe  and the United States will remain even after the British Exit

Hosting your  Ecommerce business on a computer server in the U.K. can avoid income taxes in Western Europe.

The key is to keep your inventory in the U.K. or to sale web based intangible assets.

For example, if your site is a similar to Travelocity, the site is providing a service (similar to a travel agent).  Service income is sourced where the service provider (you computer server) is located at the time the service is provide.

The same result applies if you are selling a product like an E-book, a video or music or providing a big data service.

In many cases, your U.K. corporation will avoid both  U.S. income taxes and state income taxes.

Here is the best business and tax structure for an Ameican doing business in the United Kingdom.

The first goal of a business structure is to protect the owner’s assets.  At the end of the 1800s, corporations were invented.   Corporations exist only because a government allows them.  Capitalist need corporations to take a limited amount of risk.

The problem for Americans is that we are starting to use limited liability companies.   U.K. courts may not accept an American LLC as an entity that protects the LLC’s owner from the LLC’s debts.

Thus, a corporation is my favorite choice for doing business in the U.K.  If you use an American corporation, you have a choice of being taxed under two different parts of the U.S. tax laws.

In the U.K., you have no choice.  The corporation pays the U.K. tax.  For tax planning, I prefer the U.S. corporation to open a branch in the U.K.

A U.K. Branch allows for large tax saving because of the “foreign tax credit” and the U.K. Tax Treaty.

Your U.S. income tax is reduced by the income tax paid by the corporation to the United Kingdom.  In effect, you get a full refund for the foreign income taxes.

Another choice is to create a U.K. corporation.   The advantage is a deferral of U.S. income taxes on your foreign (U.K. or EU) profits.     However, there is a tax cost.  You will not be allowed the foreign tax credit for the foreign income taxes paid by the U.K. company. `

The other issue of a U.K. company is the cost of filing an IRS information return.  This return is Form 5471.  The Form is complicated because of the many tax saving elections that you can make.    While the cost of this return is about $5,000, the tax savings are in the $10,000s of thousands.

Here is some  more information on international tax law for the American small business.

If you need help in deciding which business entity is best or in preparing the Form 5471, then please, contact me, Brian Dooley, CPA, MBT at [email protected] 

Saving Taxes- U.K. Company Capital Gains Tax when Selling Business Assets 

In this blog, Saving Taxes- U.K. Company Capital Gains Tax when Selling Business Assets, you will learn a little known international tax secret. 

If you are an American, you will be shocked by the United Kingdom’s  pro-small business tax laws. 

This blog post discusses the tax advantages of making the U.K. your international business headquarters. 

Here is the American tax scam… you pay tax on inflation.  Compare this to the U.K., where you do not pay tax on gain from inflation. 

The U.K. reduces your taxable gain by the amount of inflation.   I will provide you an example letter on in this blog post.

In this blog, I have both the United Kingdom tax jargon and the American tax jargon.  Don’t be alarm.  In the U.K , an elevator is called a lift and gasoline is called petrol.  

Here the secret of “Saving Taxes- U.K. Company Capital Gains Tax when Selling Business Assets”.

The next paragraph is called “work out a chargeable gain”.  U.S. tax jargon uses the term “capital gain” while the British use the term “chargeable gain.”

How the U.K. Works out a chargeable gain.

In the U.K. the gain is the sales price less your cost. However, as you will read below, your United Kingdom cost is increased by inflations.

Just like the United States, you’ll need to use the asset’s fair market value if your business gave it away, transferred it to a shareholder or sold it for less than it was worth to help the buyer.  In this U.S., we call this a “bargain sale.”

You can deduct any costs incurred in completing the sale such as solicitors’ (attorney’s)  fees or Stamp Duty.

United Kingdom Accounting  and Tax Planning for Inflation

Before you compute your U.K. taxable gain, you need to compute how much you would have paid for the asset in today’s money using the HM Revenue and Customs (HMRC) Inflation Indexation Allowance. 

Of course, this only approximates today’s cost. The concept is not to tax you on inflation.  As you will see, the savings are substantial.

This will make your gain smaller and mean you pay less tax.

How to work out the gain

  1. Determine the asset’s value when it was sold – this is usually the amount your company received.
  2. Deduct the amount your company paid (this is your cost) for the asset. If it was not acquired in a typical commercial transaction, you need to use the market value at the time.
  3. Deduct any money your company spent buying, selling or improving the asset, e.g. solicitors’ fees and Stamp Duty.
  4. Use HMRC’s Indexation Allowance for the month when your company sold the asset. Next, find ‘inflation factor for the year and month when your company bought the asset. Multiply this by the amount you paid for the asset.  The the inflation factor is obtained from the HMRC.  The factor increases your cost by the amount of inflation.  As a result, your gain is reduced.  Deduct this total from your profit.
  5. If you made improvements to the asset, work out the effects of inflation in the same way. Deduct the total from your profit.

You now have the gain.

What is nice, is that you can ask HMRC to check your valuation by filling in a  . You should allow about three months for the HMRC to reply to you.

Example U.K. Company Capital Gains Tax International U.K. Tax Planning

In this example you will see one tax plan for a U.K. Company capital gains tax. Assume that your U.K. company sold an asset in November 2015 for £200,000.

Here is what to do. First,  Deduct the amount you paid  in March 2001 for the property, which was £120,000.  £200,000 – £120,000 = £80,000.

You spend  £10,000 spent improving the asset in June 2010.  You deduct the $10,000. (£80,000 – £10,000 = £70,000 profit.

Find the inflation factor in HMRC’s Indexation Allowance for March 2001 (0.509), and multiply it by the amount you paid for the asset,  £120,000 × 0.509 = £61,080.

Get the inflation factor for the improvement costs (0.159). Next, you multiply it by those costs (£10,000). 0.159 × £10,000 = £1,590.

Subtract these figures from the profit  £70,000 – £61,080 – £1,590 = £7,330 taxable gain.

If you make a loss when you sell an asset

You can reduce your total capital gains by deducting any capital losses.

You can only deduct capital losses from other capital gains and not from trading income or other profits.

Need more U.K. international tax strategies?  This link explains how the United Kingdom Inland Revenue sees an U.S. limited liability company.

Need help with your international business tax strategy and want more information on Saving Taxes- U.K. Company Capital Gains Tax when Selling Business Assets,  then, please contact me, Brian Dooley, CPA, MBT at [email protected]

United States, the Tax Haven for U.K. Entrepreneurs

One thing is clear for the American tax reform debates.  The U.S. wants jobs and more jobs. Nowhere is this clearer than in the U.K -U.S. income tax treaty which makes the United States the Tax Haven for U.K. Entrepreneurs.   Continue reading