What is the Corporation Tax and how does it work?

corporation tax

London – In the UK profits produced by a British company or a company established in UK are taxed by the Corporation Tax.

Corporation Tax is a corporate tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the European Union.

It has been introduced on April 1st 1965, when Finance act replaced the previous structure for companies and associations – according to which companies and individuals paid the same income tax, with an additional profits tax levied on companies – with a single corporate tax. In 1997 the Tax Law Rewrite Project has further modernised the UK’s tax legislation, so the rules governing income tax and corporation tax have thus diverged. The result is that Corporation Tax is governed by the Income and Corporation Taxes Act 1988.

Corporate tax structure has caused several problems to the UK government, mostly with the European Court of Justice, which judged that many aspects of it are incompatible with EU treaties. As a matter of fact, the complexity of the corporation tax system is a recognised issue. The Labour government along with the Opposition parties worked hardly on Tax Law Rewrite Project carrying out several reforms resulting in the Corporation Tax Act 2010: nowadays, the tax has slowly been integrating generally accepted accounting practice with the corporation tax system based directly on the accounting treatment.

So, which advantages do you have establishing a company in the UK?
As it’s known, after the European borders opening in 1993 any European citizen can create a society in the Member State without having to reside there. You just have to find the European country where establishing a company is cheaper and easier to manage. The UK offers different possibilities you can choose between: Public Limited Company (PLC), Limited Liability Partnership (LLP), Private Limited Company (LTD).

LTD is regulated by the Companies Act 1985 that offers benefits both to administrators and shareholders on releasing unregulated and untaxed capital; having no minimum flat rate tax at starting your company or in case of losses; having simple, rapid and cheap constitution formalities; having managers’ legal liability limited to the value of the subscribed shares; having a sparing taxation, having London as 1st EU financial centre regulating international financial management; having the chance for managers or holders to use anonymity under the formula “nominee director”.

Here your keywords: Smart legal system and appreciation of entrepreneurs and startup companies. There are also committees partly formed by ordinary citizens whose purpose is to control the complexity of the texts published by the British government and to ease the understanding of operations made by the British government.

The Company House – the United Kingdom’s registrar of companies, an executive agency and trading fund of Her Majesty’s Government – can’t take advantages for itself instead of British taxpayers: as a matter of fact, while costs of other commercial registers in Europe continue to increase their charges, in 2005 the  Companies House has lowered its rates of 5 pounds for startup companies.

“In the United Kingdom, you do not work for the State, but it is the State that works for you”