Supporting your international development Technology & media PRECISE. PROVEN. PERFORMANCE.
Supporting your international development Even in difficult economic circumstances throughout Europe, the technology sector has seen its revenue grow in the UK even more of a reason to consider investing here. The UK has long had a positive attitude towards inward investment. There are few restrictions on foreign investors, no exchange controls and a favourable tax regime. Couple this with the City of London being one of the world s leading financial and business centres, and there is little surprise that more and more global businesses are choosing to set up in the UK. Selecting the right structure The first and most important decision is to select whether the UK business will trade as a subsidiary or as a permanent establishment. A permanent establishment is a fixed place of business through which the operations of a company is wholly or partly carried on. This can include a branch, a place of management, an office or a factory. A branch is deemed an extension of your parent company, unlike a subsidiary, which is considered a separate legal entity, allowing a distinction between your US and UK operations. The public nature of UK company records, tax efficiencies and maintenance costs of the two options are important consideration factors. In our experience, the sensitivity of the group information is generally a key concern of US investors, so the rest of this document discusses the common issues surrounding UK subsidiary companies. Moore Stephens provides advice on the correct structure to suit your individual needs, be this a subsidiary or a branch and the differing requirements of each. Getting the legalities right As in the US, businesses are subject to filing requirements which start on formation and continue throughout the life of the entity. The responsibility of this falls on the directors, who at the start of the entity s life are commonly an existing member of the parent company s management in the US. The transatlantic distance can of course put pressure on the filing process, so we are on hand to relieve this through our company secretarial service agent. Our agent can provide a registered office facility, ensure compliance with all aspects of company law and filing requirements, as well as entity formation and registration formalities. They will also ensure all relevant registration documents are submitted to Companies House. Tax and payroll for employees A principal overhead for technology companies is investment in staff. It is of course essential you have a proper understanding of taxes, payroll and obligations as an employer. Moore Stephens offers PAYE registration, a system used to collect income tax and national insurance contributions from employees pay as they earn it. We are also able to process staff pay through our in-house payroll system. Accounting and reporting The UK accounting needs of your business will vary depending on its size, but as the business owner you will be responsible for keeping accurate records and accounts. Accounting reference dates Every company must keep accounting records and prepare annual accounts that report on the performance and activities of the company during the year. For all new companies, the first accounting period is automatically set as the first anniversary of the last day in the month in which the company is incorporated. The accounting reference date can be changed to suit your preference, commonly to align with the US parent s established accounting reference date. A period cannot be extended so it is more than 18 months from the start of the accounting period and the accounting period, can normally only be extended once in five years. Preparation and filing accounts All limited companies must submit accounts to the Registrar at Companies House. Abbreviated accounts can be prepared and filed by medium-sized, small and certain dormant companies. 2 Technology & media
We provide advice on the correct structure to suit your individual needs. Technology & media 3
Our tax experts advise on all international tax issues such as transfer pricing. 4 Technology & media
Deep understanding of sector issues A company must submit the accounts to Companies House within nine months of the accounting reference date for a private company. Any late filings will incur automatic penalties. Audit Certain small companies with turnover of less than 6.5 million and gross assets of less than 3.26 million can claim exemption from audit. Companies which are part of a non-small sized group or a group which includes a public company or a regulated company, cannot qualify for exemption for audit unless that particular company is a subsidiary, and has been dormant at all times during the parts of the year it has been a subsidiary. To qualify as small sized, a group must meet at least two of the following conditions: aggregate annual turnover must be less than 6.5 million net or 7.8 million gross; the aggregate gross assets must be less than 3.26 million net or 3.9 million gross; or the aggregate average number of employees must be 50 or fewer. Outsourced accounting services In addition to audit services we can, in certain circumstances, provide a range of fully or partially outsourced accounting services, including: bookkeeping and accounts payable; preparation of management accounts for international reporting purposes; preparation of financial statements in accordance with UK GAAP, US GAAP or IFRS; preparation of consolidated accounts; budgeting forecasting. Business tax solutions If setting up in the UK, taxes incurred as a business need to be considered. Our tax compliance service includes the preparation of the tax returns and computations, to fully meet statutory obligations efficiently and with confidence. We also provide an efficient indirect tax service, including strategic advice, assistance with VAT registration, and the preparation and submission of VAT returns. Our tax experts can also advise on all international tax issues such as transfer pricing. UK corporation tax The current rate of corporation tax for UK businesses is 23% for large companies and 20% for small companies. The top rate is reducing to 21% on 1 April 2014, and there will be a single rate of corporation tax of 20% from 1 April 2015. Filing tax returns A company must submit a tax return to HM Revenue & Customs (HMRC) on or before the filing date. This is normally 12 months after the accounting reference date. Corporation tax payment Corporation tax is normally due by nine months and one day after the end of an accounting period. HMRC will charge interest for late payment from the day that it is overdue until it is paid. Payment by instalments Large companies are required to pay their tax liabilities by quarterly instalments. A large company is one whose profits exceed the small company s upper limit (currently 1.5 million). A company is not required to pay its instalments the first year it exceeds the limit, unless its profits exceed 10 million. Both of these limits are scaled down for short accounting periods and for associated companies, but based on the number of associated companies at the end of the previous accounting period. Value added tax (VAT) VAT is a UK tax that s charged on most UK goods and services that VAT-registered businesses provide. VAT registration is required where the entity s annual turnover exceeds 79,000. The standard UK rate of VAT is 20%, and applies to many supplies of goods and services. VAT registered companies are required to complete a VAT return (normally quarterly) and account to HMRC for VAT collected on outputs less VAT suffered on inputs. Important changes for overseas businesses selling goods or services in the UK took effect from 1 December 2012. Any business which is not established in the UK, which makes UK taxable sales of goods or services will have to register and account for UK VAT, regardless of the value of those sales. This is a significant change to the rules, which currently allow non-established businesses to sell goods and/or services with a value up to the VAT registration threshold, before having to register for UK VAT. Technology & media 5
Tailored solutions to support your needs Stock options Technology companies rely heavily on the abilities of talented individuals. Employee share schemes (stock options) will tie the fortunes of the workforce to those of the company, and may encourage both effort and loyalty. Where individuals are employed by a UK subsidiary of an overseas parent company, it might be thought that the incentive effect would be greatest if the employees acquired shares in the company for which they actually worked, where their efforts would have the most obvious effect. However, in practice shares in the subsidiary may have little attraction for them, principally because of lack of marketability. In addition, the parent company may be reluctant to dilute its ownership of the subsidiary by creating minority interests. The shares that are issued, or over which options are granted, will therefore normally be those of the US parent company. The tax treatment of such shares and options depends on whether they are issued under one of the various HMRC approved schemes or are unapproved. Moore Stephens provides advice on the setting up of a share option scheme to ensure optimal tax treatment, for both the company and its participating employees. Research and development Technology companies are reliant on their ability to develop new products in order to keep up with the expanding market place and ever increasing customer expectations. As a result significant investment must be made in research and development (R&D). The UK offers beneficial tax incentives for R&D expenditure. Large companies are entitled to an enhanced deduction of 130% of relevant expenditure and small and medium sized entities (SMEs) to a deduction of 225%. Alternatively an SME can claim a payable tax credit of 11% of the available deduction instead of an allowance in calculating taxable profits. This year s changes From 1 April 2013 large companies are able to choose between claiming an enhanced deduction or an above the line credit equal to 10% of their qualifying expenditure. The enhanced deduction scheme will be removed for large companies in April 2016. Most SMEs will not be affected by the introduction of the above the line credit but SMEs whose R&D activity is subcontracted to them by third parties or is subsidised by third parties may be able to benefit. Intellectual property Unlike other fixed assets, intellectual property (IP) is inherently mobile. This means that technology companies whose business relies on the development and exploitation of IP will have choices as to where they locate their business that are not open to companies in more traditional industries. To encourage companies to locate their IP in the UK, the government has introduced the patent box a 10% reduced rate of corporation tax to apply to profits derived from patent rights. The benefit is being phased in over a four-year period. From 1 April 2013 60% of the benefit is available, rising by 10 percentage points each year until the full benefit is available in April 2017. The patents covered by the new rules will be those granted by the UK s Intellectual Property Office, the European Patent Office, and certain other EEA states. How can we help Moore Stephens is experienced in helping international investors set up businesses in the UK and we are well versed in the current issues affecting technology companies. For specific matters, we advise you to obtain further information and take professional advice before making decisions. If we can be of assistance, please don t hesitate to contact us directly or your local Moore Stephens International office. 6 Technology & media
Technology companies are being encouraged to locate their IP to the UK through the patent box a 10% reduced corporation tax Technology & media 7
Moore Stephens in the UK Moore Stephens is the UK s 10th largest independent accounting and consulting network, comprising some 1,500 partners and staff in 34 locations. Contact information If you would like further information on any item within this brochure, or information on our services please contact: Our objective is simple: to be viewed by clients as the first point-of-contact for all their financial, advisory and compliance needs. We achieve this by providing sensible advice and tailored solutions to help clients achieve their commercial and personal goals. Mark Ayres Partner mark.ayres@moorestephens.com Clients have access to a range of core and specialist services including audit and tax compliance, business and personal tax, trust and estate planning, wealth management, IT consultancy, governance and risk, business support and outsourcing, corporate finance, corporate recovery and forensic accounting. Our success stems from our industry focus, which enables us to provide an innovative and personal service to our clients in our niche markets. Specialist sectors include energy and mining, financial services, insurance, not-forprofit, pensions, professional practices, real estate, shipping, transport and public sector. Moore Stephens globally Moore Stephens International Limited is a global accountancy and consulting network, headquartered in London. With fees of US$2.3 billion and offices in 100 countries, you can be confident that we have access to the resources and capabilities to meet your needs. Moore Stephens International independent member firms share common values: integrity, personal service, quality, knowledge and a global view. By combining local expertise and experience with the breadth of our UK and worldwide networks, clients can be confident that, whatever their requirement, Moore Stephens will provide the right solution to their local, national and international needs. Moore Stephens LLP, 150 Aldersgate Street, London EC1A 4AB T +44 (0)20 7334 9191 www.moorestephens.co.uk We believe the information contained herein to be correct at the time of going to press, but we cannot accept any responsibility for any loss occasioned to any person as a result of action or refraining from action as a result of any item herein. Printed and published by Moore Stephens LLP, a member firm of Moore Stephens International Limited, a worldwide network of independent firms. Moore Stephens LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Authorised and regulated by the Financial Conduct Authority for investment business. DPS19436 July 2013