Private company limited by shares
The UK Private limited company is a well-recognized and reputable business structure incorporated in one of the major international financial and trade centers worldwide with a long proven track record of fiscal and legislative stability.
UK Limited companies could be used as holding vehicles, taking advantage of the over 100 tax treaties that the UK has concluded, tax-exemption on capital gains on the sale of shares that fulfills certain conditions, tax exemption on dividends received from both local and foreign sources and no withholding tax on dividends paid to non-residents.
Furthermore, a company may elect to be exempted on non-UK profits of a Permanent Establishment in a country where the UK has concluded a tax treaty with.
UK Limited companies also benefit from an ideal environment and a mature finance market for entrepreneurs and startups to seek funding, attract investors, gain access to high-skilled employees and high-quality business services.
Exploitation of IP may benefit from a lower effective tax rate of 10%. Profits may include a significant part of the trading profit from the sales of a product that includes a patent, not just income from patent royalties.
In addition, incorporating in the UK provides a broad range of payment processing services and access to merchant accounts.
Private companies limited by shares in the UK enjoy a fast and cost-effective registration procedure and simple ongoing compliance requirements.
If the Limited company accrues more than GBP 85,000 that is derived from local earnings, then it must register for the UK VAT.
The UK is a common law based legal system which is very scrupulous in respect of private property. An independent judicial system in which the rule of law applies to legal and contractual procedures.
UK private limited companies enjoy high reputation and are excellent vehicles to conduct international commercial activities, as a holding company, IP business, investment company, access to payment processing services and merchant accounts and for startups seeking financing.
Legal
Country code – GB
Legal Basis – Common law
Legal framework – UK Companies Act 1985, amended in 1985 and 2006
Company form – Private company limited by shares (Ltd)
Liability - The liability of the shareholders for the company is limited to the amount of their respective shareholdings.
Share capital – The minimum paid up share capital for a Private Limited Company is GBP 1. There is no concept of authorized share capital in the Companies Act. Share capital may be denominated in any currency and different classes of shares may be denominated in different currencies.
Shares may be issued as registered, preference, and shares with or without voting rights. Redeemable shares and share warrants to bearer may be issued. Non-par value shares are not allowed.
Shareholders – A company limited by shares must have at least one shareholder, who can be a director. There’s no maximum number of shareholders. Shareholders may be either natural or legal persons, residents or non-residents, without limitations. The identity and personal information of the stockholders are publicly disclosed.
Directors – A private limited company should have at least 1 director, who must be a natural person. Corporate directors are allowed, provided that at least 1 director is a natural person. Directors may be residents or non-residents. Details of directors are available to the public.
Directors of publicly traded companies must meet certain requirements including, in certain circumstances, the requirement to be independent (that is, not to have a material relationship with the company or its management).
Secretary – The company may appoint a secretary, but it is not mandatory.
Registered Address – A Ltd. company registered office address is where official communications will be sent, for example, letters from Companies House. The address must be a physical address in the UK and in the same country the company is registered in, for example, a company registered in Scotland must have a registered office address in Scotland.
A company limited can use a PO Box but must include a physical address and postcode. It can be a home address or the address of the person who will manage the company. Company address will be publicly available on the online register.
General Meeting – Annual general meetings are not mandatory. If they take place, they can be held be anywhere and by electronic means or by proxy.
Electronic Signature – Permitted.
Re-domiciliation – Continuation of a foreign entity in the United Kingdom is allowed, subject to the Companies House approval.
Compliance – Company must maintain records about the company itself, financial and accounting records and supporting documentation, which must be kept for 6 years. Records must be kept at the registered office.
All UK Companies must file an annual return with their accounts with the Companies House, available to the public, and a tax return with the HM Revenue & Customs. Companies must appoint an auditor and file their accounts audited. A company may qualify for an audit exemption if it has at least 2 of the following:
An annual turnover of no more than £10.2 million; assets worth no more than £5.1 million; 50 or fewer employees on average.
- Shareholders not disclosed
- Directors not disclosed
- Corporate shareholders permitted
- Corporate directors permitted
- Local director required
- Secretary required
- Local secretary required
- Annual general meetings required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Common law Legal basis
- 1 Minimum shareholders
- 1 Minimum directors
- - Minimum issued capital
- - Minimum paid up capital
- GBPAny Capital currency
- Anywhere Location of annual general meeting
- 2017 AEOI
Taxes
Tax residency – A company is tax resident in the United Kingdom if it is incorporated in the UK or its place of central management and control is in the UK.
Basis – Companies residents in the UK are taxed on their worldwide income. Foreign profits and losses of a foreign P.E. may be excluded by making an irrevocable election.
Tax rate – Corporate tax standard rate is 25% with a reduced rate of 19% for companies whose taxable profits do not exceed GBP 50,000.
A diverted profits tax may be levied at 25% on diverted profits of company groups creating a tax benefit by using transactions or legal entities that lack economic substance or companies that have structured their UK activities to avoid setting a permanent establishment.
Companies conducting certain activities, such as oil, gas, banking or insurance activities are subject to a special tax regime.
Capital gains - Capital Gains are subject to Corporate Income Tax. However, an exemption may apply to capital gains from the disposal of shares from both UK and foreign subsidiaries, provided that the selling company has continuously owned at least 10% of share for at least 12 months of the 24 months before the transaction, among other conditions.
Dividends - Dividends received from resident or non-resident entities are generally tax-exempt subject to certain conditions (10% ownership threshold, double tax treaty with non-discrimination clause, and underlying subsidiary conducting active business, among others).
Interests - Interest income is usually subject to taxation at standard rates.
Royalties – Royalties are usually taxed as ordinary income if they arise from a trade. Royalties from intellectual property (IP) not comprising a trade will be taxed as income from intangible fixed assets.
Foreign-source income – Foreign-source income is usually taxable, but a tax credit for foreign tax paid is usually available, either under a treaty or through the unliteral relief rules.
However, a company may elect to be exempted on non-UK profits of a Permanent Establishment in a country where the UK has concluded a tax treaty with. The election is irrevocable and relief of P.E. losses may be denied.
Withholding taxes – UK companies are not required to withhold tax on their payments on dividends to non-residents. Royalties and interests paid abroad are subject to a withholding tax at a 20% rate. Tax may be reduced or exempt due to a tax treaty.
Losses – Losses arising from taxable income may be carried forward indefinitely. Carryback of losses to the preceding year is permitted.
Inventory - Inventory valuations may be made by book and tax methods. In general, lower of cost or net realizable value valuation will be acceptable. First in first out method (FIFO) is permitted, while the Last in first out method (LIFO) is not allowed for taxation purposes.
Anti-avoidance rules – The transfer pricing regime in the United Kingdom is comprehensive and it follows the OECD’s principles. It is required that companies prepare documentation to prove compliance with that a given transactions is in arm’s length. There may be exemptions excluding SMEs and dormant companies from the regime.
There may be debt capital rules limiting deductions that can be taken for financing costs.
Broadly, profits of a non-UK resident CFC will be taxed, using normal corporation tax rates and rules, on the company or companies controlling the CFC if (i) the profits pass through the CFC ‘gateway’ test and (ii) are not exempt.
The ‘gateways’ are a series of tests that identify profits that are, broadly, artificially diverted from the UK. For example, where profits of the controlled foreign company are attributable to significant people functions in the UK, those profits will be taxed in the UK regardless of whether they are distributed unless one of four conditions are satisfied (the first of which is that obtaining a tax advantage is not the main purpose or one of the main purposes of the arrangement). There are a range of other tests that may capture other profits.
Labor taxes – Employers and employees are required to make contributions to the National Insurance at 13.8% and 12%, respectively, on employees’ income above GBP 157 per week. Businesses may be exempt from the first GBP 3,000 per year.
Tax credits and incentives – A tax credit for foreign tax paid is usually available, either under a tax treaty or through the unliteral relief rules.
There are several tax incentives for companies in the form of enhanced tax depreciation allowances.
There is also usually available an annual investment allowance of 100% on the first GBP 200,000 per year of capital expenditure incurred.
SMEs may claim a deduction equal to 230% of the qualifying expenditure on R&D in the year in which it is incurred, which can be surrendered for a cash payment (at a rate of GBP 33.35 for each GBP 100 of qualifying R&D spend) by companies that are trading at a loss or have not yet started to trade.
If taxable profits can be attributed to the exploitation of patents, a lower effective tax rate of 10% may apply. Profits may include a significant part of the trading profit from the sales of a product that includes a patent, not just income from patent royalties.
Compliance – On average, a Limited company in UK may require 8 payments and 110 hours per year to prepare, file and pay taxes.
Personal income tax – An individual is tax resident in the UK if he or she spends at least 183 days in a year within the country or his or her only home is in the UK for at least 91 days in a year or work full-time in the UK or fulfills one of the previous conditions during the three preceding years.
If the individual is resident but not domiciled (permanent home) in the UK, his or her investment income and capital gains will be only taxed if are remitted to the UK.
Personal income tax rates are progressive up to 45% on income exceeding GBP 150,000. Dividends are also taxed at progressive rates (7.5%, 32.5% and 38.1%) with an allowance of GBP 5,000.
Interest income is taxable as ordinary income, but a 0% may apply to the first GBP 5,000. Rental income is taxed depending on the location of the property.
Capital gains are taxed separately. The first GBP 11,700 may be tax-exempt. Gains exceeding this amount up to 34,500 may be taxed at 10% and 20% on the excess.
Other taxes – Local authorities levy real property tax on business premises. There is a stamp duty of 0.5% on the transfer of UK shares payable by the transferee. Stamp duty land tax applies on transfers of real property, rates are between 0% and 15%. There is an Annual tax on enveloped dwellings (ATED) levied to companies who own residential properties valued at more than GBP 500,000.
There is also an inheritance tax up to 40%. The total tax-free allowance for a surviving spouse/partner is GBP 1,000,000. UK does not levy wealth taxes.
V.A.T. standard rate is 20%, reduced rates of 5% and 0% may apply to certain items.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 25% Offshore Income Tax Rate
- 25% Corporate Tax Rate
- 25% Capital Gains Tax Rate
- 25% Dividends Received
- 0% Dividends Withholding Tax Rate
- 20% Interests Withholding Tax Rate
- 20% Royalties Withholding Tax Rate
- 1 Losses carryback (years)
- Indefinitely Losses carryforward (years)
- FIFO Inventory methods permitted
- 12.00% Social Security Employee
- 13.80% Social Security Employer
- 45% Personal Income Tax Rate
- 20% VAT Rate
- 142 Tax Treaties
Country details
The United Kingdom of Great Britain and Northern Ireland (UK), is a state located in the northwest of Continental Europe. Its territory is formed geographically by the island of Great Britain, the northeast of the island of Ireland and small adjacent islands. Northern Ireland is the only part of the country with a land border, which separates it from the Republic of Ireland.
Great Britain delimits to the north and the west by the Atlantic Ocean, to the east by the North Sea, to the south by the English Channel and to the west by the Irish Sea.
The UK is a unitary state comprised of four constituent nations, Scotland, Wales, England, and Northern Ireland, and several overseas territories. Populated by more than 65 million people.
The capital, London, on the River Thames, is home of British Parliament, Big Ben, and the 11th-century Tower. Its official legal tender currency is the Pound Sterling (GBP), being the fourth most traded currency in the international exchange market behind the US$, the euro and the Japanese yen.
In 2016, a majority of 51.9 percent of voters in the United Kingdom chose to exit the European Union. The UK officially departed from the EU in 2020. The EU-UK Trade and Cooperation Agreement took effect on May 1, 2021.
The United Kingdom operates as a parliamentary monarchy with King Charles III serving as its head of state, succeeding Queen Elizabeth II, who held the title of the longest-reigning and longest-living British monarch until her passing on September 8, 2022. King Charles also fulfills the role of the Head of State for the other fourteen nations within the Commonwealth of Nations, establishing a personal union between the United Kingdom and these countries.
It has a parliamentary government, based on the Westminster system, which has been emulated around the world, one of the legacies of the British Empire. The Parliament of the United Kingdom, which meets in the Palace of Westminster has two chambers: the House of Commons (elected by the people) and the House of Lords. Any law passed by parliament requires real consent to become law. The fact that the decentralized parliament in Scotland and the assemblies in Northern Ireland and Wales are not sovereign bodies and can be abolished by the British Parliament makes the latter the most important legislative body in the country.
The United Kingdom is one of the world’s most developed countries. It is the sixth largest economy and the second largest in Europe after Germany, and ahead of France.
Its technologically developed industry is comprised mainly of machinery, transport equipment (vehicles, railways, and aeronautics) and chemicals. The UK is also the second European producer of oil and gas, ahead of Norway.
The services sector is the major GDP contributor, which includes the stock market, banking services, and insurance companies. The London Stock Exchange is the second largest financial market after New York.
Its agriculture is highly mechanized, its main productions are potatoes, beets, wheat, and barley. However, it only accounts for only 1% of GDP and only 2% of purchasing power parity. Livestock is significant, especially sheep and cattle, being a large European producer of milk and its derivatives.