Business Operations in the United Kingdom (Portfolio 7400)

Tax Management Portfolio, Business Operations in the United Kingdom, is intended to introduce U.S. and other investors, as well as their advisers, to the tax and other considerations relevant to business operations in the United Kingdom.

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This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive resource including 200+ federal tax Portfolios, practice tools, primary sources and timely news.



The Portfolio outlines the various forms in which it is possible to do business in the United Kingdom and describes the most important provisions of U.K. companies law and other legislation affecting the conduct of business.
The Portfolio considers in detail the application of the various direct taxes (corporation tax, income tax, capital gains tax, inheritance tax, stamp duty and stamp duty reserve tax) and the main indirect tax, value added tax.
The Worksheets contain texts of the United Kingdom's tax treaties with the United States, as well as information for accessing some of the most commonly used corporation tax and value added tax forms. A bibliography is provided as a research aid.

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Business Operations in the United Kingdom was authored by the following experts. 
Peter Nias is a partner in the law firm of McDermott Will & Emery UK LLP, based in its London office. He is Head of the London office Tax Department, where his practice focuses on direct and indirect tax advice on a broad range of corporate and commercial business activities, including acquisitions and disposals, and corporate structures for UK and international business investments. Peter also advises on general corporate commercial tax matters for companies and advises individuals on wealth preservation techniques.

James Ross is a partner in the law firm of McDermott Will & Emery UK LLP, based in its London office.

Lee Khvat is an associate in the law firm of McDermott Will & Emery UK LLP, based in its London office.

Clare Morison is an associate in the law firm of McDermott Will & Emery UK LLP, based in its London office.


Detailed Analysis

I. Legal System and Jurisdiction

II. Operating a Business in the United Kingdom

A. Investment

1. Incentives

2. Restrictions

B. Trade and Commerce Regulation

1. Imports and Exports


a. Imports

b. Exports

c. European Union

2. Anti-Trust Overview

3. European Community Competition Law

a. Articles 81 and 82 of European Community Treaty

b. European Community Merger Regulation

c. United Kingdom Competition Law

(1) Merger Control

(2) The Competition Act 1998 Prohibitions

(3) Market Investigations

d. Market Abuse

e. Insider Dealing

4. Intellectual Property

C. Immigration Law

1. Work Permits

a. Sole Representative

b. Self-employed Business Person

c. Investor

d. Innovator

2. Highly Skilled Migrant Programme

3. Indefinite Leave

4. Family Members

5. Loss of Settled Status

6. British Citizenship

7. Europe - The Future

8. Ownership of Assets in the United Kingdom

9. Impact on Personal Taxation

D. Labor Relations

III. Business Organizations in the United Kingdom

A. Forms of Business Organizations

1. Companies Incorporated in England and Wales

2. Companies Incorporated Outside the United Kingdom ("Oversea Companies")

3. Partnerships

4. Limited Partnerships

5. Limited Liability Partnerships

B. Formalities on Establishment

1. Companies

2. Oversea Companies

3. Partnerships

4. Limited Partnerships

5. Limited Liability Partnerships

C. On-Going Costs and Formalities for United Kingdom Companies

D. Management of an English Company

1. Shareholder Decision Making

a. Meetings

(1) Special Resolution

(2) Extraordinary Resolution

(3) Elective Resolution

(4) Ordinary Resolution

b. Written Resolutions and Unanimous Assent

2. The Board of Directors

a. Who May Be a Director?

b. Appointment and Removal

c. Powers

d. Proceedings

e. Duties

f. Board Composition and Corporate Governance of Listed Companies

g. Further Requirements for Directors of Listed Companies

3. Directors and Insolvency

a. Wrongful Trading

b. Fraudulent Trading

E. A Company's Share Capital and Shares

1. Meanings

2. Initial Amount and Denomination of Share Capital

3. Maintenance of Capital

4. Dividends and Distributions

5. Bonus Shares

6. The Nature of Shares

a. Ordinary Shares

b. Preference Shares

c. Redeemable Shares

7. Alteration of Share Capital and Class Rights

8. The Issue of Shares

a. Authority

b. Preemption Rights

c. Regulation

9. Transfer of Shares

F. Liquidation and Insolvency

1. Voluntary Winding-up

2. Voluntary Arrangements Between a Company and Its Creditors

3. Administration

4. Administrative Receivership and Receivership

5. Compulsory Winding-up

6. Vulnerable Transactions

7. EC Regulation on Insolvency Law and United Nations Commission on International Trade Law

G. Acquisition of a United Kingdom Business

1. General

2. Employment

3. Competition Law

4. Pensions

5. Environmental Law

6. Intellectual Property

7. Process and Transfer of Assets

a. Transfer by Delivery

b. Land

c."Choses in Action"

H. Accounting for Business Combinations

1. Business Combinations

2. Acquisition Accounting

3. Merger Relief

I. Regulation of Takeovers

1. The Panel on Takeover and Mergers

2. The Code

3. Key Provisions of the Code

a. Announcements

b. Contents of Documents

c. Terms of the Offer

d. Timing

e. Dealings in Shares by an Offeror

4. Persons Acting in Concert

5. Misleading Statements and Practices

6. Financial Promotion

J. Specially Regulated Areas

1. Financial Services Regulation in United Kingdom

2. Role of Financial Services Authority

3. "General Prohibition"

4. "Regulated Activities"

5. "Business Test"

6. "In the United Kingdom"

7. "Threshold Conditions"

8. Market Abuse

IV. Principal Taxes

A. Income Tax

B. Capital Gains Tax

C. Inheritance Tax

D. National Insurance Contributions

E. Stamp Duty

F. Stamp Duty Reserve Tax

G. Stamp Duty Land Tax

H. Value Added Tax

I. Petroleum Revenue Tax

J. Corporation Tax

V. Taxation of United Kingdom Resident Companies

A. United Kingdom Residency

1. When Is a Company Resident in the United Kingdom?

2. Migration of Companies

3. Migration of Capital

B. Corporation Tax

1. General Principles

a. What Is Taxed?

b. Distributions to Shareholders

2. Accounting

a. General

b. Accounting Periods

3. Calculation of Gross Profits

a. General

(1) Schedule A

(2) Schedule D

b. Chargeable Gains

(1) Substantial Shareholdings

(2) Groups of Companies

(3) Reorganization of Share Capital

(4) Exchanges and Reconstructions

(5) Replacement of Business Assets

c. Dividend and Interest Income

(1) Dividend Income

(2) Interest Income and Corporate Debt Generally

(3) Anti-Avoidance

d. Income from Foreign Sources

(1) Controlled Foreign Companies

(2) Material Interests in Offshore Funds

e. Stock Options

f. Other Inclusions in Gross Income

(1) Transfer Pricing

(2) Transactions in Securities

(3) Transactions in Land, Etc.

(4) Certificates of Deposit

(5) Artificial Payments of Interest

(6) Reverse Premiums

g. Exclusions from Gross Income

4. Business Expenses

a. General

(1) Trading Company

(a) Expenditure Must Be Incurred Wholly and Exclusively for Purposes of Trade

(b) Expenditure Must Be of Revenue Nature

(c) Expenditure Must Not Be Specifically Excluded under Legislation

(2) Investment Company

b. Organizational Expenses

(1) Trading Company

(2) Company with Investment Business

c. Travel and Entertainment Expenses

(1) Travel Expenses

(2) Entertainment Expenses

d. Interest and Royalties

(1) Interest

(a) Interest Payable on Corporate Debt

(b) Withholding Tax

(2) Royalties

e. Taxes

f. Depreciation and Amortization

g. Charitable Contributions

h. Capital Losses

i. Casualty Losses

j. Reserve Accounts

k. Bad Debts

l. Inventory Write-downs

m. Rents

n. Employees' Remuneration (Salaries and Wages, Etc.)

o. Other Deductions from Gross Income

5. Capital Expenditure

a. Machinery and Plant

(1) Meaning of Machinery and Plant

(2) Owning

(3) Main Pool

(4) Special Rules

(a) Cars, Etc.

(b) Short-Life Assets

(c) Long-Life Assets

(d) Ships

(5) Leasing

(6) Anti-Avoidance

b. Industrial Buildings and Structures

(1) Meaning of Industrial Building or Structure

(2) Writing Down Allowances

(3) Initial Allowances

(4) Business Premises Renovation Allowances

(5) Anti-avoidance

c. Mineral Extraction

d. Research and Development

e. Patent Rights and Know-how

f. Dredging

g. Agricultural Buildings

h. Intellectual Property

6. Loss Carryovers and Carrybacks

a. Set-off and Carryback of Trading Losses

b. Carryforward of Trading Losses

c. Change of Ownership

d. Group Relief

(1) Nature of Relief

(2) Definitions of a Group

(3) Residence Requirements

(4) How the Relief Operates

(5) Claims

(6) Consortium Relief

e. Other Losses and Reliefs

(1) Case VI Losses

(2) Schedule A Losses

(3) Charges on Income

(4) Management Expenses

(5) Nontrading Losses on Intangible Fixed Assets

(6) Loan Relationship Debits

(7) Financial Instrument Debits

(8) Foreign Exchange Losses

f. Capital Losses

7. Tax Credits

a. Income Tax Credit

b. Foreign Tax Credits

c. Other Credits

8. Tax Rates and Calculation of Taxable Income

9. Pay and File

10. Self-Assessment

11. Deduction of Tax at Source

a. Annuities, Annual Payments, Royalties and Certain Rents

b. Deduction of Tax from Yearly Interest

(1) General

(2) Exceptions from Requirements to Deduct Tax from Yearly Interest

c. Paying and Collecting Agents

d. Other Specific Cases of Deduction

e. The EC Interest and Royalties Directive (2003/49)

C. Other Taxes

1. Dividend Taxes

2. Value Added Tax

a. Objective and Origin of United Kingdom Value Added Tax

b. Scope of United Kingdom Value Added Tax

(1) Introduction

(2) Concept of "Supply"

(3) Categories of Supply

(4) Territorial Scope of United Kingdom Value Added Tax

(5) Registration for United Kingdom Value Added Tax: "Taxable Person"

(6) Exempt Supplies

(a) Finance

(b) Insurance

(c) Land

(7) Zero-rated Supplies

(8) Outside Scope Supplies

(9) Value of Supply and Rate of Tax

(10) Importation of Goods

(a) Importation from Countries Outside European Union

(b) Importation from Within European Union

c. Recovery of Value Added Tax by Taxable Persons

(1) Right to Deduct Input Tax

(2) Conditions Imposed on Recovery of Input Tax

(3) Partial Exemption

(a) Basic Principles

(b) Input Tax Recovery by Partly Exempt Persons

d. "Reverse Charge" on "Imported" Services

e. Accounting and Control

(1) General

(2) Value Added Tax Invoices and Records

(3) Control and Penalties

(a) Default Surcharge

(b) Misdeclaration Penalty

f. Miscellaneous Special Cases

(1) Sale of Business as Going Concern

(2) Bad Debt Relief

(3) Margin Schemes for Second-Hand Goods

(4) Refund of United Kingdom Value Added Tax to Certain Overseas Traders

3. Taxation of Oil

a. Royalties and Other License Fees

b. Petroleum Revenue Tax

(1) Differences Between Petroleum Revenue Tax Concepts and Corporation Tax Concepts

(2) Assessable Profits, Allowable Losses

(a) Gross Profit or Loss

(b) License Debit (or Credit)

(c) Expenditure

(d) Uplift

(e) Oil Allowance

(f) Safeguard

(g) Nomination Scheme

(h) Losses

(3) Rate of Petroleum Revenue Tax

(4) Transfers of Field Interests

c. Corporation Tax

(1) Deductibility of Petroleum Revenue Tax

(2) Research and Development Allowances

(3) Exploration Expenditure Supplement

(4) First Year Allowances

(5) Ring Fence

(6) Effects of Ring Fence

(7) Anti-avoidance

4. Stamp Duty, Stamp Duty Reserve Tax and Stamp Duty Land Tax

a. Stamp Duty

(1) Enforcement

(2) Jurisdiction and Double Taxation Relief

(3) Nature of Stamp Duty

(4) Transfer on Sale

(5) Options

(6) Bearer Instrument Duty

(7) Clearance Services and Depositories

(8) Adjudication

(9) Exemptions and Reliefs

(a) Exempt Instruments and Certificates of Value

(b) Relief for Transfers between Associated Companies

(c) Reorganization of Companies

(d) Stock Lending and Repurchases

(e) Sales to Intermediaries

(f) Unit Trusts

(g) Overseas Branch Register

(10) Anti-avoidance

b. Stamp Duty Reserve Tax

(1) The Principal Charge

(2) Issue and Transfer of Chargeable Securities into Clearance Services and Depository Receipts Systems

(3) Unit Trusts and Open-Ended Investment Companies

(4) Exemptions and Reliefs

c. Stamp Duty Land Tax

(1) Chargeable Consideration

(2) Options

(3) Leases

(4) Partnership Transactions

(5) Value Added Tax

(6) Exemptions and Reliefs

(a) Group Relief

(b) Reconstruction and Acquisition Reliefs

(c) Other Reliefs

(7) Disclosure Requirements

(8) Future Developments

5. National Insurance Contributions

a. Class 1 Contributions

b. Class 2 and Class 4 Contributions

VI. Taxation of Foreign Companies

A. What Is a Foreign Company?

B. Determination of Taxable Profits

1. Capital Gains

2. Income

a. Trading Income

b. Interest and Similar Investment Income

c. Income from Land

d. Distributions by United Kingdom Resident Companies

3. Double Taxation Agreements

C. Method of Taxation

VII. Taxation of a Permanent Establishment

A. Trading in the United Kingdom Through a Permanent Establishment

B. Determination of Taxable Profits

C. Double Taxation Agreements

D. Method of Taxation

E. Subsidiary versus Permanent Establishment

1. Taxation of Profits

2. Taxation of Chargeable Gains

3. Repatriation of Profits

a. Interest on Inter-company Loans

b. Dividends

4. Home State Tax

5. Losses

6. Interest Relief

7. Controlled Foreign Company

8. Treasury Consents

VIII. Taxation of Partnerships

Introductory Material

A. Taxation of Income Profits

1. Current Year Basis of Assessment

2. Special Rules

a. Opening Years of Business

b. Discontinuance

c. Change of Accounting Date

3. Corporate Partnerships

4. Foreign Partnerships

B. Taxation of Chargeable Gains

1. Statement of Practice D12

2. Relief from Capital Gains Tax: Rollover Relief

C. Inheritance Tax

D. Value Added Tax

IX. Taxation of Other Business Entities

A. Unit Trusts

B. Open Ended Investment Companies

C. Investment Trusts

D. Venture Capital Trusts

E. European Economic Interest Groupings

F. Mutual Companies

G. Limited Liability Partnerships

H. Securitization Companies

I. Real Estate Investment Trusts

X. Taxation of Resident Individuals

A. Scope of Taxation

B. Residence and Domicile

1. Residence

2. Ordinary Residence

3. Year of Commencement or Cessation of Residence

4. Domicile

5. Remittance Basis Access Charge

C. Determination of Gross Income

D. Taxation of Directors and Employees

1. General Earnings from Employment

2. Employees Resident and Ordinarily Resident and Domiciled in the United Kingdom

3. Employees Resident or Ordinarily Resident or Domiciled Outside the United Kingdom

a. Employee Resident and Ordinarily Resident, But Not Domiciled, in the United Kingdom

b. Employee Resident, But Not Ordinarily Resident, in the United Kingdom

c. Employee Not Resident in the United Kingdom

4. Scope of "Earnings"

5. Payments Made on Loss or Termination of Office or Employment

6. Part 7 Chapters 2-4 of the Income Tax (Earnings and Pensions) Act 2003 (New and Adapted Provisions)

7. Shares Acquired at Undervalue (Chapter 3C)

8. Share Option Schemes

9. Share Incentive Plans

E. Allowable Deductions and Personal Allowances

1. Interest Payments

a. Interest on Loans to Acquire Main Residence

b. Other Interest Payments

2. Charitable Donations

3. Relief for Investments and Unquoted Shares

a. Enterprise Investment Scheme

b. Venture Capital Trusts

c. Enterprise Management Incentive

4. Personal Pension Schemes

F. Rates and Calculation of Taxable Income

G. Assessment and Filing

H. Pay As You Earn System

XI. Taxation of Nonresident Individuals

A. General Principles

B. Business and Employment Income

C. Investment Income

D. Capital Gains

E. Assessment of Non-United Kingdom Residents

XII. Inheritance Tax

A. Introduction

B. Scope of Inheritance Tax

C. Liability to Inheritance Tax

D. Valuation of Assets

E. Rate of Inheritance Tax

F. Gifts with Reservation

G. Pre-owned Assets

H. Reliefs

I. Double Taxation Relief

J. "Close" Companies

K. Settled Property

XIII. Inter-Company Princing

A. Introduction

B. Basic Rule

C. Special Rules for Securities

D. Loan Guarantees

E. Meaning of Certain Terms

1. Organisation for Economic Cooperation and Development Principles

2. Transaction and Series of Transactions

3. Participation in Management, Control or Capital of Person

a. Direct Participation

b. Indirect Participation

4. Advantage in Relation to United Kingdom Taxation

a. General Position

b. United Kingdom to United Kingdom Exception

c. Small and Medium-Sized Enterprise Exemption

d. Dormant Companies Exemption

F. Elimination of Double Counting

G. Securitizations

H. Oil

I. Capital Allowances, Capital Gains, Foreign Exchange Gains and Losses, Financial Instruments

J. Self-Assessment and Appeals

K. Arm's Length Provision

1. Transaction Based Methods

a. Comparable Uncontrolled Price Method

b. Resale Price Method

c. Cost Plus Method

2. Transactional Profit Methods

a. Profit Split Method

b. Transactional Net Margin Method

L. Double Taxation Agreements

1. Adjustment Provisions

2. Economic Double Taxation

M. Advance Pricing Agreements

XIV. Controlled Foreign Ccompanies

A. Legislation

B. Definition of Controlled Foreign Company

1. Residence

2. Control

3. Lower Level of Taxation

C. Charge to Tax

D. Exceptions

1. Acceptable Distribution Policy

2. Exempt Activities

3. Public Quotation

4. De Minimis Exemption

5. Excluded Countries

6. Motive Test

E. Self-Assessment

F. Insurance and Life Assurance

XV. Avoidance of Double Taxation

A. General

B. Computation of Double Taxation Relief

C. Specific Relief for Companies

D. Reliefs for Non-United Kingdom Residents

E. 2001 United Kingdom-United States Tax Treaty

1. General

2. Business Profits Attributable to Enterprise Carried on Through Permanent Establishment

3. Dividend Income

4. Interest and Royalties

5. Conduit Arrangements

6. Income from Employment

7. Limitation on Benefits

8. Fiscal Transparency

9. Other Changes


Working Papers

Table of Worksheets


Worksheet 1 Companies (Tables A to F) Regulations 1985 (SI 1985 1805) Table A -Regulations for Management of a Company Limited by Shares

Worksheet 2 Company Tax Return, Form CT600 *

Worksheet 3 Company Tax Return Guide *

Worksheet 4 Form CT61 Return and CT61 Notes, Return of Company Payments and Interest; "Notes to Help You Fill in Your CT61 Return." *

Worksheet 5 Form VAT 1, Application for Registration*

Worksheet 6 Form VAT 50, Application for VAT Group Treatment *

Worksheet 7 Form VAT 51, Application for VAT Group Treatment - Company Details *

Worksheet 8 Form 65, Application by a Business Person Established in the Community for Refund of Value Added Tax*

Worksheet 9 List of Comprehensive Double Taxation Agreements and Related Protocols Signed by the United Kingdom as of February 1, 2008

Worksheet 10 Table of Withholding Tax Rates as of February 1, 2008

Worksheet 11 2001 United Kingdom-United States Income Tax Treaty

Worksheet 12 2002 Protocol to 2001 United Kingdom-United States Income Tax Treaty

Worksheet 13 1978 United Kingdom-United States Estate and Gift Tax Treaty

Worksheet 14 Controlled Foreign Companies (Excluded Countries) Regulations 1998





General Tax

Capital Gains Tax

Corporation Tax

Customs Duties

Income Tax

Inheritance Tax

National Insurance Contributions

Stamp Duty

Value Added Tax