In spite of the recent anti-political grumbles of its electorate, the UK remains one of the safest bets for individuals and companies looking to invest their money. A long-standing democracy with a highly respected legal system and a friendly attitude to new business, the country has come out of recession in a better state than most. That’s why the Chinese, for example, have invested twice as much in the country since 2012 as they had in the previous seven years.
Clifford Frank, Senior Partner at LEXeFISCAL in London, is used to guiding clients through the trickier elements of the UK’s tax and legal systems. He tells World Finance why Britain is the ideal place to invest and what potential investors should look out for.
Why should corporations invest in the UK?
To begin with, there is a very favourable tax regime for companies, with a 20 percent corporation tax starting rate for profits up to £300,000 ($469,992). Profits in excess of £1.5m ($2.35m) are taxed at 21 percent, but that’s being reduced to 20 percent from April 2015.
I believe the UK needs to be in the EU for the purpose of trade and for the ease of travel. Without the EU, ultimately, it will
be isolated
For companies with ring-fence profits (income and gains from oil extraction activities or oil rights in the UK and UK/continental shelf) these rates differ. The small profits rate of tax on those profits is 19 percent, and the ringfence fraction is 11/400 for financial years starting April 1st 2011, 2012, 2013 and 2014. The main rate for the aforementioned financial years is 30 percent. Indexation allowance allows for the effects of inflation when calculating the chargeable gains of companies or organisations, while in terms of personal taxation, the maximum rate for an individual is 45 percent, which can be minimised with correct planning.
With regards to the law, there’s a respected legal system, which is easy to understand, so disputes can be resolved without too many difficulties. Britain also has a well-educated workforce (60 percent of London’s workers are graduates), which means human resources are good. The infrastructure is great, too, so it’s easy to get around, and it’s well connected to the rest of the world through its air and rail hubs.
What else is there to look out for?
The UK has a large number of agreed international tax and investment treaties with the rest of the world, plus we’re a member of the ICSID, the World Bank arbitration agreement. Entrepreneurs are welcome here – setting up a company in the UK can be done in under three hours, while establishing a public limited company is straightforward too: the cost of establishment is £50,000 ($78,204) of which only £17,500 needs to be paid up before the company can commence trading.
Every country has difficulties for businesses to overcome: what are the UKs?
As you’d expect from such a well-established state, a lack of compliance can be a hazard. It may be customary in certain countries to pay an official in order to secure a contract, such as a contribution to build a hospital or school. If you come to the UK, unless law covers such payments, this could be construed as bribery, leaving the company and management liable to prosecution under the Bribery Act of 2010. This act has wide-reaching and serious consequences for companies operating with a connection to the UK.
There are strong laws regarding health and safety too, particularly in the construction industry where a lack of compliance can see you held responsible for accidents that happen on your site. This may see your company and its managing directors prosecuted under the Corporate Manslaughter Act.
Finally, the UK’s financial sector is highly regulated. It’s a criminal offence to offer investment advice here without authorisation – you could be in breach of the Financial Conduct Authority. If your company’s in financial difficulties and has to be liquidated, the corporate veil may be lifted, the limited liability protection removed and directors made liable for that debt. There are lots of traps out there, so guidance and advice is needed.
What sort of companies are made welcome in the UK at the moment?
At present, the UK is especially attractive to the film, television, IT and video-gaming sectors, as there are new rules in place that give special relief to encourage investment in these areas. Banking, as you’d expect, is always welcome too. The building industry isn’t as enticing because of proposed changes to the capital gains tax regime. At present, non-residents currently enjoy tax-free capital gains when they dispose of UK-sited properties, but this will change from April 2015. In my opinion, this will hurt the UK property sector.
Is the UK is a flexible location for investors?
Yes, it could be seen as one of the best tax havens in the world. I’ve already mentioned the 20 percent corporate tax rate, the maximum 45 percent personal tax rate and the various exemptions from capital gains tax. But there’s more for the canny investor.
The UK has entrepreneurs’ relief with a lifetime exemption, whereby capital gains on the disposal of qualifying business assets, including shares, are taxed at just 10 percent, up to £10m ($15.65m). Moreover, inheritance tax can be avoided with correct planning, too, and profits remitted to the UK from subsidiaries are not subject to further taxation, as long as qualifying conditions are satisfied. These are just a few examples that make establishing a business in the UK so attractive.
The anti-EU party UKIP is a growing presence in the UK’s political scene. What would happen if the UK left the EU?
In my opinion, the UK will not leave the EU, despite the recent success of UKIP. The UK can survive without the EU, but if it does leave, further barriers will be put up against British firms as they try to export to the continent. On its own, the UK simply isn’t a vibrant enough market.
Quitting the EU would also mean the cost of doing business would be pushed up, but on the other hand, the UK would be free to maintain its fiscal polices which could further improve its status as a favourable tax haven. However, I believe the UK needs to be in the EU for the purpose of trade and for the ease of travel. Without the EU, ultimately, it will be isolated.
Do international companies get a good deal in the UK?
Absolutely. For example, if a person has a UK company with a subsidiary in Singapore, it trades there and pays tax at 17 percent in that country – three percent less than the UK. Those profits can be repatriated back to the UK without any additional tax charge at the UK end.
The key in the UK, like any other country, is preparation. If you plan properly and use the legislation correctly, keeping track of your tax affairs can be simple.
What makes LEXeFISCAL different to its competitors?
LEXeFISCAL is a niche, boutique organisation – a one-stop shop. We’re able to offer our clients tax, legal and corporate planning in one place.
Following numerous legal challenges experienced by the Big Four consulting firms (plus the demise of Arthur Anderson and rise of Accenture) that highlighted the conflict of interest between audit and tax departments, clients want to separate their advisors. LEXeFISCAL is leading the way as a firm focusing on tax and legal advice.
By providing a combined tax and legal service we’re able to serve domestic and international clients, established in the UK, with the legal advice needed to do business here (except conveyancing or criminal defence).
Without wanting to sound morbid, we also try to get our clients to recognise that accidents can happen at any time: it may not even be a death, it could be loss of capacity. Our key clients have in place lasting power of attorney that will enable their appointed attorney to manage their business or health affairs, avoiding a meltdown. We look at the client’s position today, but also at what could happen to them in the future. It’s a life-long service.
Your headquarters are in Berkeley Square in Mayfair – how does this reflect your business values?
Indeed, we’re based in one of the most exclusive parts of London because we deal with clients who appreciate quality, service and price. Our location reflects this. We’re happy to deal with clients of every size, not just large companies. We believe that LEXeFISCAL alleviates the burden of doing business in a world littered with laws, especially tax laws. And that affects everyone, no matter how much they’re worth. Always remember that every taxpayer has a right to organise his or her affairs in the manner that results in the smallest tax burden.
