The UK LTD (Limited Company) is a business structure, available in parts of the UK, that is both tax and cost efficient, and offers interesting benefits to both UK based and foreign businesses. In this guide, I provide an overview and detail how registration, maintenance, taxation and banking works.
The United Kingdom is, as its name implies, a union. It has four constituent nations: England, Scotland, Wales and Northern Ireland. England and Wales are the subject of our focus today, and more specifically their shared LTD structure. Just to clarify, England and Wales share the same business registry while Scotland and Northern Ireland operate their own separate registry.
The UK LTD is essentially a standard corporation, managed by directors on behalf of shareholders, with a separate fiscal personality. It offers excellent liability protection to its owners and great structural flexibility.
Because it has a separate fiscal personality, a UK LTD is directly liable to tax, instead of its owners being liable for their share of the profits as is the norm for tax transparent entities such as the UK LLP.
To better illustrate how this works, here are a few examples:
UK LTD + UK resident owner
In such a scenario, the UK LTD will always be considered resident for tax purposes. Its profits will thus be taxed at the normal corporate tax rate of 19%. It will also have to register for VAT once the 85000 GBP annual sales threshold has been reached (although there are exceptions). Dividends paid to the UK resident owner will be tax-free until the annual allowance has been reached and then taxed at a rate determined by the resident’s income tax bracket. In most cases, UK resident owners use a mix of dividends, salary payments and loans to extract money from their business as efficiently as possible.
UK LTD + non-resident owner
In such a scenario, the UK LTD will not usually be considered resident for tax purposes. Instead, it will be considered resident for tax purposes in the country where its owner reside (place management rules). The exact term is treat non-resident and as the name implies the country where the UK LTD operates from must have a tax treaty in effect with the UK. It will be taxed in the UK at the rate of 19% on any income generated in the UK and in its country of residency on income generated elsewhere. Similarly to a resident LTD, it will only have to register for VAT once the 85000 GBP threshold has been reached (exceptions exist, only UK VAT liable sales count towards the threshold). Dividends paid to the non-resident owner are not usually subject to any withholding taxes in the UK but may be taxed elsewhere (such as the country where they are received).
Compliance-wise, the burden imposed on a UK LTD is fairly reasonable, especially by European standards. Residents must file an annual return with HMRC while non-residents only have to do so if they have taxable income in the UK. VAT is paid on a quarterly basis, via the one-stop-shop. Annual accounts and a confirmation statement must be filed with Companies House regardless of residency status.
Register a UK LTD with Freedom Surfer
Freedom Surfer’s business registration service is the most efficient way to start and run your online business, built entirely with location independence in mind. Our UK LTD registration package includes all government fees, a local mailing address (for use as the registered and mailing address) with mail scanning and forwarding, the UTR application, all necessary UK filings (including CT600 if applicable) and an Insiders Club membership (a discount is available if you are already a member). Click here to learn more and place your order.