If your small business is moving to the UK or you are a US citizen looking to set up a new company, there are several tax implications that you should consider. Specifically, creative industry businesses have a favourable tax treatment in the UK, with advantages that most US citizens are probably unfamiliar with.
Creative Industry Tax Reliefs for US businesses in the UK
The UK has a tax law known as the creative industry tax reliefs, which allows certain small businesses to deduct additional expenditures from their taxable income. In order to qualify, the business must be directly involved in the production of one of the following: film, animated TV, children’s TV, video games, theatre, orchestra, or museums. If the company qualifies, they may claim an additional deduction of 100% of “enhanced expenditure”. Enhanced expenditure is calculated as the lesser of the company’s UK expenses or 80% of expenses across Europe. The point of all this is that the HMRC is providing a massive tax incentive for people to start creative industry businesses, and anyone who does so should take advantage. Visit the HMRC website to see if your business qualifies for this type of relief.
Differences in Corporate Tax Laws between US and UK
Additionally, companies moving from the US to the UK must consider differences in the corporate tax laws between the two countries. Before 2018, the US corporate tax rate was nearly double that of the UK, with stateside businesses paying a top rate of 39% compared to 20% in the UK. After the passage of the new US tax cuts in December 2017, the corporate rate has been reduced to 21%. Therefore, the tax advantage of moving a business to the UK is much less significant. On top of that, the UK has fewer allowable deductions than the US. For example, they do not allow for the cost recovery of buildings while the US does, which causes taxable income to be must higher.
Be sure to consider all of the possible tax implications if you are looking to set up a business in the UK. If you are a company that qualifies for the creative industry relief, you may end up paying far less tax than you would in the US. However, if your business does not qualify, fewer allowable deductions may result in the company paying slightly more tax. Talk to an accountant or conduct your own research to figure out the best tax planning for your business.
Contact us for expert US tax advice
As a US citizen you have many tax obligations, such as reporting all foreign income and filing a federal tax return. We are regularly contacted by US expatriates based across the globe that are considering renouncing their citizenship. When you renounce your citizenship you are no longer expected to declare your worldwide income to the IRS. However, there are a number of reasons why renouncing your citizenship is not always the best decision as a US expatriate.