Five Business Tax Differences Between the UK and the U.S.

Social media giant Facebook is set to incur further criticism for its tax avoidance techniques, after it was revealed that the firm will not pay UK corporation tax for the second year in a row. In the past, it has argued that it always meets the tax rules of every country it operates in.

That is a view echoed by many other global firms, while a number of other US firms have re-domiciled overseas to benefit from more efficient tax rules. These are the five most important tax differences between the UK and the U.S.

1. Corporate Tax

Presently in the United Kingdom, the top corporation tax rate for firms based here is 20% to 21%. Being set according to company size, employee levels and the profits put through the accounts each fiscal year, a professional team of accountants ensures compliance and liability efficiencies, while also checking that all available relief options and allowances are claimed for.

In the United States, there is an upper corporation tax rate of 35%, considerably higher than in the UK. This helps explain why many firms have upped sticks and relocated in the UK recently. Levels are naturally lower for SMEs, but it is important to understand vagaries with the help of expert international accountancy teams.

2. Local Taxes

As with the UK, business rates vary from town to city and from county and region, much the same as in the United States. While experts in the matter will ensure dues are paid on time and as necessary, the same is true for the U.S. with a further corporation tax of anything up to 10% also able to be attached to firms at a state and city level.

3. Employee Taxes

Another fundamental part of running any company with more than one employee is to properly file and pay all payroll or employee taxes due. Calculated against the salary paid to the individual, both the staff member and the firm they work for are liable to pay.

In the U.S., payroll tax is paid at a federal level. A complex annual and quarterly system, local expert help is always advised. Less complex but still requiring robust accounting, most taxes for staff at a company level are covered by pay as you earn (PAYE) National Insurance payment.

4. Value Added Tax

Another large tax in both the UK and the U.S is VAT, or goods and services tax (GST). Levelled on most purchases in the UK, this is not a charge in the U.S. However, most American states do apply a sales charge which works in a similar fashion.

5. Customs & Excise Duties

One of the key areas for tax collection for governments is from customs and excise. Excise taxation is applicable inland throughout the manufacture and sale process of goods within the country of produce. Customs, meanwhile, are taxes applied on the on importation of goods for sale in one country from another territory.

Another complex set of tax rules applies to customs and excise, with considerably more than five SME tax differences between the UK and the U.S in operation. Dependent on what is being sold or imported, in what quantity and to what geo area, expertise in accounting is fundamental.

Andrew Mault’s passion for accountancy and desire to broaden its horizons led him to set up Sollertia – a provider of innovative outsourced accountancy solutions with clients from all over the UK and parts of Europe.