UK Law and Practice Contributed by: Paolo Palmigiano, Rachael Roberts, Helen Farr, Debbie Heywood and Louise Popple, Taylor Wessing LLP
The UK has implemented the Pillar 2 Income Inclusion Rule for accounting periods commenc - ing on or after 31 December 2023, known as multinational top-up tax (MTT). It has also intro - duced a qualifying domestic top-up tax from the same date. The undertaxed profits rule was introduced with effect from 31 December 2024. The UK imposes withholding tax on UK-source interest, royalties and certain other payments of a recurrent nature (“annual payments”) at a rate of 20%. There is no withholding tax on dividends, except dividends paid by companies within the real estate investment trust regime. Withhold - ing tax liabilities may be reduced or eliminated under the UK’s double tax treaties, and certain additional reliefs apply under domestic law with respect to withholding tax on interest. Companies with a UK establishment are obliged to register for VAT and to charge VAT on tax - able supplies of goods and services if the value of its taxable supplies exceeds the VAT regis - tration threshold (currently GBP90,000). Non- established persons are liable to register if they make any taxable supplies in the UK. 5.3 Available Tax Credits/Incentives The UK offers an “above the line” credit for expenditure on research and development, which was subject to significant reform with effect from 1 April 2024. The amount of the credit is 20% of the qualifying expenditure, which is itself subject to corporation tax in the hands of the recipient, subject to a cap in many cases at three times the amount of the company’s PAYE and NIC liabilities for the accounting period plus GBP20,000. The former super-deduction regime for SMEs has been retained for loss-making, R&D-inten - sive SMEs. This provides an enhanced 186%
deduction for qualifying R&D expenditure, which may be surrendered in exchange for a repayable tax credit amounting to 14.5% of the surrender - able loss. A number of similar reliefs are available for com - panies in the creative sector. An elective patent box regime applies for profits from qualifying patents, resulting in an effective tax rate of 10% on qualifying profits. 5.4 Tax Consolidation The UK does not have a consolidation regime for corporation tax purposes. However, the group relief rules enable companies that are members of the same group to make and surrender losses to one another. Broadly, companies are mem - bers of the same group for this purpose if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company (which need not be a UK company). Both current and carried- forward losses arising on or after 1 April 2017 may be subject to group relief surrenders. The transfer of capital assets (including intangi - ble fixed assets and loan relationships) between group companies will generally be viewed for tax purposes as taking place on a no-gain/no-loss basis, although the gain that would otherwise have been taxable on the intra-group transfer may be brought back into charge by way of a “degrouping charge” if the transferee company leaves the group within the next six years. A company that disposes of an asset outside the group may elect for the gain to be reallocated to another group company (such as a company that has losses that can be used to offset the gain). For VAT purposes, companies may elect to reg - ister as a group where one controls the other
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