The Complete Guide to Growing Your Business Internationally. Part 4: Tax

Part 4 of our Guide to Growing Your Business Internationally looks at that most joyous of business responsibilities – Paying Tax.

It’s obvious that you must pay international taxes correctly, just as you do in the UK. But did you realise that tax should be something you think about while planning your business expansion.  Why? Because tax issues determine how overseas operations should be set up, product pricing, and how you manage your cash.

Here’s some of the basics you’ll need to explore.

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The Three Questions That Determine Your Tax

Paying taxes abroad can be pretty complex. And you can double that complexity if you manufacture goods, or are providing services, from the UK to another country as you’re liable for both the local market taxes and applicable UK taxes.

Even if you don’t manufacture or run a services business locally, if the funds are ending up back in Blighty, the tax man will take his cut.

Tax is loosely determined by how you answer the following three questions:

1)      Where do you manufacture and sell to: UK, EU, or outside the EU?

For trading purposes the European Union (EU) is a single market with no frontiers between the member states. This means that goods can move freely between them, only incurring formal customs costs when goods leave the EU. Goods leaving the UK but remaining in the EU are called ‘dispatches’ while goods going outside of the EU are called ‘exports’.

But the second dimension to location is whether you produce locally in the UK and then export those goods elsewhere – making you an ‘exporter’ – or manufacture within the foreign market you are trading in. Neither are good or bad, and both options will incur taxes, but there can be a dramatic difference in costs when you explore the tax implications of either scenario. (You need to be aware of this before finalising your distribution strategy.)

2)      What are you selling?

Quite simply, do you sell goods or services? There’s a different tax for that. (You can read more about the differences between providing goods and services here.) And then of course within goods and services taxes apply dependent on the type and class of those goods as well as the quantity sold.

3)      To whom are you selling?

Your last tax differentiator is based on who you sell to – Business-to-Business (B2B) or Business-to-Consumer (B2C)? If selling to Businesses there’ll most likely be some type of Value-Added Tax (VAT) to calculate. And if selling to consumers you’ll apply a Sales Tax at Point of Sale.

How to Learn The Basics of Tax

Luckily, within in the UK at least, the Government, UKTI, and HMRC are keen that you understand tax as much as possible (to ensure you pay what you are supposed to) and have created some really good guides to the process. Have a look at:

How to Approach International Tax

Even when you have educated yourself on some of the tax basics you’ll know by now that you need specialist advice on tax while planning your move into an overseas market. We’d recommend using a combination of some, or all, of the below:

  • UKTI
  • Your local tax advisor/accountant (even if they have no knowledge of the market you are going to be trading in they need to be aware of your plans and can advise on UK tax implications and what tax relief is available)
  • A specialist tax advisor with knowledge of trading in your chosen market
  • The local market tax regulatory body (i.e. their equivalent of HMRC)

At this point in time you may even choose to revisit your Distribution Strategy – and that’s OK! It’s better to know this stuff in advance than to start trading and find out your profits just don’t stack up once taxes are applied.

 

Video: How your lending helped a British accessories manufacturer sell their goods at Heathrow Airport

Owen Barry designs and manufactures clothing and accessories from the finest ethically sourced sheepskins and leathers from Britain and Europe. The business was started in 1948 in Street, Somerset by Owen Barry the father of the current owner, Cindi Barnstable. She rescued the family business from receivership in 1990 and has been running Owen Barry ever since.

Their goods are all designed and made in their factory in Somerset and are sold across the UK and the rest of the world in countries as far away as Japan and New Zealand.

In May 2012 they took out a peer-to-peer business loan through Funding Circle for £60k so they could move to a larger premises and cope with increasing demand.

Their loan was funded by 389 people in 7 days. In this video you’ll see some of the team at work, making quintessentially British garments and accessories, as well as hearing Cindi’s own experience of Funding Circle.

If you’d like to find out more about applying for a business loan through Funding Circle, visit our business page which will give you all of the information you need.

You can view our other case studies here.

Update to minimum bid rates and nearly 100 new loans. Weekly Lending Review: week 46

Week 46: 11 – 17 November 2013

It was the best week ever for the number and value of lending opportunities available to you: 98 business loans totalling £5.5 million were listed on the marketplace. The majority of loan applications came from London and the South East, and the most common loan purpose was for expansion and growth capital.

New loans

There were 98 new business loans listed last week and there are currently 60 auctions on the marketplace.

The total value of the new listed loans was £5,492,500; that’s an average of £56,046 per loan. The largest loan value was £160,000 and the smallest loan value was £5,000.

Business loans still available for bidding on for the next 3 days or more:

Weekly marketplace trends

These graphs show the most recent activity on the marketplace. The average gross yield graph is reported weekly and shows a rolling two week average. Number of loans, value of loans and secondary market are reported weekly. The dates on the graph should be read as ‘week beginning’, for example: 11-Nov represents the week of 11th- 17th November.

Weekly average gross yield (2 weeks rolling)

yield

Number of listed loans per week

number

Listed loan value per week

value

Update to minimum bid rates

We review the minimum bid rates in the middle of every month to decide whether they should be changed or kept the same. This month, the decision has been made to increase rates by 0.1% on the A, B and C risk bands. The new rates will come into effect for loan requests listed after 9am on Monday 2nd December. The new rates are as follows:

A+: 6% (no change)

A: 7.6% (+0.1%)

B: 8.6% (+ 0.1%)

C: 9.6% (+ 0.1%)

C-: 11.5% (no change)

News you should know

We updated our terms and conditions last week, to give us more flexibility when dealing with loans that are behind with their repayments.

Lakeland Picnic borrowed through the marketplace in September and we visited them in the Lake District where they make their delicious homemade burgers. We put together a picture story of their business story including a special message to the people who lent them money.

Community Discussions

This week we’re talking about tax on interest earned. You can join the discussion on our community forum.

Loans defaulted last week

Software development company. Loan 127

This Loughborough business has been trading since 2008 but failed to keep up with repayments and is now in liquidation. The original loan amount was £35,000 and all 319 investors have been notified.

Enjoy lending, The Funding Circle Team

 

Welcoming Luke Jooste to Funding Circle

As we’ve alluded to recently, it’s going to be a big twelve months at Funding Circle.

You may have read recently that Funding Circle raised $37million in October to invest partly in launching our US operation, but also to invest in expanding our UK offering into key opportunity areas, focussing mainly on expanding the types of loans we offer to our UK investors.

One such area is property finance and to help us define our offering, we are very pleased to welcome Luke Jooste to the team. Luke is a property finance specialist, bringing fifteen years of experience with him, and we’re really excited to have someone of his stature onboard with us.

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Before joining Funding Circle, Luke oversaw the commercial performance of Barclays Business as their Commercial Director, of which property is a major asset component.

We spent a few minutes with Luke to hear what drew him to Funding Circle.

What’s your background?

I’m always reluctant to say (only because it shows my age), but I’ve been in financial services for 18 years, 15 of which have been in property finance. I began my banking career in 1995 after being recruited from University by one of the large South African retail banks.

I moved over to the UK as an Associate Credit Director (Real Estate) with Barclays Corporate Bank in 2008, just as the credit crunch really took hold. It was an incredible learning experience for me as I got a huge amount of insight into the heart of credit risk in the UK real estate sector. After two years in that role I moved to Barclays Business Bank as UK Head of Real Estate Finance, and for the past 12 months I’ve been the Commercial Director of Barclays Business.

It’s been a difficult time for the UK banking sector but very valuable experience for me to have.  I’m now looking to bring that experience across to Funding Circle, so that we maximise opportunities while avoiding the mistakes of the past, and add real value for our borrowers and investors.

Why did Funding Circle appeal to you?

The emergence of peer-to-peer lending is probably the most exciting development in the UK financial sector at the moment. So being given the opportunity to develop a real estate finance proposition for the company that is pioneering the peer-to-peer lending movement is both an honour and a compliment for me.

It’s also incredibly exciting to move from a global corporate like Barclays to a smaller tech start-up company. I’m still struggling with not wearing a suit everyday and getting used to having table tennis in the office however! But most importantly it’s about the people. The team at Funding Circle are exceptionally talented and that was the most appealing aspect.

Why do you think it’s a good idea for Funding Circle to develop it’s property offer?

If Funding Circle is going to achieve its ambition of being a global peer-to-peer lending company, then it needs a full suite of funding product offerings. Property finance is at the core of any funding market. There is general consensus across the board that the UK real estate market is improving, and we must be able to service borrowers who need finance as well as investors that are looking to get into this popular asset class.

But we won’t be naive about how we do that and are very aware of the risks that this carries, particularly given the learnings from the 2008 property downturn. Just because it will be difficult however, doesn’t mean we shouldn’t do it.  In fact it means we should do it a lot better. As a peer-to-peer lender, Funding Circle doesn’t have the legacy in real estate finance that the banks do. I think this gives us a real advantage and look forward to enhancing lending opportunities for all of our investors.

Why now?

The timing is a combination of the natural growth path of Funding Circle, a recovering property market (based on a number of metrics, not just house prices), the continued shortage of credit in the market (especially t