Doing business in The United Kingdom
How quickly can I set up a business?
A business can be set up within a very short space of time.
If you are setting up a limited company or a limited liability partnership (LLP) then these entities will need to be registered with Companies House which can take between 24-48 hours. You will then be provided with the incorporation certificate which can be used to open a UK bank account.
If you wish to register a branch of an overseas company, in the UK, it will be necessary to register with Companies House as an overseas entity, even though the branch is not regarded as separate legal entity. This will be a longer process than opening a UK company or LLP as Companies House will need a completed form, copies of the overseas company’s constitutional documents and a copy of the latest accounts (in English). The set up will need some human involvement which, inevitably, delays the registration.
If you wish to register as a sole trader or ‘simple’ partnership, then you can begin straightaway as long as you notify the UK tax authorities within three months of the business starting. Again, you will need a bank account but you should be able to organise setting up a business account, in advance of starting to trade.
What is the minimum investment needed?
You can set up a UK company with a very minimal share capital, even as low as 1 pence. The normal amount is £100 however, there may be tax advantages in relation to creating a larger share capital or there may be a requirement of external investors or funders for the company to have a larger share capital.
Similarly, there is no minimum requirement in relation to a sole trader or partnership. Again, funders or external investors may require a personal guarantee if they are to lend to such businesses.
How can I raise finance?
Most overseas companies wishing to trade in the UK will need a UK bank account to conduct its business. It is not a legal requirement but for practical reasons it makes sense to have a locally based account. This can be a challenging and time-consuming process because banks are required to comply with strict anti-money laundering regulations as well as complete ‘Know Your Customer’ checks before opening an account.
Once an account is open you will have access to a wide range of finance options that can be tailored to meet your funding needs. These include:
Working Capital – generally provided by way of an Invoice Finance Line which provides a pre-finance facility against a percentage of outstanding invoice (receivables) values, typically up to 80%. In certain circumstances funding can also be provided against inventory. The funded assets provide security for the loan.
Asset Finance – allows businesses to buy essential vehicles and equipment without feeling the weight of an outright purchase. Typically, a deposit of 10% is required and the remainder of the purchase price is advanced over a term up to 5 years. The asset provides security for the loan.
Commercial Mortgages – allows businesses to purchase and own their trading premises thereby removing the constraints of renting. Borrowing can be taken over a term up to 25 years up to a level of 75% of the purchase price or valuation (whichever is the lower). The property provides security for the loan.
Trade Finance – financial products to support and facilitate international trade. Trade Finance supports transactions to remove the payment risk and supply risk, by using the shipment or trade of goods as collateral for financing e.g. Letters of Credit, Bonds & Guarantees etc.
What are the legal requirements for setting up my business?
When you start a trading business in the UK you must operate through a trading structure.
The following types of structure are commonly used:
• sole trader
• branch of an overseas company
There are different variations of partnerships:
• Conventional partnership
• Limited partnership
• Scottish Limited Partnership
• Limited Liability Partnership (LLP)
There are different types of company:
• Private company
o Limited by shares.
o Limited by guarantee.
o Unlimited Company
• Public company.
Business vehicles can also combine to operate together as joint ventures, partnerships, companies and groups of different combinations of these.
What structure should I consider?
If UK businesses are trading with an overseas country, they can consider whether to ring fence this part of their business through a new UK subsidiary.
If a permanent establishment is to be created in an overseas country, then structuring can be argued to become of even more importance.
There are many considerations for businesses looking to trade overseas. Companies should not overlook the broader commercial considerations such as the importance of existing business relationships and networks but tax is also a consideration.
There are often significant differences between operating as a subsidiary or a branch, and the pros and cons of each should be carefully considered.
What advice can you give me in regards to payroll and taxation requirements?
There are many considerations, employment rights and protections that a business needs to have in focus when doing business in the UK.
There are also financial penalties where legal obligations are not adhered to, so careful attention should be paid to the payroll, taxes and employment status rules when employing people.
Setting up as a new employer
All employers must notify HMRC and set-up a PAYE (pay as you earn) scheme, even if there is only one employee (though this can be outsourced to a payroll services provider that some Kreston firms can offer)
A new PAYE scheme can be set up via the New Employer’s Helpline on 0300 200 3211, or by registering online on the GOV.UK website.
Check out Employing staff for the first time – GOV.UK (www.gov.uk).
As an employer, you will be responsible for operating PAYE and calculating income tax and National Insurance Contributions (NICs). There are also certain statutory payments you may have to make from time to time, such as statutory sick pay (SSP) and statutory maternity pay (SMP).
A vast amount of information is available on the GOV.UK website regarding the operation of PAYE, together with online calculators. These can be accessed as part of the HMRC Basic PAYE tools at www.gov.uk/business-tax/paye.
Paying your employees
The minimum amount that you must pay workers in the UK is determined by the National Minimum Wage and the National Living Wage regulations. The National Minimum Wage has various categories based on age, and the rates change on 1 April every year. Details can be found at www.gov.uk/national-minimum-wage-rates
Real Time Information (RTI) reporting
Employers, or their payroll services provider, need to make regular and timely online payroll submissions to HMRC for each pay period during the year, detailing payments and deductions made from employees’ pay on or before the date they are paid.
More detailed guidance and information on operating your payroll under RTI can be found at www.gov.uk/paye-for-employers.
By using the calculators provided on HMRC’s website, or using equivalent commercial software, payroll taxes and NICs can be computed for each employee.
Taxes and NICs due are calculated by reference to an employee’s gross pay in accordance with their individual notice of coding provided by HMRC.
Tax is generally calculated on a cumulative basis, looking at the individual’s circumstances for the tax year to date.
Individual income tax rates depend on the level of salary. Details of current income tax rate bands can be found on the Government’s website: www.gov.uk/income-tax-rates
NICs are payable by the employee and the employer on the employee’s gross pay for a particular tax week or month and are calculated on a non-cumulative basis. The NICs can be calculated using the HMRC Basic PAYE tools, or equivalent commercial software.
These taxes and NICs should be paid to HMRC by the 19th of the month following the pay. Tax months run from the 6th to the 5th of the following month, so if an employee were paid on 25 July (tax month being 6 July to 5 August) the tax and NICs would need to be paid to HMRC by 19 August.
Any employer can pay electronically if they wish, taking advantage of the cleared electronic payment date of 22nd as opposed to the usual 19th.
Employers whose average monthly payments are less than £1,500 can pay HMRC quarterly rather than monthly.
Large employers, with more than 250 employees, must pay tax and other deductions electronically.
When a new employee starts, HMRC needs to be advised. Some of the information necessary to do this may be obtained from the form P45 document that an employee will have received from their previous job.
Employing a foreign national to work in the UK.
For companies operating in the UK, their human resource requirement may mean recruiting or assigning individuals from overseas.
Employers are under a legal duty to check that the individual has the right to work in the UK and the necessary documentation is in place prior to employment commencing. Certain Worker Visas may require the employer to hold a Sponsorship License.
UK employers must account for PAYE and NIC deductions from all employees, whether UK or foreign nationals.
For expatriate assignees who may not physically be paid in the UK, an expatriate payroll may need to be administered to ensure the correct UK withholding taxes are paid across to HMRC on a timely basis. Certain foreign nationals working in the UK may not initially be liable to UK NICs.
Tax rates on employment income can differ widely from country to county, meaning a foreign national may be exposed to a greater or lesser tax burden on their remuneration package when coming to work in the UK.
If an employee continues to work in their home country as well as the UK, they may be liable to tax in both countries.
There are wide ranging tax implications for individuals working in the UK, so seeking professional advice early on can ensure compliance with the rules.
IR35 – Off Payroll Working
Special care and attention should be paid by employers to the off payroll working rules which were introduced for the private sector in April 2021.
These rules apply where contractors provide their services through their own limited company or via another intermediary (such as a partnership or another individual). The engager is under an obligation to assess the contractor’s employment status for tax purposes.
This is to prevent what HMRC regards as disguised employment, where the contractor is an employee in all but name. Falling within the off-payroll rules means the contractor should be paid as an employee via the payroll. However, it does not necessarily follow that this gives the contractor any employment rights.
In the UK this is an evolving area, particularly in the so-called gig economy sector, and advice should be sought.
Prior to April 2021, the, the onus was on the contractor to determine whether they were an employee or not for tax purposes.
Financial penalties can be imposed on employers who incorrectly classify any contractors they engage.
Automatic enrolment in the UK places duties on employers to automatically enroll workers into a work-based pension scheme (though employees may then choose to opt out). Employers must also contribute towards these pensions.
Eligibility for auto enrolment is based on the assessment of ‘worker’ status and other eligibility criteria, although typically auto-enrolment pensions apply to employees aged 22 or over earning a minimum of just under £10,000 a year from that employment.
Other employment considerations
There is a whole host of other legal and employment issues to consider, including employment contracts, statutory rights to paid leave, maternity and paternity pay.
As there is the danger of financial penalties for non-compliance with the various rules, seeking professional advice early on when employing people in the UK is always recommended.
Tax – Regulatory & Reporting
The UK tax system generally encourages overseas inward investment;
• Both UK Companies and Permanent Establishments, (Branches) are subject to UK corporation tax. The top rate of corporate tax in the UK is currently 19%, one of the lowest tax rates amongst the UK’s core competitors. Tax rates are set to increase to 25% in April 2023 but companies with lower profits should still be able to access lower rates
• Incentives for investment in capital expenditure.
• Generous grants and tax reliefs for expenditure on R&D together with a lower rate of corporation tax, (currently 10%) for profits that fall within the UK Patent Box
• Corporation tax returns are required for each accounting period of a company and must be filed within 12 months of the accounting period end date.
• Most companies pay their corporation tax nine months after the accounting period end date – although companies and groups with larger profits may have to pay tax earlier by quarterly instalments.
• Extensive double tax treaty network
• Good holding company location. Dividends received by UK companies are mostly exempt from UK tax and It is generally possible to sell shares in trading companies without paying UK corporation tax
• No withholding tax on dividends paid. Reduced withholding tax rates on interest and royalties
• The UK generally follows the OECD Guidelines on transfer pricing – although SME’s exempt from some of the more onerous requirements.
Value added tax (VAT)
• The UK operates VAT and businesses (resident companies and overseas companies who have businesses established in the UK), who make supplies (sales) over the VAT threshold (currently £85k) must register.
• A UK VAT registered business must charge and account for VAT, currently at the rate of 20%, on its taxable supplies. It is usually possible, however, to offset any VAT incurred on expenses that relate to business purchases.
• VAT returns must be completed electronically at agreed intervals, usually every three months – although sometimes monthly. Payments must also be made electronically.
• Some goods imported into the UK are subject to Custom Duties. Since Brexit the UK is able to drift away from the EU Common Customs Tariff.
• The UK social security tax is known as national insurance (“NI”). NI contributions have to be paid by the workforce as a deduction from their gross salary (“employees NI”), and by employers (“employers NI”).
• The current rate of employers NI is currently 13.8% over a given threshold, (approximately £8.8k per individual). Businesses can be exempt from the first £4k per annum (maximum) of this liability.
• Employers have an obligation to collect NI, together with UK income tax, and pay the amounts over to the tax authorities. Most companies operate a monthly payroll.
• Where a business brings staff to the UK from overseas, they may be able to stay in their home country system.
Taxes on Individuals
• UK income tax is charged at graduated rates. Broadly the basic rate income tax is 20%, rising to 40% for income over circa £50k and 45% for income over circa £150k.
• Capital gains tax rate is currently 20%, although the rate can reduce for some business investments if strict criteria are met or for taxpayers on lower incomes. Gains on residential property which is not the taxpayers principle place of residence are taxed at 28%.
• If an individual is resident in the UK they will be taxed on worldwide income and gains. In some cases UK non-domiciled individuals may elect only be taxed on foreign income and gains remitted to the UK.
Our firms in The United Kingdom
- Bishop Fleming
- Clive Owen
- Consilium Chartered Accountants
- Duncan & Toplis
- EQ Accountants
- Horsfield & Smith
- James Cowper Kreston
- Kreston Reeves
- Mitchell Charlesworth
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