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There are many advantages to setting up a UK business, whether you’re expanding your company overseas or beginning a new venture. The many benefits include having access to a large talent pool and various financial incentives. The UK also ranked eighth on the list of countries for ease of business in The World Bank’s Doing Business 2020 study.
However, when setting up an office or branch in Great Britain, there are various stipulations you should meet to avoid legality issues and maximise your company’s success. From meeting tax requirements to following health and safety regulations, read on to determine the key factors to consider when forming a UK business.
Registering your UK business
To register a company as a separate legal entity in the UK, the following types of legal structures are most popular:
- Sole Trader: You run your business as an individual and are classed as self-employed. Registering with Companies House isn’t required, but you should notify HMRC as you’ll need to fill out self-assessment tax returns. You’ll also need to apply for a National Insurance number. While there are fewer regulations to uphold, the risk is greater, as you’ll be personally responsible for all debts and legal actions.
- Partnership: Two or more individuals run the business and share the risks, costs, benefits, and accounting responsibilities.
- Limited by shares: These businesses are privately managed and owned by directors and shareholders. The company is legally and financially separate from those who own it. The company retains any profits made after tax, which can then be divided and distributed to the shareholders. Limited companies must be registered at and have reporting and filing requirements with Companies House and HMRC.
- Limited by guarantee: Usually not-for-profit companies such as charities, clubs, or societies.
Alternatively, you can register a UK branch of an overseas company, so your company can do business in the UK without creating a separate legal entity. The overseas parent company will maintain full responsibility for its finances, operations, and legal requirements. However, compared to registering as a limited company, the process takes longer, and you won’t have access to the same liability benefits.
To determine which option is most suitable for your company, seek advice from a professional such as a solicitor or accountant.
Health and safety duties
The Health and Safety at Work Act 1974 (HSWA) is the primary piece of legislation in Great Britain that sets out the health and safety measures businesses must put in place. It stipulates employers’ general duties towards employees and members of the public, and employees have to themselves and each other.
To ensure your business meets this regulation, the Health and Safety Consultancy, Arinite, can assist in the planning, assessing, and managing health and safety procedures for UK and international businesses.
If your new UK branch has five or more staff, you’ll be legally required to appoint a health and safety competent person. You can select yourself, an existing employee, or work with a third-party company, such as Arinite, to take on this responsibility.
Corporation Tax
All limited companies must pay corporation tax on profits, but there are many factors involved to determine whether a foreign company is liable to pay it. However, according to HMRC, a company that isn’t resident in the UK must pay corporation tax if it has a permanent UK establishment and/or the economic activity that generates its profits is carried out in the UK.
The corporation tax rate for company profits is currently set at 19% but will increase by 25% from 2023. However, businesses with profits of £50K or less will still be taxed by 19% under the Small Profits Rate. The Government has also announced that eight freeports, where goods in transit are exempt from customs duty, will be created.
There are several responsibilities your company must meet to avoid Corporation Tax penalties, such as:
- registering for corporation tax
- keeping accounting records
- registering for VAT if the VAT-taxable sales turnover exceeds £85,000 over 12 months
- filing your company tax return
For further guidance on whether your company is liable to pay Corporation Tax, seek help from a taxation expert.
Employment law
If you’re hiring a team of employees to work from the UK branch or office, there are specific legal regulations you’ll need to meet.
Minimum pay rates
The wages you offer employees must meet the statutory minimum wage requirements, which vary depending on age.
As of April 2021, the national minimum wage rate will vary from £4.62 to £8.36 per hour across different age groups, ranging from school leaving age to 22 years old. The national living wage hourly rate will rise to £8.91 and apply to workers aged 23 and above, instead of 25 as it is currently set. The apprentice rate will change to £4.30 as well.
The London living wage is currently an hourly rate of £10.85, which is voluntary but realistically portrays the cost of living in this city.
Annual leave
Full-time employees are entitled to 28 days of paid annual leave per year in the UK, while part-time workers are eligible for 5.6 weeks paid holiday but in proportion to their working hours.
Income Tax
Employers must enrol employees into a workplace pension scheme and make contributions. Workers between 22 years old and the State Pension age, who usually work in the UK, earn at least £10K, and aren’t already in a suitable workplace pension scheme, are eligible for automatic enrolment.
You must register employees into the PAYE scheme, a system that collects Income Tax and National Insurance. Employees must also show they have the right to work in the UK with documentation such as a passport or national identity card.
Financial implications
After researching to determine if it’s financially viable to set up a UK branch or office, you’ll need to consider the expense of starting and running it.
Contemplate whether it’ll be more cost-effective to rent or buy office space for your UK branch or business. Many serviced office companies such as Regus, WeWork, and The Office Group can find business’ flexible and suitable workspaces.
Once you’ve found your space, you may need to pay for furniture, equipment, utilities, and branding to ensure it functions efficiently and has the desired aesthetic.
You’ll also need to pay for insurance to protect your business from hefty fines. Employers’ Liability insurance is legally required as soon as you become an employer. There are many other types of business insurance you may need, such as business property coverage.
Setting up a UK business bank account will ensure your company can send and receive payments in the UK without incurring foreign exchange fees.
For further guidance on the responsibilities of setting up a branch or business in the UK, speak to a professional legal or financial advisor.
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