Setting up your Business in the UK – What do you need to consider?

Britain is one of the world’s leading locations for global investment, thanks in part to its competitive tax regime, in particular low corporation tax. If you’re thinking of starting a business in the UK, here are some things you need to know.

When do I need to register my UK business?

An overseas company is required to register in the UK when it has a physical presence here, such as an office or factory. To register, you will need to submit an OS IN01 form to Companies House and pay the £20 registration fee.

What type of business should I set up?

The two main options are: an establishment or branch, which means you’re creating a branch of your overseas business; or a limited company or subsidiary, which means you have created a UK company. A limited company is legally separate from its overseas parent, whereas an establishment isn’t.

A limited company is legally separate from the people who own and run it; they are not legally responsible for the company’s debts and liabilities beyond the amount of capital they have invested. Generally, a limited company will require more admin and compliance time and costs than an establishment.

In both cases, your profits will be liable for UK corporation tax and you will have to file public accounts at Companies House – parent company accounts in the case of an establishment, and UK accounts in the case of a limited company.

A variation on the limited company theme is the limited liability partnership, where the partners personally pay income tax on the profits.

How much is UK corporation tax?

Corporation tax in the UK is 19 per cent for the tax year to March 31, 2019, for companies of all sizes. This will decrease to 17 per cent from April 2020.

Transfer pricing

The UK follows internationally recognised rules on transfer pricing (the prices charged in transactions between two parties). These state that cross-border trade and financial transactions between affiliated entities have to be conducted on an arm’s length basis – meaning the prices and terms should be the same as if the transactions were between independent parties.

Small and medium-sized businesses – those with no more than 250 employees, and either an annual turnover of less than €50 million or a balance sheet total of less than €43 million – are generally exempt from these rules.

How much is income tax in the UK?

The first £11,850 you earn every year in the UK is exempt from tax. You’ll pay tax on your earnings above this amount as follows:

Up to £34,500: 20 per cent

Between £34,501 to £150,000: 40 per cent

More than £150,000: 45 per cent

Both the employee and the employer also have to make UK national insurance (social security) contributions on the employee’s earnings above £8,424.

For the employee, this is 12 per cent of everything you earn over this amount, and 2 per cent of everything you earn over £46,384. For the employer, it’s 13.8 per cent of all the employee’s earnings over £8,424.

It is the employer’s responsibility to pay employees’ PAYE tax and national insurance contributions.

The UK has a reciprocal agreement with the USA, EU countries and many others, under which nationals of those countries who are seconded to the UK and continue to pay social security in their home country do not pay UK national insurance.

And that’s just the tip of the iceberg – there’s plenty more you’ll need to know when you set up a business in the UK, and it’s our experience that it’s a good idea for anyone doing so to get professional advice. Our three specialist financial advisors and tax accountants in this area – Charlie Goss, Chris Page and David Page – have almost three decades of experience between them and can tackle anything you throw at them. Just give them a call at our Kent office on 01580 313108.