COUNTRY

The United Kingdom forms part of the British Isles, a group of islands situated in the north-west of Europe. Officially called the United Kingdom of Great Britain and Northern Ireland, the three jurisdictions that make up “Great Britain” are England, Scotland and Wales.

The UK population is estimated to be just over 63m in 2012. The main language is English, although around a quarter of the population of Wales speaks Welsh, and Gaelic is spoken by some 60,000 Scots.

The UK government consists of a constitutional monarchy and a bicameral parliament, the House of Commons and the House of Lords. The current head of church, state and the Commonwealth (which is made up of former British colonies) is Queen Elizabeth II.

Members of the House of Commons are elected by popular vote for a period of four-five years. The current prime minister is David Cameron.

The services sector is the largest in the UK economy in terms of GDP, and is dominated by banking, finance and insurance, predominantly based in the City of London. The manufacturing sector has been in decline over recent decades, with services taking an ever larger share.

The UK is a key member of the Group of Seven (G7) industrialized nations, and is also a member of the European Union. Its currency is the Pound Sterling (GBP); there are currently no plans for the UK to join the euro.

The United Kingdom has excellent telecommunications, with widespread land telephone, mobile telephone and Internet use. The country has extensive rail and road networks, including high-speed rail links to Europe via the Channel Tunnel. There are a number of airports in the UK, with London Heathrow said to be the world’s busiest in terms of passenger numbers. Container ports include Felixstowe (the largest), Liverpool, London and Southampton. The Port of Dover is an essential ferry link with Europe in terms of passenger and cargo transport.

Corporation tax is charged at a rate of 24% from 2012 (26% in 2011), although a lower rate of 20% applies to taxable profits of up to GBP300,000; this lower rate was 21% prior to April 2011. Marginal rate relief may apply where taxable profit falls between GBP300,000 and GBP1.5m, which can reduce the company’s corporation tax liability. Another reduced corporation tax rate of 10% applies from April 2010 to profits derived from UK patents.

From April 6, 2010, the top rate of personal income tax is 50% on income of over GBP150,000. Capital gains are taxed at 18%, subject to an annual exemption of GBP10,600 for the 2011/12 tax year (GBP10,100 previously).

The UK has well-developed trust law, with distinct tax advantages, especially in relation to inheritance tax.

In January 2010, the government announced the introduction of allowances of up to GBP160m per oil or gas field in a remote region to the west of Shetland, in deep Atlantic waters. The aim is to encourage oil and gas producers to tap into some of the UK’s remaining oil and gas reserves.

Although the UK must be counted as business-friendly, with its superb professional services, a common law heritage, and straightforward company law, it is relatively highly taxed and there are few if any niches available by way of escape. The ‘offshore’ dependencies of Jersey, Guernsey and the Isle of Man (qv) do however provide low-tax possibilities, and there is a beneficial tax regime for ‘non-doms’ – those who do not have UK origins. The services sector is dominated by banking, finance and insurance, centred in the City of London. The UK has excellent telecommunications, extensive rail and road networks, including high-speed rail links to Europe via the Channel Tunnel, and a number of airports, with London Heathrow said to be the world’s busiest in terms of passenger numbers. The UK has well-developed trust law, with distinct tax advantages, especially in relation to inheritance tax.

TAXATION

  • Headline tax rates: CIT 20-25%, PIT 20-50%, VAT 20%
  • Treaty Jurisdictions: Antigua and Barbuda, Argentina, Armenia, Australia, Austria, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belgium, Belize, Bolivia, Bosnia-Herzegovina, Botswana, Brunei, British Virgin Islands, Bulgaria, Burma (Myanmar), Canada, Cayman Islands, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Falkland Islands, Faroe Islands, Fiji, Finland, France, Gambia, Georgia, Germany, Ghana, Greece, Grenada, Guyana, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kiribati, Korea, Republic of, Kuwait, Latvia, Lesotho, Libya, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malawi, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Montserrat, Morocco, Namibia, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Panama, Papua New Guinea, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saint Kitts and Nevis, Saudi Arabia, Serbia, Sierra Leone, Singapore, Slovakia, Slovenia, Solomon Islands, South Africa, Spain, Sri Lanka, Sudan, Swaziland, Sweden, Switzerland, Taiwan, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Tuvalu, Uganda, Ukraine, United States, Uzbekistan, Venezuela, Vietnam, Zambia, Zimbabwe
  • TIEA Jurisdictions: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Belize, Bermuda, Brazil, British Virgin Islands, Curacao, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Macau, Marshall Islands, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Sint Maarten, Turks and Caicos Islands, Uruguay

Company and limited company owners forming a LLP corporation in the UK may be exempt from corporate taxation. The corporation can remain exempt from taxes provided that no business or trade is carried out with or within the United Kingdom. A LLP in the UK is exempt from corporate taxation. The partnership members can remain exempt from income taxes provided that no business or trade is carried out with or within the United Kingdom. However, U.S. citizens and those residing in countries who tax worldwide income are required to declare all income to that tax authority.

UK corporations may be exempt from corporate taxation. The corporation can remain exempt from taxes provided that no business or trade is carried out within the United Kingdom’s borders.

PLC’s earning a profit (or taxable income) must file a tax return with the HM Revenue & Customs (HMRC) and pay a corporate tax. The current corporate tax rate is 19%. In addition, any VAT, employer’s PAYE, Construction Industry Scheme, etc. must be paid to the HMRC every year. Company directors are also required to file a Self-Assessment tax return every year.

Every LLC must register for the Corporation Tax with the HM Revenue and Customs (HMRC). Since April 1, 2016, the Corporate Tax rate for profits is 19%. Even if the LLC has no taxes to pay or records a loss, a Company Tax Return must be filed at the end of every year. The deadline for filing the tax return is 12 months after the end of the last accounting period.

BUSINESS

  • Suitable for: Insurance, Shipping, Yachting, Trading Financial, E-commerce
  • Vehicle Types: Limited companies, public limited companies, limited partnerships, limited liability partnerships, sole proprietorships, branches and specialist companies
  • Formation Cost: 200 – 600 USD
  • Formation Time: 1 day
  • Maintenance cost: 100 – 300 USD

INCORPORATION

Subsidiary Company

1. Requirements / Restrictions

A limited liability company is an independent legal entity that can own property, incur debts, sue and be sued in the United Kingdom. Members will be liable only for the amount invested.

A limited liability company must have at least one or more shareholders, and members do not need to be UK nationals or residents. Members may be individuals or corporations. The company will also require a company secretary and one director (at least one who is an individual, not company) to manage the business.

2. Advantages/Disadvantages

A UK subsidiary company is often chosen due to three main factors:

  • A UK subsidiary company is a separate legal entity to the overseas parent company
  • It is generally has a better perception as a business by local customers and supplier
  • Its financial statements relate only to the business of the UK subsidiary.

3. Registration Steps

Check Company Name (optional)

It is not required to seek prior approval or reservation of a company name in the UK. However, a chosen company name not must be one that already exists, or would be considered too similar to an existing company in the UK. Since the Companies House will not refund an application with a conflicting name, it is generally recommended to check for uniqueness at the company names database before incorporating.

Time: Instant (online)

Cost: No charge

Establish an Office

A company must have a registered office in the UK, which acts as an official address of the company which all official correspondence is sent. A company registered in England or Wales must have its registered office in that region.

Although an office address doesn’t need to be formally registered, an address must be established before being able to process the following steps. In particular the company will need a designated UK address before being able to register the company or set up a bank account. This will be the registered office, which shall keep official documentation, receive official correspondence and where court documents can be served.

Since there is no formal registration or approval of the address itself, there is no procedure aside from the arranging of paperwork, a lease agreement with a landlord, etc. Alternatively, arranging Registered Office Services such as through a company formation agency is also an option.

Time: n/a

Cost: n/a

Register the Company

Once company formation steps such as the drafting articles of association and choosing directors and a secretary are completed, the company documents can be filed at the Companies House to incorporate the company in the United Kingdom. Generally the information required includes:

  • Memorandum and Articles of Association
  • Form IN01 containing
    • The company name
    • The location of the registered office address
    • The consenting company secretary (if applicable) and director(s)
    • The subscriber details
    • The share capital information and the prescribed peculiars relating to each class of shares (only for companies limited by shares)

It is also possible to register a company directly online via the Companies House website, but only for private companies limited by shares that use a model articles of association, and the name doesn’t contain a word that needs special permission. If forming a company online, it will automatically count as completing the IN01 Form as part of the process.

Time: 1 day

Cost: Online for GBP15 or GBP40 if done manually

Branch

If expanding a business to the UK that will operate from an address in the UK, this generally constitutes a branch office (also known as a UK establishment). It must be registered with Companies House.

1. Requirements/Restrictions

If a foreign business begins operating from a physical presence in the UK (e.g. a physical office or store) it will be considered as doing business in the UK and having a “UK establishment” and be required to register at Companies House. In particular, an overseas company operating through a UK location (termed a “permanent establishment” (PE)) will become subject to corporation tax on its profits. A permanent establishment can also be considered to exist if a dependent agent in the UK is concluding contracts on behalf of the overseas company.

A company operating through a UK PE will be required to register with the UK tax authority (HMRC) on establishing the branch and must file annual tax returns.

An overseas company may obtain a voluntary UK VAT registration if trading through a UK branch, and may be required to register if its taxable supplies exceed the registration threshold.

Both EEA and non-EEA companies which file local accounts in their home country must also submit Form OS AA01 to Companies House alongside their accounting documents. The form will contain the following information:

  • The legislation under which the accounts have been prepared and / or audited
  • Whether the accounts have been prepared under GAAP and the organisation which issued the accounting principles
  • Whether the accounts have been audited and if so if they were audited in accordance with GAAP
  • If there has been no audit, whether the company is required to have its accounts audited

EEA companies that are not required to file local accounts are not required to file accounts at Companies House. However, non-EEA companies that are not required to file local accounts must still prepare and file accounts at Companies House.

2. Benefits / Disadvantages

Setting up a branch office is basically the same procedure as a subsidiary. It is however, easier to wind up and unlike branch office formation in most countries, a branch office operating through a UK-based PE will only be assessed on UK profits and calculated as a separate entity.

On the other hand, a branch in the UK requires its parent to file its own financial statements at Companies House. This creates additional administrative burdens and also ties the parent more closely to the branch, which can make a branch a less desirable option.

3.  Registration Steps

Check Company Name (optional)

It is not required to seek prior approval or reservation of a company name in the UK. The branch may use the same name as the parent company, however, this name not must conflict with one that already exists in the UK, or would be considered too similar to an existing company in the UK. Since the Companies House will not refund a registration application with a conflicting name, it is generally recommended to check for uniqueness at the company names database before incorporating.

Time: Instant (online)

Cost: No charge

Establish an Office

Although no prior formal approval or registration of an address is required, the branch must have a physical presence in the UK through which it carries on business (e.g. an office) in order to be considered as having a “UK establishment” and be required to register at Companies House. A UK address is also needed for other procedures such as setting up a company bank account. Therefore establishing an office is required before other registration steps can be taken.

Time: n/a

Cost: n/a

Register the Branch

A branch office only needs to register if it has a physical establishment operating within the UK. If there is no physical presence in the UK then registration is not required.

If required, the UK establishment must file the following documents at Companies House within 1 month of being established:

  • Application form IN01 notifying of a registration requirement in the UK
  • Certified copy of the company’s constitutional documents (for instance, charter or articles of association) with a certified translation into English where required
  • A copy of the company’s latest set of accounts (again with a certified English translation where necessary) if the company is required to prepare and file accounts under local law (see below)

A certified copy or translation is one that is authenticated by a secretary, director, permanent representative, administrator, receiver or liquidator of the company.

To file the registration documents they can be posted to any Companies House office regardless of where the UK establishment will be situated. The official information from Companies House does not specify a timeframe for non-express registrations.

There is also a ‘Same Day’ express service (the required documents must be delivered one of the offices by 3pm Monday-Friday). The fee for this service is £100.

Time: 2-4 weeks (estimate), or 1 day express service (not including postal times)

Cost: GBP20 (GBP100 for express service)

Set up a Bank Account

The company will generally need a UK address before opening a UK bank account. In addition, banks may require one of the company directors residing in the UK to open the account in person.

Banks will generally need a copy of your certificate of incorporation, as well as a copy of the memorandum and articles, and any share certificates that have been issued. They will probably also ask for information and identification documents (eg. passports) of directors.

Time: 1-4 weeks

Cost: No charge

Register for Corporation Tax, VAT, Payroll and National Insurance

The subsidiary must register with HM Revenue and Customs (HMRC) within 3 months of commencing trading and file annual corporation tax returns.

The company must also register for VAT with HM Revenue and Customs (HMRC) if the turnover will be more than GBP£82,000.

For payroll, when the business takes on employees, it will be necessary to operate a payroll which requires a registration with HMRC. To do so, the company must contact HMRC and register for PAYE. If employing people, the company also generally will need to deduct National Insurance contributions from any employees’ wages. This can also be registered for at the HMRC.

Note: However for workers from the European Economic Area (EEA) or Switzerland, if they have an A1 form, national insurance deductions will be according to the rules of their home country and not via UK National Insurance contributions.

All of these can be done online via the HMRC.

Time: 3 days (can be started simultaneously with previous steps)

Cost: No charge

Sign up for employer’s liability insurance

A company must sign up for Employers’ Liability (EL) insurance as soon it becomes an employer. The policy must cover you for at least £5 million and come from an authorised insurer, and is for covering any compensation if an employee is injured or becomes ill because of work.

As the process is handled by private bodies, the exact procedure, time and costs will vary. The selected insurer must authorised at the Financial Conduct Authority register.

Time: 1 day (may vary depending on insurer/broker)

Cost: Usually, no signup charge (regular insurance rates will apply however)

Representative Office

A representative office is a business that has no permanent establishment or corporate tax presence in the UK.

1. Requirements / Restrictions

As with many countries, a representative office can perform limited non-taxable activities only. Generally this includes activities such as preliminary preparation, networking, and market research. HMRC considers that a company which makes sales through their website does not have a permanent establishment even if the server on which is hosted is located in the UK.

Under HMRC rules, a representative office can employ UK sales staff operating from home, use UK banks and advisors and conduct market research. However, whilst it has a UK tax presence for UK staff – it will not have a corporate tax presence and has no corporate address. As a representative office, you will have to deal with payroll and your HR obligations for your UK employees.

A representative office is still required to register with both Companies House and HMRC but with no corporation tax or VAT filing required. Any VAT paid for will not be able to be reclaimed usually though there may be methods of reclaiming VAT annually.

2. Advantages / Disadvantages

There is also a risk that the representative office unintentionally ‘becomes’ a permanent establishment. While the representative office can operate an office, factory or workshop, the activities must be limited to be order taking from UK clients, delivering goods to UK customers and purchasing goods from UK suppliers.

If the functions expand beyond this and are used for at least six months, it could become a permanent establishment which would constitute a taxable branch office. A UK agent who regularly exercises authority to do business on behalf of the company may also constitute a permanent establishment. To prevent this an agent should not be dependent – e.g. the agent is an independent contractor legally and economically.

3. Registration Steps

Register the Representative Office

The registration requirement of a representative office is similar to a branch office, except that a representative office will not need to register for corporate tax or VAT. If there is no physical presence in the UK then registration is not required.

If required, the UK establishment must file the following documents at Companies House within 1 month of being established:

  • Application form IN01 notifying of a registration requirement in the UK
  • Certified copy of the company’s constitutional documents (for instance, charter or articles of association) with a certified translation into English where required
  • A copy of the company’s latest set of accounts (again with a certified English translation where necessary) if the company is required to prepare and file accounts under local law (see below)
  • A certified copy or translation is one which is authenticated by a secretary, director, permanent representative, administrator, receiver or liquidator of the company.

To file the registration documents they can be posted to any Companies House office regardless of where the UK establishment will be situated. The official information from Companies House does not specify a timeframe for non-express registrations.

There is also a ‘Same Day’ express service (the required documents must be delivered one of the offices by 3pm Monday-Friday). The fee for this service is GBP£100.

Time: 2-4 weeks (estimate), or 1 day express service (not including postal times)

Cost: GBP20 (GBP100 for express service)

Set up a Bank Account

The company will generally need a UK address before being opening a UK bank account. In addition, banks may require one of the company directors residing in the UK to open the account in person.

Banks will generally need a copy of your certificate of incorporation, as well as a copy of the memorandum and articles, and any share certificates that have been issued. They will probably also ask for information and identification documents (eg. passports) of directors.

Time: 1-4 weeks

Cost: No charge

Register for Payroll Tax and National Insurance

If taking on employees, it will be necessary to operate a payroll which requires a registration with HMRC. To do so, the company must contact HMRC and register for PAYE.

If employing people, the company also generally will need to deduct National Insurance contributions from any employees’ wages. This can also be registered for at the HMRC.

Note:  However for workers from the European Economic Area (EEA) or Switzerland, if they have an A1 form, deductions will be according to the rules of their home country and not via UK National Insurance contributions.

Registration can be done online via the HMRC.

Time: 3 days

Cost: No charge

Sign up for employer’s liability insurance

A company must sign up for Employers’ Liability (EL) insurance as soon it becomes an employer. The policy must cover you for at least £5 million and come from an authorised insurer, and is for covering any compensation if an employee is injured or becomes ill because of work.

As the process is handled by private bodies, the exact procedure, time and costs will vary. The selected insurer must authorised at the Financial Conduct Authority register.

Time: 1 day (may vary depending on insurer/broker)

Cost: Usually, no signup charge (regular insurance rates will apply however)