Starting a Business in the UK Guides
November 15th, 2020
The United Kingdom consistently ranks as a magnet for global entrepreneurs year-in, year-out. With its thriving markets, robust legal framework, and welcoming attitude towards startups, it’s no surprise that British cities continue to become popular among ambitious professionals worldwide. As a premier global PEO, we understand the significance of well-informed decisions and strategic planning in this journey. This comprehensive guide will provide you with a roadmap to navigate through the exciting yet complex terrain of setting up a new venture in the UK, whether you’re a seasoned entrepreneur or just embarking on your first business venture.
From understanding the nuances of UK business culture and local market trends to providing actionable advice on legal requirements and administrative processes, our aim is to equip you with the knowledge you need to successfully launch and manage your business in the UK. We hope that this article will serve as a crucial resource, ensuring your UK business journey is not just successful, but also remarkably seamless.
Why Start a Business in the UK?
It’s essential for prospective entrepreneurs to understand the unique advantages that the UK offers to businesses. As a global hub of innovation, finance, and culture, the United Kingdom presents an enticing panorama for startups and established firms alike.
Here, we delve into four key reasons that make the UK an attractive destination for starting a business. Let’s dive in.
1. Vibrant and diverse market
The UK boasts a diverse consumer market with a strong appetite for innovation. Its large, wealthy, and cosmopolitan population offers a wide array of opportunities for businesses across numerous sectors – from tech to hospitality and everything in between.
2. Robust legal and regulatory framework
The UK is renowned for its transparent and well-regulated business environment. Its legal system ensures robust protection for businesses and intellectual property rights, while its regulatory framework is designed to encourage entrepreneurial activity and competition.
3. Access to talent and innovation
With some of the world’s leading universities and research institutions, the UK is a hotbed for talent and innovation. The ability to tap into this reservoir of highly skilled workers and innovative ideas provides businesses with a significant competitive advantage.
4. Strong infrastructure and connectivity
The UK’s world-class physical and digital infrastructure, combined with its geographical location, offers businesses strong connectivity to both European and global markets. Whether it’s the ease of logistics or high-speed digital connectivity, businesses in the UK are well-positioned to deliver products and services swiftly and efficiently.
Different Ways to Set Up a Business in the UK
There are a variety of ways for an international investor or company to set up business in the UK. What works best depends on several things, including the appetite to accept direct liability for the actions of the UK entity and its tax obligations.
A business may consider, for example:
- setting up a subsidiary in the UK;
- opening an establishment in the UK;
- carrying on business in the UK without establishing any kind of presence here (e.g. by conducting your business over the internet); or
- carrying on business in the UK by appointing an agent (the agent’s activities may or may not constitute the establishment of a place of business).
When deciding which business vehicle is the most appropriate, it is important to consider factors such as the sector and the products or services being supplied. In most instances, a UK registered entity will be the most favourable in terms of managing international tax issues and can ordinarily be set up within 24 hours.
Here is a brief look at the most commonly used business forms in the UK:
Private Limited Company
Private companies are separate legal entities under UK law and the liability of their owners (also called “shareholders” or “members”) is limited to the amount they have agreed to pay for their shares. Each company has its own board of directors, can enter into contracts and own assets and can sue or be sued in its own name. It will generally be tax resident in the UK if it is incorporated in the UK or its place of central management and control is in the UK. It is liable for UK corporation tax on its worldwide profits and its profits are distributed by way of dividends.
The UK does not impose a tax withholding on dividends paid by UK resident companies to an overseas parent, but withholding does apply to interest and royalties (subject to the terms of an applicable double tax treaty).
A company must be registered (before trading) with the UK Registrar of Companies (“Registrar”). In return for its limited liability protection, a company is required to file certain information with the Registrar on a regular basis, including annual accounts and officer, shareholder and “people with significant influence or control” information.
Creating a UK subsidiary company is a very popular way for overseas businesses to establish themselves in the UK because of the limited liability protection it offers to shareholders.
Limited liability partnership (LLP)
An LLP is a partnership which is incorporated and has its own legal personality. Each partner’s liability is generally limited to their agreed contribution to the partnership. As with a subsidiary company, an LLP can enter into contracts, own assets and sue or be sued in its own name. However, in contrast with a company, the internal relations between the LLP and its owners (called “members”) will ordinarily be governed by an LLP agreement rather than by legislation. Such agreement can remain private as it does not need to be filed with the Registrar.
Two members are required to set up the LLP with “designated” members having particular administrative and filing responsibilities.
An LLP is generally treated as tax “transparent” for UK tax purposes, which means it has no tax liability; rather its members pay tax on their share of the LLP profits. The LLP must, however, file a self-assessment partnership tax return. Non-resident partners pay tax on the profits that the LLP generates from UK activity and must file UK tax returns on that basis.
Opening an Establishment in the UK
An overseas business can establish a presence in the UK by setting up a UK permanent establishment, which is a fixed place of business, such as a branch, factory or workshop in the UK from which it regularly conducts its business.
A UK establishment is not a separate legal entity from an overseas parent and does not have limited liability in its own right. It essentially forms part of the overseas business and all profits and losses of the UK establishment are automatically incorporated with those of its parent, as are all of its debts and liabilities (therefore, there are no restrictions on repatriation of profits or use of tax losses).
An overseas company trading through a UK permanent establishment is subject to UK corporation tax on the profits attributable to the permanent establishment. The UK has an extensive double tax treaty network and treaty relief will generally ensure that a company is not taxed on the same profits twice.
A UK establishment must be registered with the Registrar within one month of being set up.
All You Need to Know About Starting a Business in the UK
Launching a business in a new country can seem like an overwhelming task. There are regulations to navigate, markets to understand, and logistical hurdles to overcome. That’s why we’ve put together this comprehensive guide to translating your business ideas into a thriving UK enterprise.
Here, we’ll walk you through everything you need to know about starting a business in the UK — whether you’re a local Briton or a keen business owner from outside UK borders. Armed with this knowledge, you’ll be poised to make your mark in the UK business scene with confidence and clarity.
With that said, let’s dive into all you need to know about starting a business in the UK:
Corporate Compliance, Best Practice and Company Secretaries
Did you realise that many SMEs ignore the importance of a UK Company Secretary? It’s true! Even though they are not required to appoint one, this carelessness can increase hazards. Explore why this function is crucial and how it can assist your firm in this article.
What Do You Need to Consider When Relocating to the UK?
Embarking on a journey to the UK can stir up a whirlwind of issues to consider. However, you don’t have to relocate your business alone. With the right support, this dream can become a reality. Learn more in this article.
Changes in UK Tax Thresholds
The UK Government has made a bold move by freezing all income tax thresholds for not just one, not two, but a whopping four years. But there have been unfortunate results. Find out how you might be affected by this change in our article.
Everything You Should Know About the UK Talent Visa
In May 2022, the UK introduced the High Potential Individual visa, targeting global talents, especially recent graduates from top universities. Learn all you need to know about this UK Talent Visa and how your business might be able to utilise it through our article.
UNCTAD’s Report on UK Foreign Direct Investment
Despite the COVID-19 pandemic severely impacting global foreign direct investment (FDI), dropping it to a mere $1 trillion in 2020, the UK is spearheading the recovery. Explore how the UK has bounced back through the latest UNCTAD FDI report.
The Effects of the UK’s Start-Up Boom
In an unexpected outcome of the pandemic, the UK has witnessed its largest start-up boom in a decade. Discover why the UK has been experiencing a start-up boom and how it has effected the overall UK economy in our article.
The Relationship Between Global Mobility and UK Taxes
Despite the pandemic, some businesses are relocating key personnel overseas. If you’re being posted to the UK, various tax reliefs may apply, including allowances for travel and relocation costs. For more information, read our article.
Is Post-Brexit UK Open for Business?
Despite the Brexit uncertainties, the UK continues to shine as a global business hub. The UK still holds strong foundations with its global connectivity, world-leading financial sector, cultural familiarity and flourishing tech scene. Explore the business landscape of post-Brexit Britain in this article.
What If You’re Personally Liable For Your Business In the UK
Establishing a limited liability company in the UK provides protection for shareholders but places more risk on directors. However, there are ways to mitigate these risks. Find out how in this article.
Every UK Work Visa Explained
Acquiring the correct visa is crucial for expanding your business into the UK. In this article, we break down the four UK work-based visas for foreign investors, business development and talent.
What Will the UK Corporation Tax Rise Mean for Your Business?
The UK’s 2021 Spring Budget announced a corporation tax increase from 19% to 25% in 2023, impacting businesses with certain profit thresholds. Thankfully, it’s not all bad news. Learn all you need to know about what this corporate tax rise means for your business in this article.
All You Need to Know About Business Banking in the UK
For businesses looking to expand their business into the UK, efficient banking and foreign exchange solutions are crucial. The expansion or relocation of corporations to the UK features highly complex needs — all of which can thankfully be met. Find out how in this article.
Impact of Data Protection Law Changes to UK Organisations
In 2016, UK companies faced changes to the stable data protection laws they’ve enjoyed for two decades. Find out how those changes might affect your business in this article.
The Main Benefits of Outsourcing for UK Businesses
UK unemployment reached a 10-year low, but increasing wage inflation threatens business growth. Learn how outsourcing certain core business tasks might be the solution in this article.