Practical steps to consider for establishing a UK entity
Types of UK entity
- the expected nature and scale of the business activities;
- the levels of risk anticipated in the initial stages;
- the intended duration of the business activities;
- accounting and taxation considerations;
- UK statutory compliance and reporting obligations; and
- commercial considerations
- Company: A limited liability company structure owned by shareholders and run by its directors.
- UK Establishment: A UK Establishment is the branch or place of business of an overseas company within the UK. Effectively, it’s a direct extension of the overseas company, officially registered at Companies House and the tax authorities to trade.
- Limited Liability Partnership (LLP): A partnership but the liability of the members is limited.
- Corporation Tax: Corporation Tax is the tax levied on a company’s profits. An overseas entity trading in the UK through a UK branch is also subject to Corporation Tax. The rate of Corporation Tax in the UK is 19%. UK companies are required to calculate their own tax liability and file an annual Corporation Tax return on a self-assessment basis. It is important to seek advice early on regarding the most appropriate trading model to adopt in the UK. For example, whether the UK company should be a service provider to the overseas parent company or whether the UK company will directly enter into contracts with customers. These factors can influence the level of taxable profits in the UK company.
- Income Tax: Income Tax (and National Insurance as outlined below) is generally deducted from an employee’s salary on a monthly basis, through an employer-run system known as “Pay As You Earn” (PAYE), and paid monthly to HMRC. For the tax year beginning 6 April 2022, a UK employee will pay 0%, 20%, 40% or 45% income tax, depending on their earnings. The tax is paid on a “slice” basis. As an employer, it’s important that you calculate income tax liabilities for your UK workforce and any overseas workers you are hosting, taking into account items such as workplace pensions, social security and any benefits provided. Depending on your circumstances, for the tax year beginning 6 April 2022 the first £12,570 (personal allowance) of earnings are tax free. The next £37,700 is taxed at the basic rate of 20%. The higher rate of 40% applies to taxable income between £50,271 and £150,000, after which the additional rate of 45% applies. Note that if an individual’s income exceeds £100,000, their personal allowance is tapered away at £1 for each £2 over this limit. There is no personal allowance given above £125,140.
- National Insurance Contributions (NICs): NICs is the UK’s social security mechanism. Both employers and employees are subject to NICs as a percentage of the employee’s gross salary. As an employer, you must calculate this amount for both your workforce and the company and pay it to HMRC on a monthly basis, along with income tax. Current rates for employees are 13.25% of their salary between £191 and £967 per week, and then a further 3.25% on income above that limit. For employers, the rate is 15.05% of a total salary above £175 per week. This is a cost that should be factored into budgeting for UK staff in addition to basic salary and any benefits provided.
Value Added Tax (VAT)
- What is the VAT rate in the UK: The VAT rate applicable depends upon the goods or services you supply. The standard rate in the UK is currently 20% and is applied to most taxable goods or services.
- Who needs to pay VAT and when: The time at which a VAT registration is required will depend on several reasons such as whether the registration is for a UK entity. If the annual VAT-taxable turnover of your UK business exceeds £85,000 per year, you are required to register with HMRC and charge your UK customers VAT on all sales. The tax should then be paid to the HMRC on a periodic basis, usually each quarter.
- Further information: You should seek expert advice to make sure that you are paying the correct rate of VAT and if your supplies will be treated as VAT-taxable supplies of goods or services. Furthermore, penalties can be levied by HMRC for not registering at the correct time, for claiming VAT incorrectly or not accounting for VAT correctly on sales.
Setting up the office
- Co-working: If you’re a solopreneur or manage a small team, you might decide to rent desks in a co-working space. Many run events for members, enabling you to network and grow.
- Private office: If you want your own space, you can rent a private office in a flexible workspace. Shared amenities mean you’ll still pay a competitive price and get to meet other businesses.
- Managed office: Designed with medium to large businesses in mind, a managed solution provides a self-contained, customisable workspace solution on flexible contractual terms.
- West End: London’s prestigious West End covers Soho, Mayfair, Fitzrovia and Covent Garden. As well as high-end retail brands and galleries, the area is home to a number of established businesses in finance and media.
- City of London: Bank, Moorgate and Liverpool Street are all part of London’s financial epicentre. As such, it attracts banks, brokers, investment managers, private equity firms and other businesses in the finance sector
- Tech City: As the name suggests, this part of London is popular with tech start-ups and digital creatives. Old Street (Silicon Roundabout), Shoreditch and Hoxton all cater to new businesses looking to attract talent.
- King’s Cross: London’s largest transport hub has undergone extensive regeneration over the past few years and is now home to a selection of workspaces, as well as Google’s upcoming 1 million sq. ft office space.
Recruiting and retaining talent in the UK
- Maximum 48-hour working week, but individuals can opt-out
- Normal working day considered 9am to 5pm, with one hour for lunch
- Flexible working is becoming more common in UK working culture – this might be worth considering for attracting top candidates.
- Minimum 20 days’ holiday and 8 national holidays (most businesses offer more to stay competitive and attractive to employees)
- Automatic enrolment pension contributions: employees have the option to opt-in or opt-out. Minimum pension contributions are: 3% from employer + 5% from employee
- Employer must see the applicant’s original documents
- Employer must check that the documents are valid with the applicant present
- Employer must make and keep copies of the documents and record the date you made the check
- Identify what staff are needed – How many and when you need them by?
- What order to hire staff – Start with senior commercial staff, then add support staff?
- Prepare full job descriptions – Staff will want written job details in full, without this the process and organisation can come across as unprepared and unprofessional.
- Salary and package – Are you offering enough to secure the right talent? Recruitment agencies can help with salary benchmarking to help you get the salary range right. Consider additional benefits outside of base salary; these are a massive drawcard.
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