By Ashley Deakin, Chief Operating Officer, SableAshley Deakin
The UK is a fine place for an overseas entrepreneur to set up a company. It’s one of the largest global economies: it offers a diverse range of financial services, a potentially huge addressable market, and a 20% corporation tax – below the 25% global average, and well below the 35%-39.2% levied in the US. The weather leaves much to be desired, but you can’t have everything.
Of course, the process of actually setting the business up isn’t always simple. There are administrative, bureaucratic, legal, and financial hurdles in your path: tasks that take mere days at home can become prolonged, labyrinthine nightmares in the UK.
If you’re a foreign business owner looking to expand into the British market, you’ll want to deal with these obstacles as quickly and efficiently as possible. To do so, it’s helpful to know what these obstacles are – and how you can plan for them.
Simply opening a business bank account (something that takes two weeks at most for domestic citizens) causes major issues for foreign nationals. While you can operate without one in the interim, it’s less than ideal. For one thing, UK customers, for one reason or another, get jumpy when they see supplier invoices from abroad, so you may end up investing time and money in retrieving payments. For another, you’ll have to pay currency exchange and transaction fees.
Ideally, you’ll want this “interim” to be as short as possible. Unfortunately, it can take 3-6 months to set up an account. Financial institutions are under intense regulatory scrutiny, and have developed a kind of paranoia about small clients that have trouble with identification and verification. They have to exhaustively vet businesses before they’ll allow them to open an account. You need a good relationship with a bank, but that won’t necessarily expedite your case.
To circumvent this problem, you can solicit the services of a third-party accountancy firm, which can set up a trust account to conduct incoming and outcoming transactions on your behalf. These accounts, while technically belonging to the firm, can be set up within a week and maintained until your bank has completed the vetting process.
The UK tax system can be complicated and nebulous. Her Majesty’s Revenue and Customs (HMRC) demands several different payments: keeping track of deadlines and getting your finances in order can be difficult.
For example, while the aforementioned corporation tax is comparably attractive – and will fall from 20% to 18% in 2020 – larger companies need to pay this percentage of their profits and chargeable gains in instalments: the 14th day of the 7th, 10th, 13th, and 16th months after the beginning of your accounting period. Smaller companies must pay 9 months and a day after the end of this period.
You’ll also have to register for and pay value-added tax (VAT) if you’re expecting a turnover over £82,000. The standard rate is 20% levied on sales, but you can often – but not always – reclaim this.
Of course, there are many different caveats, qualifiers, and disqualifiers – distance selling, and trading as a branch for marketing activities exclusively, for example – so it’s important to discuss your options with an expert. These are serious liabilities, and need to be treated accordingly.
- Employees and payroll
If you’re setting up a limited company in the UK, you’ll need to account for the differences in the HR and payroll process.
You’ll need to review contracts for employees that simultaneously suit your business needs and legal requirements. If you want to bring key members of staff over from abroad, you’ll have to make sure they have visas and the appropriate paperwork. Once that’s done, they’ll need to be registered for pay as you earn (PAYE) tax and enrolled on a pension scheme (if your company has more than five employees). P11D dispensation will be required for reporting exemptions on some – but not all – expenses, and it’ll be necessary to administer National Insurance, sick pay, and other entitlements and benefits.
It’s a lot to manage, and the process of doing so can be quite resource-intensive. If you lack the resources to do this yourself, you can outsource your entire payroll and HR function – giving you room to focus on your operationally critical activities.
Though it may seem like the complexities (and, rest assured, there are more than I’ve mentioned) of setting up a business in the UK outweigh the potential benefits, it’s not the case. There are significant commercial opportunities in this market: the red tape may be thick, but if you can cut through it, it’s usually worth the effort.
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