When overseas companies decide to operate in the UK, or set up a UK subsidiary, they often find that the regulatory, tax and reporting frameworks can differ, be that slightly or more substantially. Whether it is making decisions about how they are structured, or simply understanding their obligations and planning for compliance, this is something which cannot be ignored.
Companies House and Public Access to UK Company Information
The first point to highlight within the UK regulatory framework is something that some overseas companies won’t be used to: a lot more information about your business and who owns it is available via a freely accessible public record - its Companies House record.
Some other countries have something similar, but many do not, especially for private businesses. But in the UK, a comprehensive record of who the directors are, the person(s) of significant control and the ultimate owner all have to be publicly listed.
Wherever you are in the world, you can log onto the UK’s Companies House without payment and see directors, shareholders, the registered office address and copies of accounts and other documents.
Even for small companies, things are becoming ever-more public. At the moment, they have a reduced disclosure requirement where they typically only file a balance sheet and not a profit and loss account – but from 2027 this will change, with further disclosure for even the smallest companies.
Incorporating a Company
The good news is that actually registering a company in the UK is a relatively straightforward process. One big difference from some other countries is that you can have a very low called-up share capital – for a private limited company it is just £1.
UK companies must have at least one director; when it comes to setting up a UK bank account, having a UK resident director is certainly helpful.
Each company must have a registered address where the company can be contacted. This doesn’t have to be its actual office – Lovewell Blake acts as a registered office for a number of clients.
UK Accounting Standards and Audit Thresholds
Many overseas companies will be using International Financial Reporting Standards (IFRS), and the good news is that the main UK accounting standard, FRS102, is derived from IFRS – so things should be pretty familiar. In fact, there is the option to file under IFRS, which enables international companies to consolidate their reporting at a higher level.
One thing to consider is that in the UK we have audit thresholds based on a company’s turnover and gross assets, which determines whether or not an audit is necessary. Even where a UK subsidiary is a start-up, it may require a full audit based on the size of its global parent group.
So a small UK subsidiary may end up only having to file a balance sheet and not a profit and loss account, but still require an audit, because the audit threshold is based on the size of the international group.
Consolidated Accounts
UK legislation requires group companies to file consolidated accounts if the UK business has its own subsidiaries in the UK. There is an exemption available where a set of consolidated accounts from another country is filed alongside ethe UK subsidiary’s accounts, which can save a lot of time and cost consolidating at a level where you don’t need to.
However, there is a potential downside to this: if the parent company is in a country where company accounts are private, by filing the consolidated accounts at UK Companies House, this makes them freely and publicly accessible. In this case it may be better to file consolidated accounts at UK level even if that is not the ultimate parent company.
Corporation Tax
As well as filing annual accounts at Companies House, there is a requirement in the UK to file them with HM Revenue and Customs (HMRC) along with a corporation tax return and computation. Strangely, payment is due nine months and a day after the end of the financial year, but the return is not due until three months after that.
Importantly, if your profits are over £1.5 million, quarterly corporation tax instalment payments are due, which can have a big impact on cash flow – a company may find it is paying last year’s full payment alongside quarterly instalments for the current year, all in the same financial year. That £1.5 million threshold is split between companies within a group.
For the majority of companies, the corporation tax rate is 25%, with a discounted small companies rate of 19% for businesses with profits under £50,000, and a taper rate of 26.5% for profits between £50,000 and £250,000.
Payroll, Employment and VAT
If a company is going to employ staff in the UK, it needs to set up a PAYE scheme to administer tax and national insurance deductions which much be paid over to HMRC at the same time as the pay run.
Employment law in the UK differs from other jurisdictions around the world; some international businesses are surprised to at how favourable UK law generally is towards employees.
A tax which may be unfamiliar is Value Added Tax (VAT), which is generally levied at 20% (there are other rates for certain products and services). It differs from a straight sales tax in that VAT-registered businesses can claim back input tax – ie VAT which they have been charged on their (qualifying) expenses. VAT is calculated and paid to HMRC on a quarterly basis.
Get Help Early
The UK is welcoming to overseas businesses wanting to set up here, but it is necessary to understand the regulatory systems and requirements so as not to fall foul of what might be unfamiliar laws.
It is definitely worth talking to your local bank to see if they have strategic alliances with banks in the UK, which can certainly make the process easier.
The key is to seek help at the earliest stage – all of the issues mentioned in this article are things that Lovewell Blake can support overseas businesses in navigating.