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Incorporation

Setting up a company in United Kingdom

When setting up a company you may want to consider these factors:

  1. Business factors:

    Such as:

    • The industry and type of business
    • Nationality of the headquarters/individual(s) and
    • Presence of existing trade agreements or relationships
  2. Business Licences:

    • When setting up business in the UK you may need to apply for a licence, depending on what your business is. However, you can use the licence finder tool to check if you need a licence to set up your business.
    • There are two types of limited company – those that are publicly traded (known as a public limited company or plc) and those that are privately owned (identified by the abbreviation Ltd at the end of their name).
  3. Location:

    Although the system and bodies for setting up and managing companies in the UK is relatively centralised, different locations especially between Scotland, Wales and England may bring additional factors. UK Trade and Investment (UKTI) provides information for coming to the UK to set up business, while other regional information and support sites include Scottish Development International, Business Wales and Invest Northern Ireland.

     

Your Options

The United Kingdom of Great Britain and Northern Ireland comprises England, Wales, Scotland and Northern Ireland and is often commonly referred to as the United Kingdom (UK) or Britain. The nation was the world’s foremost power during the 19th and early 20th centuries; at its height in the 1920s it encompassed almost a quarter of the world’s land mass and was the largest empire in history.

Population                           64,000,000

Capital                                   London

Official Language                English

Calling Code                         +44

Time Zone                            UTC (UTC+1 during daylight savings time)

Currency                               British Pound / Sterling (International code: GBP)

USD$1 = roughly 0.65GBP

Nominal GDP                       $2.945 trillion ($45,653 per capita)

Internet Domain                 .uk / .co.uk

The UK is a leading trading power and financial center and the third largest economy in Europe after Germany and France. The United Kingdom is a developed country, (it was the world’s first industrialised country) and has the world’s fifth-largest economy in terms of nominal GDP. In 2008, the global financial crisis hit the economy particularly hard, due to the importance of its financial sector. However, in 2013 GDP grew 1.8%, accelerating unexpectedly because of greater consumer spending and a recovering housing market.

 

Subsidiary Company

A.  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.

B.  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.

C.  Registration Steps

1.  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

2.  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

3.  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 Office

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.

A.  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.

B.  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.

C.  Registration Steps

1.  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

2.  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

3.  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)

4.  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

5.  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

6.  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.

A.  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.

B.  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.

C.  Registration Steps

1.  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)

2.  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

3.  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

4.  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)

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in the UK, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in the UK they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.  A GEO Employer of Record solution is an attractive alternative where:

– the company is looking to setup an office quickly

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in the UK

– the company needs help with tax, employment, immigration and payroll compliance in the UK

The complexity of employment regulations in the UK makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in the UK allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in the UK.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into the UK. Read more about outsourced employment through Shield GEO.

Summary of Setup Steps

Subsidiary Company Branch

Office

Representative

Office

Time Cost (GBP)
Check Company Name (optional) Yes Yes Instant 0
Registered Office Yes Yes n/a n/a
Register Company Yes Yes 1 day 15-40
Register Branch Yes Yes 1-28 days 20-100
Company Bank Account Yes Yes Yes 1-4 weeks 0
Register with MNRC (tax, etc.) Yes Yes Yes 3 days 0
Signup for Employer’s Liability Insurance Yes Yes Yes 1 day 0
 

TOTALS:

*applications and processing times, not including internal document preparation, etc

 

Subsidiary

12-33

days

 

GBP15-40

 

Branch

12-60 days

 

GBP20-100

 

Rep. Office

12-60

days

 

GBP20-100

 

 

Conclusion

There is arguably little difference between setting up a subsidiary or branch because both require Companies House registration, and registration with HMRC for direct tax, VAT and PAYE/NIC as appropriate. A branch (sometimes called a UK Establishment) maintains a separate legal entity status and is easier to wind up, however, a branch requires its parent to file its own financial statements at Companies House. A subsidiary in this sense offers a greater level of administrative separation and independence, although requires a formal wind up process. If expecting to only keep a limited presence in the UK, a representative office arrangement might be the most appropriate approach.

 

 

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