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The Ultimate Guide To
Employment in United Kingdom

United Kingdom Facts

Population size: 65,111,143
Currency: £
Capital city: London
Languages spoken: English, Cornish
Ease of Doing Business: 7

Employing in United Kingdom: What You Need to Know

UK employment law may appear complex and confusing. However,  in some ways , there are many similarities to other countries. The following are only guidelines in the broadest sense, and professional legal services are recommended when employing in the UK.

Key Factors to Consider When Employing in United Kingdom

There are several key areas to be aware of within the UK’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department.  These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

Employee Entitlements

Information Explanation
Working on Sundays ?

Sunday working – for those working in shops as well as betting workers, protection and option to opt-out of work during Sundays.

Disclosure and Confidentiality of Personal Information ?

Protected disclosures – disclosure of information in relation to legal obligations, health and safety etc. Protection from suffering detriment in employment – An employee has the right not to be subjected to any detriment by any act, or any deliberate failure to act, by his employer on various grounds.

Employee Protection and Anti-discrimination Rights ?

Protection of wages – workers have the right not to suffer unauthorised deductions and the right not to have to make payments to the employer.

Time Off Work ?

Almost all employees have a statutory right (conditions apply) to take paid time off work for the following:

  • To carry out duties as a trade union official
  • To carry out duties as a trade union health and safety representative
  • To look for work if faced with redundancy
  • To receive ante-natal care
  • To have a baby, take paternity leave, take adoption leave, take shared parental leave or to ask for flexible working hours
Medical Leave ?

Sickness – workers who qualify may be able to get Statutory Sick Pay.

Employment Termination in United Kingdom

Information Explanation
Severance / Redundancy Pay ?

Suspension from work on medical grounds – Right to remuneration on suspension on medical grounds (if employed for at least a month) and the right to offer of alternative work if suspended on maternity grounds.

Termination of Employment ?

Termination of employment – notice is required to be given by an employer to terminate the contract of employment of a person who has been continuously employed for one month or more (conditions apply dependant on length of service).

Using Shield GEO EOR Services: How We Can Help You

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in the UK. For companies which intend to employ their staff directly through their incorporated UK entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in the UK.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into the UK.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in the UK

– 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

Shield GEO can contract directly with the company to employ and payroll their staff in the UK. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

A GEO EOR Solution vs DIY Employment in United Kingdom

Companies entering the UK must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities.  A GEO or United Kingdom Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a UK entity established that can run payroll.

A DIY approach will typically be delayed until there is a properly incorporated company ready to run payroll and can be a costly option if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Using Shield GEO Employer of Record Services in United Kingdom

Payroll

Payroll United Kingdom
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please contact us for a quote.

Notes

Employees salary is processed through the UK PAYE system, with income tax, employees and employers national insurance deducted at source. Pay-roll is run once a month in the UK on the last Friday of the month.

Currency ? £
Tax Amount
Grossed income Tax Rate (%)
0 – 10,600 0
10,600 – 42,385 20
42,386 -150,000 40
150, 000+ 45
Tax Returns Supplied

Yes but generally not required.

Employers Social Security and statutory contributions

Employers National Insurance 13.8%

Employees Social Security and statutory contributions

Employees National Insurance 12%

Insurance requirements

Shield GEO’s UK partner will cover the employee under their PII, Public Liability and Employers Liability Insurance at no additional cost. Private Medical Insurance is not required in the UK but Shield can source this if you wish to offer this to your employees.

Can supply private health care

Yes

Can assist opening bank accounts

Yes

Work Permits

Work Permits
Can Sponsor Work Permit

No

Switch Business Visa to Work Permit?

No

Can Spouse work on dependent visa?

Yes

Business Visas

Business Visas
Can do Business Visa

No

Business Visa Cost

n/a

Business Visa processing time

n/a

Payroll and Tax in United Kingdom

There are specific rules for payroll and taxation in the UK that must be complied with by all types of companies.  The primary concerns for a foreign company that needs to comply with tax laws in the UK are: individual income tax for employees in the UK, social security costs, payroll tax, VAT, National insurance, Employer’s liability insurance, corporation tax and permanent establishment concerns.

Your Payroll Options in United Kingdom

Information Explanation
Remote Payroll ?

A remote payroll in the UK is where a foreign company, i.e. a non-resident company, payrolls a resident employee in the UK.  One option for a non-resident company to payroll its employees (local and foreign) in the UK is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.

Local Payroll Administration ?

In some cases, a company will register their business in the UK under one of the forms available, but prefer to have another company administer its payroll.  This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll ?

Larger companies with a commitment to the UK may wish to run their own local payroll for all employees, foreign and local.  In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff.  There will be a need for in country human resources personnel who have the background needed to manage a UK payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations.  The company will need a local accounting firm and potentially legal counsel to ensure full compliance with UK employment laws.

Fully Outsourced Payroll & Employment ?

Companies can outsource the employment and payroll of their staff in the UK to a GEO, like Shield GEO. This is possible for both foreign workers and UK nationals. This is the easiest, fastest and safest way to payroll staff in the UK.

Shield GEO manages all aspects of payroll for workers in the UK including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in United Kingdom

Information Explanation
National Currency ? £
Employee Information Required ?

The following are usually what’s to set an employee up on Payroll in the UK:

  • National Insurance number
  • Title; Last name; First of given name(s)
  • Gender
  • Date of Birth
  • Address
  • Present Circumstances i.e. first job in tax year, only job, have another job.
  • Student Loan (if available)
  • Tax Code (if available)
Tax Registration Requirements ?

Employers should register a new employee with HM Revenue & Customs (HMRC) by including their details on a Final Payment Submission (FPS) the first time they are paid.

Social Security Registration ?

Every organisation operating a Pay-As-You-Earn (PAYE) Scheme is allocated an ‘Employer PAYE Reference’ (ERN). This is the reference number for the income tax and National Insurance contributions of their employees.

Documentation Required for New Employees ?

A written statement of the main terms and conditions of employment must be given to new employees not later than two months after the beginning of the employment.
Employee benefit information will be dependent on the terms and conditions of the employment. This also applies to pension information, however new rules came into force from October 2012. See Automatic Enrolment under pensions. Full details of information that must be provided to employees can be found at The Pensions Regulator website.

Tax Figures

Information Explanation
Corporate Income Tax ?

20%

Income Tax Rate ?
Grossed income Tax Rate (%)
0 – 10,600 0
10,600 – 42,385 20
42,386 -150,000 40
150, 000+ 45
Payroll Tax ?

n/a

Sales Tax ?

VAT 20%

Withholding Tax ?

0%

Time to prepare and Pay Taxes ?

110 hours

Time required to start a Business ?

4.5 days

Payments

Information Explanation
Payment Mode ?

Most small employers operate using cheques and cash. Some employers only pay salaries via electronic transfer, BACs (Bankers’ Automated Clearing Services) and direct transfer being the main methods used by larger businesses in the UK.

Frequency of Salary Payment ?

Outlined below are the pay frequencies which can be processed in addition to usual monthly payrolls in the UK:

  • Weekly (i.e. 52 pay periods per year)
  • Fortnightly (i.e. 26 pay periods per year)
  • 4 weekly
  • Lunar monthly
  • Bi-monthly (i.e. 24 pay periods per year)
  • Daily
  • Annual
Invoice / Payslips required ?

Payslips or some other record showing their gross earnings, the tax, National Insurance Contributions (NICs) and any student loan repayments you deduct, and their net pay – you can use a form P11 or an equivalent payroll record (such as an employee’s record in a commercial payroll software package).

Minimum Wage ?

Apprenticeships – £3.30

Age: 16 to 17 – £3.87

Age: 18 to 20 year old – £5.30

Age: 21 and older – £ 6.70

 

United Kingdom Immigration and Work Permits

Foreign workers are required to have the proper visas and work permits in the UK, as established by immigration laws.  Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the UK market.  If you have yet to complete the incorporation process you can use an outsourced management company or GEO Employer of Record to sponsor the employee for the necessary permits.

Your Options

Have your own Company?

In order to secure a work permit for employees, you must have a fully incorporated company in place in the UK.  The most common work permit is a Tier 2 visa, which is tied to one employer, and valid for three years.  With the proper license you can obtain a Certificate of Sponsorship for foreign employees and obtain this type of visa for specific types of work.  There is a limit on Tier 2 visas except for highly compensated employees.

The Tier 2 General visa requires the employer to apply for a Certificate of Sponsorship (COS) from an authorized sponsor and documentation for various eligibility criteria for the worker.

Process

  • The Resident Labour Market Test must be completed by the employer for most skilled job positions to confirm that there are no suitable local workers available to fill the position, conducted through a job advertisement run for 28 days.
  • The employer lodges an application for a sponsorship license through UK Visas and Immigration (UKVI) with certified supporting documents. These documents must demonstrate that the company is a genuine business and it has the capabilities of supporting sponsored employees. The approval period takes up to 8 weeks with a fee of up to £1,476 for Tier 2 visas, depending on the size of business.
  • The employer applies for a COS for each worker applying for a visa with the UK Border Agency (UKBA). This requires applying for a Restricted Certificate of Sponsorship for Tier 2 General workers. The Certificate is simply an electronic record in the form of a reference number assigned to each worker. There will be a monthly limit for certificates issued, and consideration of applications only occurs the working day after the 10th day of each month on the allocation date, unless the application is lodged after the 5th day of the month, where the application is postponed to the next allocation date. Certificate approval may therefore take up to a month, with a fee of £199 per Tier 2 certificate.
  • The COS is approved and sent to the employer, who provides a copy to each foreign worker applying for a work permit.
  • The employee must pay the Immigration Health Surcharge if they are not from an EEA country, which is typically £200 per year for the duration of the visa.
  • The employee must conduct a Tuberculosis test if they are from a listed country.
  • The employee applies for a biometric residence permit for the visa application by taking a photograph and their fingerprints at a local visa application centre, which must be collected within 10 days of arrival to the UK.
  • The employee lodges an application for a Tier 2 General visa with UKBA along with the necessary certified documentation. Generally, an appointment is required with the local visa application centre. The application takes up to 15 days with a fee depending on the occupation, which will generally be £564 for visas valid up to 3 years or £1,128 for more than 3 years.
  • The worker lodges an application for UK entry clearance if working longer than 6 months. The employer must provide the employment contract to the worker, and the worker must apply to the local British Embassy or Consulate, along with a valid passport, passport photo, work permit, medical certificate and employment contract. Processing times vary depending on country.
  • When the entry clearance and Tier 2 General visa are both approved and all the tests have been passed, the worker may travel to the UK and work under the employer for the specified duration.
  • The employee travels to the UK and the admission of the worker into the UK rests with the Immigration Officer at the port of entry.
  • The employee is permitted to work in the UK.

Processing time may be more than 12 weeks depending on the country and whether the employer has carried out the Resident Labour Market Test.

Costs incurred will depend on the country of applicant and whether fees for tests/surcharges are required for each individual.

Documentation required

Employer

  • Original contract of employment detailing the position, salary, duration of employment and other employment terms.
  • Certified supporting documents that provide evidence of the existence of the business if applying for a sponsorship license (e.g, VAT registration, bank statements, etc.).
  • Documentation related to the Resident Labour Market Test and evidence that no suitable local workers can be found for the position.
  • Certificate of Sponsorship for each applicant.

Employee

  • Current passport and colour photograph.
  • Academic qualifications equivalent to a UK bachelor’s degree as evidence of English-speaking proficiency, unless worker is from an English-speaking country.
  • Bank statements as evidence that the worker has sufficient savings (£945 over last 90 days).
  • Sponsorship certification that employer can support and accommodate employee for the first month if there are no employee savings information.
  • Tuberculosis test results for certain countries.
  • Biometric residence permit.
  • Additional supporting documents may be required to process the COS, visa, entry clearance or to conduct the relevant tests.
  • All documents must be original or certified by a professional.
  • All documents in languages other than English or Welsh must be translated and certified.

Use the Shield GEO Employer of Record Solution?

Given changes in regulations, third party organisations can no longer sponsor work permits in the UK.

 

If you'd like to know more about employing workers in UK, please get in touch.

Types of visas in United Kingdom

Category Description of Visa
Business Visas (Standard Visitor)

The business visa (Standard Visitor visa), is typically granted for visitors who are outside of the European Economic Area (EEA) and Switzerland, and are traveling to the UK for the purposes of business up to 6 months. The business visa restricts the activities an individual may engage in during their stay, prohibiting any work activities and receiving a salary, but may engage in meetings, conferences, research or negotiating contracts with UK companies.

This visa is recommended for short business visits that do not involve extended work as it only requires a passport, biometric information and a passport photo, which can be lodged by the employee at the local visa application centre.

Visa nationals must still acquire an entry clearance before traveling to the UK. The duration of the Visit visa may be extended beyond 6 months based on the needs of the individual to a long-term visit visa, but supporting documents and a letter stating intent of stay is required to justify the period extension.

Standard Visit Visa Fee: £85

Time: 15 days up to 3 weeks

Work Permit - Employer Sponsored (Tier 2 General visa)

The employer-sponsored work permit, or a Tier 2 (General) visa, applies to all skilled foreign workers who have not worked with the UK employer for more than 12 months previously and are seeking to work for the licensed sponsor who have offered them a position in the UK. A Certificate of Sponsorship must be acquired to show the relationship between the sponsor and the employee. This visa is recommended for standard employment arrangements between companies based in the UK with foreign workers for an extended duration of time, where positions with a skilled worker shortage are given priority approval. The documents required are more comprehensive due to the employment arrangement, which include: passport, passport photo, bank statement showing savings, proof of English proficiency (academic documents), medical test results and biometric information. There are certain tests which must be fulfilled to issue the Tier 2 visa: Resident Labour Market Test: Evidence that the UK employer cannot find local skilled workers to fill the position. English-proficiency: The worker must provide documents which demonstrate they have a good knowledge of English, e.g. equivalent UK bachelor’s degree. Restricted COS: The number of Tier 2 certificates issued is restricted each month. These will be allocated to UK employers based on a point system, which prioritizes jobs with a shortage of workers or higher level positions with PhD requirements. The duration of the Tier 2 (General) visa can be up to 3 years, or more than 3 years up to 5 years. An extension for an additional 5 years can be approved, as long as the total state does not exceed 6 years. Dependants may accompany the employee but require a visa and similar documentation. A sufficient level of savings must also be proved to demonstrate the dependants can be supported during the stay in the UK. Tier 2 (General) visa Fees: Up to 3 years: £564 More than 3 years: £1,128 Jobs with a shortage of workers attract a lower application fee.

https://www.gov.uk/tier-2-general/overview

Time: Up to 3 weeks.

Intra-Company Transfer (Tier 2 ICT visa)

The intra-company transfer (ICT) visa, or a Tier 2 (ICT) visa, is relevant to employees working in a multinational corporation who are being transferred to the UK division by the overseas employer. It is relevant to four categories of employees:

Long-term Staff: Employees who have worked with the company abroad for at least 12 months, and are transferring to the UK branch where UK workers are unable to fill the position. The duration is granted for up to 3 years, which may be extended for another 2 years. Any extensions beyond 5 years must incur a 1 year “cooling off” period where employees may not return to the UK under a Tier 2 (ICT) visa, unless they are highly compensated.

Short-term Staff: Similar to Long-term ICT visa, however, is limited to within 12 months of employment in the UK.

Graduate Transfer: Employees who are recent graduate employees of multinational companies who have been working with the employer overseas for at least 3 months, and intend on working via graduate training programmes for no longer than 12 months. Only 5 of these visas may be issued per sponsor each year, and the employee must be training towards a managerial or specialist role.

Skills Transfer: Employees being transferred to the UK branches in the multinational company with the purpose of transferring specialist skills and knowledge to UK employees, or gaining skills and knowledge to bring back to their country. The role must not fulfil a vacancy or replace workers, and should not take longer than 6 months.

Dependants may accompany the employee given that they have applied for a visa as well, along with relevant documentation.

Tier 2 (ICT) visa Fees:
Skills Transfer, Graduate Trainee, Short-term: £445
Long-term staff up to 3 years: £564
Long-term staff more than 3 years: £1,128

Time: Up to 3 weeks.

Freelance / Entrepreneur Permit (Tier 1 Entrepreneur visa)

The Entrepreneur Permit, or a Tier 1 (Entrepreneur) visa, applies to individuals who have access to investment funds and intend to invest or run a business in the UK. This permit allows foreign migrants to set up or take over a UK business under self-employment. The applicant must provide evidence they have at least £50,000 in investment funds in a regulated financial institution to apply to demonstrate their investment capacity, or that they have access to £200,000 or have invested £200,000 in a UK business.

Applicants must provide specific documentation, such as an official statement of investment funds available for investment in the UK from a financial institution, a business plan, and a criminal record certificate in addition to passport, passport photo, proof of English proficiency (except in a handful of English-speaking countries), bank statement of savings, medical test results and biometric information.

The duration for the Tier 1 (Entrepreneur) visa is at maximum 3 years and 4 months, which can be extended for 2 years if already in Tier 1, or 3 years if from another category. The individual may apply for an “indefinite leave to remain” once they have been in the UK for 5 years, where they may stay indefinitely. Dependants may accompany the employee but require a visa and similar documentation. A sufficient level of savings must also be proved to demonstrate the dependants can be supported during the stay in the UK.

Tier 1 (Entrepreneur) visa Fees:
Apply in person: £944
Apply online or by post: £1,180

Time: Up to 3 weeks.

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.

  • Tax Compliance : What is FATCA and who is affected?

Tax Compliance : What is FATCA and who is affected?

  • Tax Compliance : What is FATCA and who is affected?

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