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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.

  1. Contracts:

    The UK does not require written contracts for employment, but  within two months of starting work, the employee is entitled to a statement of the main terms of employment.

  2. Probation Periods:

    There is no law explicitly limiting probationary period length. However a probationary period and any extension must be “reasonable”. In practice, probationary periods are typically 3 months and not longer than 6 months. However, various protections and benefits such as pension options begin to apply at 3 months regardless of employee status.

  3. Termination Procedures:

  4. Statutory Leave:

    A.  Annual Leave

    Employees have a statutory right to a minimum of four weeks’ annual paid holiday. In the first year this leaves accrues on a pro rata basis.

    B.  Sick Leave

    In the UK there is a statutory sick pay scheme (SSP). Employees earning over a minimum limit are entitled to receive SSP on days they are away due to sickness.

    The main rules of SSP are that the employee does not start getting SSP until after the first 3 days of absence, and receive SSP for a maximum of 28 weeks. The employee must provide evidence of sickness (e.g. a doctor’s certificate).

    C.  Maternity Leave

    All pregnant employees (regardless of length of service) are currently entitled to 26 weeks’ Ordinary Maternity Leave (OML) which can be taken at any time from the 11th week before the expected childbirth.

    Employees who have or will have served at least 26 weeks’ with the employer by the start of the 14th week before birth qualify for Additional Maternity Leave (AML), which provides an additional 26 weeks after the OML.

    Employees who have or will have at least 26 weeks’ service by the 15th week before the birth are entitled to 26 weeks’ Statutory Maternity Pay. The first 6 weeks are paid at 90% of the employee’s normal weekly earnings  while the remaining weeks are paid at a rate set by the Government.

    Employers can recover either 92% or 100%, plus compensation, of SPP paid (depending on the size of the company).

    D.  Paternity Leave

    Employees who are the biological father or the mother’s husband/partner and expect to have responsibility for the child’s upbringing, and have completed 26 weeks’ service by the 15th week before the baby is due, are entitled to two weeks’ paternity leave. This leave must be completed within 56 days of the date of childbirth.

    Employees earning over a weekly lower earnings limit are entitled to Statutory Paternity Pay (SPP), at the same rate as Statutory Maternity Pay.

    Employers can recover either 92% or 100%, plus compensation, of SPP paid (depending on the size of the company).

    E.  Adoption Leave

    An employee with 26 weeks’ service by the week in which they are notified of an adoption are eligible for adoption leave. Employees earning over a weekly lower earnings limit for National Insurance Contributions are entitled to 26 weeks’ paid Ordinary Adoption Leave (OAL). Only one member of a couple who adopt jointly may take adoption leave.

    Statutory Adoption Pay (SAP) is paid at the same rate as Statutory Maternity Pay.

    Employers can recover either 92% or 100% plus compensation of SAP paid (depending on the size of the company).

    F.  Parental Leave

    Parents of either gender with over one year’s service and who have parental responsibility for a child can take up to 13 weeks’ unpaid parental leave per child. For disabled children the period is 18 weeks.

    The right to take parental leave normally ends when the child is 5.

  5. Pensions and Benefits:

    A.  National Insurance

    In the UK a National Insurance Scheme covers a range of funds from pension, to maternity leave and unemployment. There are different classes of National Insurance (NI) depending on the employment status and salary.

    At the lowest class of NI, employees and employers do not contribute anything, however the employee still gains the benefits of NI. From the second class onwards, the employer contributes 13.8% and the employee contributes 12%. The exact or additional can vary depending on a multitude of factors.

    B.  Pension Scheme

    Aside from the National Insurance mentioned above, any employer with 5 or more employees is required to designate a stakeholder pension scheme.   However there is no actual obligation on the employer or employees to join the scheme or contribute. Rather, the employer must simply provide access to one, and the employees may voluntarily opt to join it.  Any such contributions are deducted directly from the Employee’s earnings.

Employee Entitlements

Information Explanation
Statutory Working Hours ?

The statutory working hours for the UK are 9am – 5pm on Monday-Friday.

Specific Regulations about Overtime ?

Overtime is any time worked outside the hours stipulated in the employment contract. Employers are not required to pay workers for overtime. However, the employee’s pay for the total hours worked must not fall below the national minimum wage.

Employees may not be compelled to work for more than 48 hours per week on average (usually over 17 weeks including work-related training, work-related travel and work-related lunches, excluding travel to and from work, and lunch breaks).

By signing a written opt-out agreement, employees can agree to work longer than the 48-hour limit. They may cancel this opt-out agreement whenever they wish as long as they give the employer at least 7 days’ notice.

The public holidays (‘bank holidays’) in the UK for 2019 are:

  • New Year’s Day (1 January)
  • Good Friday (19 April)
  • Easter Monday (22 April)
  • Early May Bank Holiday (6 May)
  • Summer Bank Holiday (26 August)
  • Christmas Day (25 December)
  • Boxing Day (26 December)

If a bank holiday falls on a weekend, a ‘substitute’ weekday becomes a bank holiday, normally the following Monday.

Public Holiday Pay Rate ?

Paid leave does not have to be given on public holidays. They may be included as part of the employer’s statutory annual leave.

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 ?

Employees are protected from disclosure of their personal information by the General Data Protection Regulation (GDPR). Under the GDPR, employers must comply with the following principles when handling the personal data of employees:

  • Process personal data fairly, lawfully and in a transparent manner
  • Obtain data for lawful purposes and refrain from using it in a manner which is incompatible with those purposes
  • Ensure it is accurate, relevant and up to date
  • Ensure it is not kept for longer than necessary
  • Ensure it is kept secure

If a personal data breach occurs that is likely to result in a risk to the rights and freedom of an individual, the employer must inform the Information Commissioner’s Office (ICO) within 72 hours and if the risk is high, also inform the individual concerned.

Employees may lodge complaints to the ICO if they have concerns about an organisation’s information rights practices.

Employee Protection and Anti-discrimination Rights ?

Employees are protected from discrimination in the workplace by the Equality Act 2010, in matters including, but not limited to, dismissal, employment conditions, remuneration, career advancement and recruitment. 

Employers are required to protect employees from discrimination and/or other treatment, by refraining from engaging in discriminatory workplace practices. This can include not hiring someone, selecting a person for redundancy, or paying someone less than another employee, on the basis of a personal characteristic e.g. age, gender or religion.

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
Annual Leave Accrual Entitlement ?

All full-time employees are entitled to at least 28 days’ paid annual leave per year. The equivalent is 5.6 weeks of holiday. Bank (public) holidays may be included as part of statutory annual leave.

Part-time employees are also entitled to 5.6 weeks of paid holiday, but the number of days is fewer than 28 because they work fewer hours per week.

Employees working irregular hours e.g. shift workers need to calculate their leave entitlement for irregular hours, which may be done here.

Annual Leave Expiry ?

Whether the employee’s annual leave expires in the year it is accrued, is at the employer’s discretion. If the employee agrees, unused annual leave may be carried over the next year. 

Annual leave must be carried over into the next year if (i) illness prevents the employee from taking annual leave or (ii) the employer has agreed to it in the employment contract.

If an employee is unable to take annual leave because they are taking time off for different reasons e.g. maternity or sick leave, they may carry over some or all of the untaken leave into the next year. An employer must allow an employee to carry over a maximum of 4 weeks if the employee is absent due to sickness and unable to take their leave.

If the employee chooses not to take annual leave during sick leave, they may carry forward the untaken leave for up to 18 months from the end of the year in which the leave arises.

Annual leave reporting frequency ?

As soon as possible

Annual Leave Accrual Cash Out ?

Generally, all leave is to be taken within the year of employment. It may be paid out (or carried over into the next year) if this is provided for in the employment contract. However in this case, it must be clear that the employee has been encouraged to use their annual leave. Paying out annual leave cannot be used as an incentive for the employee not to take it.

Annual Leave Accrual paid to Employee ?

Accrued annual leave is not paid to the employee (see above). Anything above the statutory entitlement of 5.6 weeks may be paid to the employee is this has been stated in the contract.

Managing pre-existing Annual Leave ?

It is possible to transfer pre-existing annual leave to a new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations).

Accrued Leave at Termination ?

All unused accrued annual leave is paid out upon termination (unless it is transferred to the employee’s new employment).

Negative annual leave accrual ?

The employee may take negative annual leave. 

In the UK, employees are entitled to Statutory Sick Pay (SSP).

Employees may receive £92.05 per week for illness-related absence from work. To qualify, the employee must have been off work sick for at least 4 days in a row (including non-working days). The first 3 days are ‘waiting days’ and are unpaid, unless the employee has already received SSP within the last 8 weeks and that included a 3-day waiting period. SSP may be paid for up to 28 weeks. 

The statutory amount stipulated above is a minimum, and the employee may be entitled to more based on the terms of their employment contract.

Maternity Leave in United Kingdom ?

Statutory Maternity Leave is 52 weeks and is made up of Ordinary Maternity Leave (first 26 weeks) and Additional Maternity Leave (last 26 weeks). Employees must take 2 weeks’ leave after childbirth.

The earliest day for commencing leave is 11 weeks before the expected week of childbirth. Otherwise, leave will begin on the day after childbirth or if the employee is absent from work due to a pregnancy-related illness in the 4 weeks before the week that the baby is due. A week is Sunday to Saturday.

8 weeks’ notice must be given to the employer if the employee wishes to change the date on which they return to work.

Statutory Maternity Pay

Statutory Maternity Pay (SMP) is paid for up to 39 weeks and is equivalent to:

  • 90% of the employee’s average before-tax weekly earnings for the first 6 weeks
  • The lower of £145.18 or 90% of the employee’s average weekly earnings for the next 33 weeks

Tax and National Insurance are deducted from SMP.

SMP commences on the day maternity leave is taken or when the employee is absent from work due to a pregnancy-related illness in the 4 weeks before the week of expected childbirth.

Employment Termination

Information Explanation
Severance / Redundancy Pay ?

The employee is entitled to statutory redundancy pay if they have been working for their employer for 2 or more years. Redundancy pay is equal to:

  • Half a week’s pay for each full year that the employee was under 22
  • One week’s pay for each full year that the employee was 22 or older, and under 41
  • One and a half week’s pay for each full year that the employee was 41 or older

The length of service is capped at 20 years.

The weekly redundancy pay is capped at £508 and the total is capped at £15,240.

The employee is not entitled to redundancy pay if the employer offers them suitable alternative work and the employee refuses it without good reason.

Termination of Employment ?

The process involved in terminating an employment contract depends on the reason for termination and the employee’s length of service.

An employer-initiated termination for gross misconduct requires no notice period. Gross misconduct involves a serious violation of workplace conduct. What constitutes gross misconduct depends on workplace policy and the terms of the employment contract.

An employer-initiated termination for poor performance, misconduct or redundancy requires a notice period, depending on the employee’s length of service.

If an employee seeks to resign on good terms, they are required to submit a resignation letter.

Probation Period Termination ?

Termination during the probation period generally requires 1 week of notice.

Statutory Notice Period Employer With Cause ?

For employer-initiated termination on the ground of gross misconduct, no notice period is required.

Statutory Notice Period Employer Without Cause ?

For employer-initiated termination on the grounds of redundancy, poor performance or misconduct, the notice periods are:

  • At least 1 week’s notice if employed between 1 month and 2 years
  • 1 week’s notice for each year if employed between 2 and 12 years
  • 12 weeks’ notice if employed for 12 years or more
Statutory Notice Period Employee With Cause ?

Under limited circumstances, termination is effective immediately.

Statutory Notice Period Employee Without Cause ?

The employee is required to give a minimum of 1 week’s notice after working for 1 month. 

It is common for an employment contract to require 1 month’s notice.

Payment in Lieu of Notice ?

The notice period may be paid out in lieu.

Probation

Information Explanation
Probation Period ?

The length of the probation period is agreed upon between the employer and employee and is typically between 1 and 6 months.

Maximum Probation Period Length ?

Generally, a probation period is no longer than 6 months. However, there is no legal limit on the length of the probation period.

Pension

Information Explanation
Pension Requirements ?

Every employer in the UK is required to enrol their employees in a pension scheme and make contributions. Once the employee has been enrolled for 3 months, they are automatically enrolled and have 1 month to ‘opt-out’ which means they will not receive any employer pension contributions. Contributions start in the 4th month of employment (and are not backdated).

Employers and employees are required to contribute 2% and 3% respectively to the employee’s pension scheme.If the employer contributes more than this minimum amount, the employee can contribute less, as long as the balance of 5% is met.

The pension contribution is calculated based on qualifying earnings. Qualifying earnings are all earnings between GBP6,032 and GBP46,350 for the 2018/19 tax year.

Because contributions are made on a relief at source basis (i.e. they are taken from after-tax earnings), the employee is only required to contribute 80% of the 3%, and the other 20% is claimed from the government by the pension fund. Effectively, the employee is only contributing 2.4% (80% x 3%) of their salary to the pension fund.

Employees are not required to have private pension. They may request that the employer pays contributions into a fund of their own choice.

GEO Solutions or 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.

Outsourcing Employment Through a GEO Employer of Record Service

Using Shield GEO Employer of Record Services in United Kingdom

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.

Payroll

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

Please contact us for a quote.

Notes

The employee’s salary is processed through the UK PAYE system, with income tax, and the employee’s and employer’s national insurance deducted at source. Payroll is run once a month in the UK on the last Friday of the month.

Currency ? £
Payment Frequency ?

Monthly

Statutory Requirements for Employee Payslips ?

Payslips must include the employee’s gross earnings, deductions e.g. tax and national insurance, and after-tax earnings.

Additionally, payslips may include information such as the employee’s national insurance number, tax code, rate of pay and the total amount of pay and deductions in the tax year so far.

Documents Supplied to Employee at the End of Tax Year ?
  • P60 Form (showing earnings, tax and national insurance deductions for the tax year)
Income Tax Deductions ?

Individuals may be entitled to deductions or tax concessions on assessable income for the following:

  • Necessary business expenses (excluding reimbursed expenses and travel to/from work)
  • Charitable contributions
  • Pension scheme contributions
  • Interest payments on commercially leased properties
  • Fines e.g. parking penalties incurred in the course of a trade
  • Expenses incurred wholly and exclusively for purposes of a trade (for self-employed individuals)
 
Grossed income Tax Rate (%)
0 – 5,000 0
5,001 - 34,500 20
34,501 - 150,000 40
150,001+ 45
Tax Returns Supplied

Yes, but generally not required.

Corporate Tax Requirements

The corporate income tax rate is 19%. Where the taxable profits can be attributed to patents, a tax rate of 10% applies.

Employers Social Security and statutory contributions

Employers are required to contribute 13.8% of the employee’s salary above GBP702 per month to Employer’s National Insurance.

Employees Social Security and statutory contributions

Employees are required to contribute 12% of their salary above GBP680 per month and below GBP3,750 per month to Employee’s National Insurance. A 2% contribution is required for income above GBP3,750 per month.

Employer Social Security Limits ?

There are no limits on contributions.

Employee Social Security Limits ?

There are no limits on contributions.

Is employee social security deducted ?

Yes, social security contributions i.e. contributions to National Insurance are deducted at source.

Special Requirements for Expense Reimbursements to Employee ?

Scanned receipts are required for expense reimbursements.

Special requirements apply for different categories of expenses.

  • Travel expenses: This include air fares, accommodation, meals and other ‘subsistence’. It is common for employers to provide employees with a ’round sum allowance’ for employment-related travel which the employee may spend at their discretion. Round sum allowances are considered part of an employee’s salary (i.e. are subject to tax) and are different to expense reimbursements.
  • Car expenses: Reimbursements for business mileage (i.e. use of an employee’s private car for business purposes) are tax-free at the following reimbursement rates – (i) GBP45 per mile for the first 10,000 business miles in the tax year, and (ii) GBP25 per mile thereafter. Excess reimbursements above the tax-free thresholds are taxable. 
Are employees required to have private pension/retirement ?

Every employer in the UK is required to enrol their employees in a pension scheme and make contributions. Once the employee has been enrolled for 3 months, they are automatically enrolled and have 1 month to ‘opt-out’ which means they will not receive any employer pension contributions. Contributions start in the 4th month of employment (and are not backdated).

Employers and employees are required to contribute 2% and 3% respectively to the employee’s pension scheme.If the employer contributes more than this minimum amount, the employee can contribute less, as long as the balance of 5% is met.

The pension contribution is calculated based on qualifying earnings. Qualifying earnings are all earnings between GBP6,032 and GBP46,350 for the 2018/19 tax year.

Because contributions are made on a relief at source basis (i.e. they are taken from after-tax earnings), the employee is only required to contribute 80% of the 3%, and the other 20% is claimed from the government by the pension fund. Effectively, the employee is only contributing 2.4% (80% x 3%) of their salary to the pension fund.

Employees are not required to have private pension. They may request that the employer pays contributions into a fund of their own choice.

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.

Public Medical Insurance ?

Free healthcare is provided under the National Health Service (NHS), and is funded by National Insurance contributions by the employer and employee.

Private Medical Insurance Taxed ?

Contributions to private medical insurance are taxed as a benefit in kind. It does not matter if the employer makes the contribution directly, reimburses the employee or pays the employee an allowance. All employer contributions to employees’ private medical insurance schemes are subject to income tax and national insurance contributions.

Can supply private health care

Yes

Can assist opening bank accounts

Yes

Can assist with employee private pension ?

Yes, the employee can be enrolled in the private pension scheme designated by their employer.

Will contributions by employer/employee to private pension incur tax? ?

Private pension contributions are taxable if the amount in an employee’s pension account exceeds the following:

  • 100% of the employee’s earnings in a year
  • GBP40,000 in a year
  • GBP1,000,000 in the employee’s lifetime

General Employer of Record Service Terms

General Employer of Record Service Terms
Are there taxes that apply to invoices ?

Invoices are not taxed.

Minimum assignment length ?

3 months

Payment Currency ?

Pound Sterling (GBP)

Onboarding Documents and Information Required ?

The following documents and information relating to the employee are required for onboarding:

  • Copy of passport
  • P45 Form from previous employer
  • Job description
  • A completed Shield GEO CIF with personal details including name, gender, address, bank information etc.

Work Permits

Work Permits
Can Sponsor Work Permit

No

Work Permit processing time

3 weeks (depending on the country)

Work Permit process

Shield GEO (and other GEOs or Employer of Record companies) are not permitted to sponsor work permits for foreign assignees in the UK.

The process for obtaining a work permit involves the following:

  • The employer applies for an employer’s sponsor licence.
  • The employer issues a certificate of sponsorship to the employee.
  • The employee applies for a visa online.
  • The employee has their fingerprints and photograph taken at a visa application centre, to obtain a biometric residence permit.
  • The employee collects their biometric residence permit within 10 days of the reported date of arrival in the UK.

See ‘Immigration and Work Permits’ for more comprehensive details.

Submission of original passport ?

Yes

Are work permit processes different for different nationalities ?

The work permit process is the same for different nationalities. However, some nationalities may be required to provide certain additional documentation such as proof of knowledge of English and/or tuberculosis test results.

Can Work Permit be processed in country

An employee may not apply for a UK visa from within the UK and may only enter the UK when a biometric residence permit has been received from a visa application centre in their home country.

Is application processed in host or home country ?

The application is processed in the home country.

Can employee be in host country when application lodged ?

The employee cannot enter the UK under they have received a biometric resident permit in their home country.

Can employee travel in and out of host country when application lodged ?

No

Work Permit – When Can Employee Start Work ?

The date on which the employee may start work is listed on their certificate of sponsorship.

Employee required to attend consulate/embassy in home country? ?

No

Work Permit Dependent Process ?

Dependants may come with the employee to the UK. If they are from outside the European Economic Area (EEA) or Switzerland, they are required to obtain a visa. 

A dependant includes the employee’s:

  • Husband, wife or partner
  • Child under 18
  • Child over 18 if they are currently in the UK as a dependant

The process for obtaining a visa for an employee’s dependant involves the following:

  • Filling out an application form online
  • Paying the visa fee online
  • Printing out a form
  • Booking and attending an appointment at a visa application centre to have biometrics taken (fingerprints and photo)
  • Obtaining a biometric residence permit and collecting it within 30 days of their reported arrival date in the UK
Work Permit Approval Notification Process ?

If the work permit application is successful, the applicant receives a biometric residence permit.

When Can Employee Travel to Host Country ?

The employee can travel to the UK once they have received their biometric residence permit.

What is required of employee after approval? ?

The employee is required to collect their biometric residence permit within 30 days of arrival in the UK.

Switch Business Visa to Work Permit?

No

Can Spouse work on dependent visa?

Yes

Does the visa lead to settlement/residency ?

Yes

Special Requirements for Work Permit Cancellation ?

The sponsor employer is required to notify UK Visas and Immigration (UKVI) via the Sponsor Management System (SMS) that employment has ceased. The UKVI Curtailments Team processes the cancellation of the employee’s visa, and notifies the employee of the time remaining on their visa. This is dependent on the time remaining on the visa originally and the reason for termination. It is generally 60 days starting from the date of notification.

Business Visas

Business Visas
Can do Business Visa

Shield GEO does not organise business visas in the UK.

Business Visa Cost
Who You’re Applying For Applying (Outside the UK) Extending / Switching (In the UK)
You £1,021 £1,277
You (if you’re from Turkey / Macedonia) £966 £1,222
All dependants £1,021 per person £1,277 per person
Business Visa processing time

3 weeks (depending on the country from which the application is made)

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.

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
Currency ?

£

Employee Information Required ?

The following information relating to the employee is required for setting up their payroll:

  • Personal details e.g. full name, gender, date of birth, address etc.
  • National Insurance number
  • Student Loan details (if applicable)
  • Tax Code (if applicable)

 

Tax Registration Requirements ?

The employer must inform HM Revenue and Customs (HMRC) when they take on a new employee. To register an employee with HMRC, the employer include their details on a Full Payment Submission (FPS) the first time they are paid.

The FPS includes:

  • Information collected from the employee (from the employee’s P45, or ‘starter checklist‘)
  • Tax code and starter declaration
  • Pay and deductions (e.g. tax deductions, National Insurance and student loan deductions) since they started working with the current employer)
Social Security Registration ?

Every employer 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 ?

The following documents are required for new employees:

  • Employment contract
  • A written statement of employment particulars (if the employment contract lasts for 1 month or more)*
  • Relevant workplace pension scheme documents and details**

*The written statement is provided within 2 months of the start of employment and includes the main conditions of employment. A comprehensive list of what this statement must include can be found here.

**Under the Pensions Act 2008, employers must put employees into a workplace pension scheme and make contributions. This is called ‘automatic enrolment’.

Tax Figures

Information Explanation
Corporate Income Tax ?

The corporate income tax rate is 19%. Where the taxable profits can be attributed to patents, a tax rate of 10% applies.

Income Tax Rate ?
Grossed income Tax Rate (%)
0 – 5,000 0
5,001 - 34,500 20
34,501 - 150,000 40
150,001+ 45
Payroll Tax ?

There are no payroll taxes in the UK.

Sales Tax ?

A standard VAT rate of 20% applies to most goods and services, apart from domestic fuel and power which are subject to a VAT rate of 5%. Most exports are exempt from VAT.

Withholding Tax ?

Dividends – None

Interest – 20%*

Royalties – 20%*

*Payments made to a resident company is free from withholding tax if the recipient is taxed on the interest or royalty.

 

Other Tax ?

Local taxes are levied on business property, based on a deemed annual rental (‘rateable’) value for the property concerned. These taxes are levied by local government authorities, and are deductible for corporate tax purposes.

Income Tax (Personal Allowance) ?

The first GBP5,000 of an individual’s income is not taxed.

Tax Year End Date ?

5 April

Tax Year End Documents ?
  • P60 Form (showing earnings, tax and National Insurance paid in the tax year)
Are tax residents subject to tax on their global income ?

Tax residents are taxed on their global income if they are domiciled in the UK i.e. they have been a resident for 7 years or more. Otherwise, they are taxed on their UK-source income only.

Time to prepare and Pay Taxes ?

105 hours

Time required to start a Business ?

4 days

Payments

Information Explanation
Standard Payroll Cycle ?

Monthly

Standard Payment Date Per Month ?

28th of the month

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 must show gross wages, tax and National Insurance deductions and the employee’s earnings after deductions.

Payslips may also contain the employee’s National Insurance number and Tax Code, their pay rate and the total amount of earnings and deductions so far in the tax year.

Minimum Wage ?

The minimum hourly wages for different age groups are as follows. The rates in brackets will be applied from April 2019.

Apprentice: £3.70 (£3.90)

Under 18: £4.20 (£4.35)

18 to 20: £5.90 (£6.15)

21 to 24: £7.38 (£7.70)

25 and over: £8.21 (£8.21)

 

Immigration and Work Permits in United Kingdom

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 non-European Union employees, and sponsored by a locally licensed and incorporated entity, with a Certificate of Sponsorship from the UK government.  Employees who are from EU member countries do not need a work permit in the UK.

Have your own Company?

To secure a work permit for employees, the employer must have a fully incorporated company in place in the UK.  The most common work permit is the General work visa or Tier 2 visa.

Steps Required to Obtain a Tier 2 Visa

For the Employer

Step 1: ‘Resident Labour Market Test’

The employer carries out a ‘resident labour market test’. This is to ensure that the foreign employee’s position cannot be filled by a local employee in the UK. The employer advertises the job for at least 28 days (either continuously or in 2 stages where each stage is 7 days or more). The test is satisfied if the employer can show that they were unable to find a suitable local employee.

Step 2: Sponsorship License Application

The employer applies for a sponsorship licence online through UK Visas and Immigration (UKVI). The documents required for this application process depend on the type of company and the type of Tier 2 visa e.g. General, Minister of Religion etc.

If the employer is applying for a licence to sponsor employees in the Tier 2 (General) category, they are required to provide the following information:

  • Certified supporting documents that provide evidence of the existence of the business e.g. VAT registration, bank statements, etc.
  • Why they are applying for a sponsorship licence
  • What sector they operate in
  • What their operating hours are during the week
  • Hierarchy chart of the owner, director, and board members (or the names and titles of all staff if the business has 50 employees or fewer)
  • What job or jobs they intend to assign a certificate of sponsorship (COS) for including the job title, duties, salary, required skills etc.

A more comprehensive list of the required documents, for each organisation-type and visa-type, can be found here.

Most applications take up to 8 weeks to be approved and cost up to £1,476 for Tier 2 visas, depending on the size of business.

Step 3: Certificate of Sponsorship (COS) Applications

The employer applies for a COS for each employee. The COS is an electronic record in the form of a reference number assigned to each employee.

There is a monthly limit on certificates issued. COS applications may take up to a month to process, with a fee of £199 per Tier 2 certificate.

The employer uses the sponsorship management system to create a COS for the employee. The system generates a unique reference number (URN), which the employee can quote on their visa application.

For the Employee

Step 4: Prepare Documents

The employee prepares the following documents for the application process:

  • Certificate of Sponsorship reference number
  • Proof of knowledge of English (unless they are a national of a specified country
  • A bank or building society statement or letter showing that the employee has sufficient personal savings (£945 over last 90 days) unless the certificate of sponsorship shows the sponsor can provide support
  • Current passport or travel document (with a blank page)
  • Expired passports or travel documents (to show travel history)
  • Tuberculosis test results (if from a listed country
  • Criminal record certificate (if working in education, healthcare, therapy or social services)

All documents in languages either than English or Welsh must be translated.

Step 5: Lodge Application

The employee applies for a Tier 2 (General) visa online. They may apply for a visa up to 3 months before the day they are due to start work in the UK. This date is listed on their certificate of sponsorship.

The application takes up to 15 days with a fee depending on the occupation, which will generally be £610 for visas valid up to 3 years or £1,220 for more than 3 years.

Step 6: Attend Visa Application Centre

The employee makes an appointment at a visa application centre (during the online application) to provide their biometric information (fingerprints and photograph). Some visa application centres may need to hold on the employee’s passport and documents while processing the application.

Step 6: Receive Application Outcome

If the application is successful, the employee receives a sticker (called a vignette) for their passport. This shows the type of visa that the employee has been granted, the dates for which the visa is valid and the visa conditions.

If the visa application centre has kept the employee’s passport, they will post it to the employee with the vignette inside.

Step 7: Collect Biometric Residence Permit

If the employee is coming to the UK for more than 6 months, they are required to collect a biometric residence permit (BRP) when they arrive. This must be done before the later of, the expiry date of the sticker or within 10 days of arriving in the UK.

Use the Shield GEO Employer of Record Solution?

Given changes in regulations, third party organisations, including GEOs 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 Cost: £85

Time: 15 days up to 3 weeks

Tier 2 (General) Visa

The Tier 2 (General) Visa is an employer-sponsored visa for employees who have been offered a skilled job in the UK, and are from outside the European Economic Area (EEA) and Switzerland.

With a Tier 2 Visa, the employee can stay for the shorter of, a maximum of 5 years and 14 days, or the time on stated on the certificate of sponsorship plus 1 month.

The employee is permitted to work for their sponsor in the job described on the certificate of sponsorship, take up a second job under certain circumstances, do voluntary work, study as long as it does not interfere with the job the employee is sponsored for, travel abroad and return to the UK and bring family members.

The employee may not own more than 10% of their sponsor’s shares (unless they earn more than £159,600 a year), receive public funds, or apply for a second job until they have started working for their sponsor.

See above for the process involved in applying for a Tier 2 (General) visa.

Standard Cost: £610

Time: Up to 3 weeks

Tier 2 (Intra-Company Transfer) Visa

This visa is for employees who have been offered a role in a UK branch of their organisation.

The 2 types of Intra-Company Transfer Visas are:

Long-term Staff – For employees who have worked with the company 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.

Graduate Trainee – For employees who have been working with the company 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.

The employee may stay for up to 9 years on a Long-term Staff ICT visa (if they earn more than £120,000 a year), up to 5 years and 1 month on a Long-term Staff ICT visa (if they earn less than £120,000 a year), and up to 12 months on a Graduate Trainee ICT visa.

 

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.

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.

  • United Kingdom Employer of Record Overview

United Kingdom Employer of Record Overview

  • United Kingdom Employer of Record Overview

United Kingdom

United Kingdom

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