By Globalization Partners
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The United Kingdom — which includes England, Scotland, Wales, and Northern Ireland — has established itself as a top destination for business, especially in the technological and financial fields. Learn how to expand your company to the UK and the benefits of establishing your company or branch in such a rich, profitable region.
Why do business in the UK?
Establishing a company or branch in the United Kingdom grants access to the diverse cultures of its four countries. It can also put you near other top European business markets, like Switzerland and Germany.
There are several reasons your company should consider UK expansion:
- It’s home to some of the world’s top universities: The UK is where you will find the University of Oxford, University of Cambridge, University College London, and Imperial College London. Top universities attract and produce highly skilled talent, strengthening the local labor market and businesses.
- It’s a leader in digital technology and infrastructure: The UK, particularly London, puts a lot of focus, research, and resources into digital technology and infrastructure. The UK ranks in the top 10 performers on the annual Network Readiness Index, a study conducted by the Portulans Institute that gauges a region’s people, governance, and aptitude and readiness for technology, as well as measures the impact of Artificial Intelligence (AI), Internet of Things (IoT), and the digital economy. Local schools support AI funding and research, further solidifying the digital market. This has helped London become a leading financial hub with global attention, thanks to institutions like HSBC and Bank of England.
- The apprenticeship program can be an asset: The UK has a unique apprenticeship program for businesses and new workers to help grow talent across industries. Though local apprenticeship regulations vary, you might be eligible for apprenticeship-based support and some training or assessment cost assistance.
- Corporate taxation is straightforward: Compared to some countries, corporate taxation in the UK is fairly straightforward. Any company in the UK must pay UK Corporation Tax on profits, while companies with a local branch have to pay the same Corporation Tax on all UK-based profits. The 2021 Corporation Tax rate is 19 percent.
- There might be incentives: Your company might be eligible for certain funding or support incentives — such as the Innovate UK scheme for research and development or regional programs — depending on your location and industry.
Challenges associated with UK company registration
Though the UK’s sought-after labor market and regional programs create the perfect environment for international expansion, the process can be time consuming, expensive, and complex for several reasons.
1. Slowdowns and policy changes related to Brexit
As of January 2021, the UK is no longer a part of the European Union, a separation more commonly known as Brexit. Local and international companies are still waiting to learn the extent of this change as new policies emerge, but a few things to note are:
Supply chain interruption and slowed delivery times as business relationships between the UK and the European Union change and reorganize.
The Northern Ireland Protocol, which dictates that Northern Ireland has separate regulations regarding some trade and services.
The UK’s current lack of individual trade agreements not associated with the European Union, creating a more complex import and tariff process.
As conditions change in the post-Brexit UK, so will many business and trade regulations. Consider working with both a legal counsel for guidance and an Employer of Record (EOR) to manage human resources and employee relationships.
2. The foreign company registration process
UK companies must register through Companies House, an executive agency responsible for incorporating and dissolving limited companies and making company information public. Company registration involves paperwork and registration fees, which can be time-consuming and financially straining if you aren’t prepared.
In addition to company registration, you also need to determine whether your business is responsible for registering for the Value Added Tax (VAT) and how it will factor into operations.
3. Varying legal systems across countries
There are three separate legal jurisdictions across the UK’s four countries. Northern Ireland and Scotland each have their own legal jurisdiction, while England and Wales operate under the same one. Scotland’s system is based on a combination of civil and common law, while the other three countries use common law guidance. Each jurisdiction has a system that may complicate hiring practices or ongoing business laws, depending on the location and size of your company.
4. Complicated planning processes for physical locations
If you plan to establish a physical location for your UK business and do not want to lease an existing space, the process becomes more involved. You must undergo a complex formal planning process to obtain the necessary permits and approval for any type of property construction. Though 90 percent of legitimate applications are approved, it takes months from start to completion before you can even begin any remodeling or building. Plan for possible permit and application fees.
How to register a company in the UK
Specific requirements of business formation in the UK depend on the type of company you intend to establish. You don’t need to create a separate company or subsidiary, but you must set up a permanent establishment or branch and a UK-based business bank account. You can register your company as a private limited company, a sole trader company, a partnership, or a branch.
A private limited company is a common choice, and you can register online as part of a process that takes about 24 hours. After registration, you’ll receive a certification of incorporation establishing you as a legal company.
To apply for registration, you need:
- A company name
- A UK address
- A minimum of one director, who doesn’t have to be a UK resident
- A minimum of one shareholder, which can be either an individual or another company
- A company memorandum
- An Articles of Association document
- Three approved proofs of identity for each shareholder or guarantor
Registering an international branch is a bit different. You do not get the same limited liability benefits you get with a private company, and the process can take up to a month after you’ve started registering with Companies House. You must also secure certified translations by a permanent representative of your company, like a director or receiver, if applicable.
You might consider establishing your company inside of a designated zone. Business clusters are concentrated regions of the same or similar industries, granting convenient access to supply chains and development. Some industries may also qualify for establishment inside an enterprise zone, offering financial advantages and business-ready infrastructure.
Once you’ve registered your company, you must then register as an employer with HM Revenue and Customs (HMRC) before your first payday. Registration can take up to five days, and you can’t register with HMRC earlier than two months before you begin distributing payments. During HMRC registration, you’ll provide all information about your new employee and get important tax codes. You will then register using Full Payment Submission (FPS).
Opening a business bank account in the UK
All UK-based branches and companies need a UK business bank account. Every bank conducts itself differently, and requirements vary depending on location, business, and account specifics. When creating your account, don’t apply through individual branch locations, online, or via telephone — instead, contact the central inward investment team and request more information about opening a business account as an international entity.
Most institutions require the following at minimum when opening a business bank account:
- A UK business address
- A company representative who lives in the UK to be the signatory
- UK business plans detailing your need for the account
- Clear identification of all parties holding 10 percent or more of the company
- Photo ID and proof of address for all relevant directors and shareholders
- An in-person meeting with at least one company representative who meets requirements
This process can take anywhere from weeks to months, depending on your circumstances, so make sure your opening timeline includes ample padding for any pitfalls that arise during application and account setup. You should also set aside room in your startup costs to allocate toward application and account fees.
Challenges when hiring employees in the UK
Registering your company in the UK isn’t the only part of international expansion you need to plan for — you’ve also got to hire employees. The labor force is currently made of more than 35 million people, but hiring employees is not without its challenges.
1. You must prove applicants are allowed to work in the UK
All employers must be able to prove they have verified a job applicant’s eligibility to work in the UK before being hired, or they risk a 20,000 British pound fine. When checking identification, make a legible copy and confirm all dates, photos, names, and other relevant information match your records. Conduct ongoing verification as needed.
During the application process, you also have the right to check criminal records. Some professions allow more detailed checks than others, and specific laws and restrictions vary between countries. Work with an EOR or contact the local governing body to learn more about your industry and legal rights.
2. Companies require a thorough employment contract
Companies can choose to employ full-time, part-time, and fixed-term employees, agency staff, freelancers or contractors, and zero-hour contractors. Legally, there is no probationary period for new employees, and contracts go into effect on the first day of employment. However, you can write specific terms into the contract that only apply during a probationary period.
Every employment contract must be written into a single document and finalized on or before the first day of employment, though some terms are acceptable to add into the contract up to two months post-hire. The contract should contain a principal statement with the following information:
- Employer and employee name, address, and contact information
- Date of employment
- Amount and frequency of pay
- Terms and conditions relating to work hours and time off
- Holiday entitlement, sick leave, sick pay, and other paid leave specifics
- Termination notice periods
- Job title and a brief description
- Length of contract, if applicable
- Place of work if different from employer address
- Training and probationary details
- Pension and benefits information
- Disciplinary information
- Non-legally binding collective agreements
- Training entitlement and specifics
The employment contract includes specific terms ensuring the employer is responsible for paying wages as required, protecting employee health and safety, and allowing room for grievances.
3. Hiring and operational expenses can be complicated
The UK operates on a Pay As You Earn (PAYE) method for employee taxes in most circumstances. This makes you responsible for reporting employee payments and deductions to the HMRC for income tax purposes. You must report on or before each payday and compile annual end-of-year reports detailing all expenses and changing organizational or employee circumstances.
Additional expenses include mandatory National Insurance tax for all employees — currently at 13.8 percent — and employer’s liability insurance to cover work-related sickness and injury. You must also be a part of the Workplace Pension Scheme by law. Some companies with annual wage bills of more than £3 million might be required to pay into the apprenticeship training scheme.
Fast facts to know before expanding your business to the UK
Part of successful international expansion is understanding the workforce in your new market. Here are some things to note about the UK before you begin the international expansion process for your company:
- The current population is about 66 million people.
- Though English is the UK’s official language, they also recognize Scots, Scottish Gaelic, Welsh, Irish, and Cornish.
- The conventional long-form version of the UK is the United Kingdom of Great Britain and Northern Ireland.
- Citizens of the UK are referred to as “Britons” or “the British.”
- London is the capital of the UK.
- UK currency is the British pound sterling (abbreviated as £ and GBP) — which divides into 100 pence — although Scotland and Northern Ireland also produce similar sterling notes.
- Some British and English words are spelled differently. Examples you might find legal contracts include words ending in “-re” vs. “-er,” “-ise” vs. “-ize,” “-ense” vs. “-ence,” and “-our” vs. “-or.”
Learn more with help from Globalization Partners
The United Kingdom is full of expansion opportunities across industries, but complicated legal jurisdictions, delayed supply chains, and complex hiring and registration processes can slow you down. Globalization Partners is an EOR with a presence in the UK and 186 other countries, so you can expand your operations quickly and easily. We use our comprehensive solution and in-country experts to navigate complex logistics, legal compliance, and human resource management. Working with an EOR eliminates the need for an entity in your new market and simplifies recruiting, onboarding, and payroll for your UK talent.
Request a proposal to gain access to your dedicated partner and global support team, or visit our Brexit resource hub for guides and information to help navigate Brexit. You can also download our eBook, “10 International Expansion Mistakes to Avoid,” a guide for avoiding common pitfalls companies encounter when pursuing global expansion.