International Business Entry in the UK: Eight Things Overseas Companies Should Consider

The World Bank ranks the UK amongst the top ten places for “Ease of Doing Business”. It scored above 90% in categories of “Starting a Business”, “Getting Electricity”, and “Trading Across Borders” respectively. This is followed by other amazing benefits such as “Dealing with Construction Permits”, “Resolving Insolvency”, and “Protecting Minority Investors” which are scored above 80%. 

The protection of minority investors is on a stupendous 7th out of 190 countries surveyed. On the lower end of the scale are 'Registration of Property' (75.7%), 'Getting Credit' (75.0), and 'Enforcing Contracts” (68.7%). The future looks promising for starting and conducting a business in the UK. Here are the Top Eight Things Overseas Companies Should Consider Before Moving to the UK:

1. Start with the Business Structure: 

Currently, the UK's government supports two main kinds of legal structures for overseas companies: Branch (also known as the UK establishment) and Subsidiary (or the Limited company). The Branch is an extension of an overseas parent company. The benefits include being able to convert it into a separate company at later stages and closing all business operations without any formal notice. The disadvantages include difficulty getting UK clients on board because some of them might be hesitant to conduct business with overseas companies due to the complexity of laws in different countries. 

On the other hand, if you decide to operate as a separate legal entity, you will enjoy benefits of autonomy, and ease of entering contractual obligations in the UK market because as a subsidiary you are completely governed by the UK law system. The most prominent 

disadvantages are the complexity of tax filing and closing of business operations. However, getting professional help can mitigate these disadvantages to the extent that both of these structures can become available options if required. 

2. Contracts:

Before you decide to either expand in the UK or set up a new company (subsidiary), you will have to look at the nature of the sales contract  particularly if you opt to enter into a contractual agreement as a B2B entity. If you follow UK law, it will be a smooth process to gain entry and to remain relevant in the market.  

Other kinds of contracts to look out for are related to Intellectual Property Rights, and Data Protection of UK's citizens. Keep in mind that both of these laws are heavily regulated by the UK's government and are regularly updated.

3. Worker's Rights:

UK employment law provides employees in the UK with a wide variety of legal rights as soon as they sign their employment contract. These include a minimum hourly wage of £8.91 per hour if the employee is older than 23 for example. They are also entitled to turn down work that exceeds 48 hours per week. Furthermore, employees are entitled to a paid sick leave, maternity leave, paternity leave, adoption leave, and 28 days of paid holidays.

This might be a little different than the labour laws in the United States for example but they are very strictly enforced. Getting help from an HR specialist is often convenient when it comes to hiring employees in the UK.

4. UK Business Taxation System:

As discussed above, the UK presents ease of paying taxes and obtaining credit. Prior to deciding on the legal structure for a tax-efficient operation, you will have to read in detail about:

  • the Interest rate
  • Research and Development Expenditure
  • Intellectual Property and Goodwill
  • Royalties to be paid
  • Diverted Profit Tax (DPT)
  • Distributions
  • Transfer charges, and
  • Losses incurred

These factors will present you with thorough knowledge about restrictions and reliefs. A good case in point is a 230% tax relief for Small and Medium Enterprises interested in carrying out a Research and Development activity. On the other hand, 20% of the tax is deducted if royalties are paid to non-UK citizens.

Lawrence Grant are professional accountants that specialise in helping overseas companies navigate tricky accounting regulations and can help you set up your new business operations in the UK.

5. Regulations:

Companies in the UK are heavily regulated by law. Examples include competition, export control, and consumer laws. The General Data Protection Regulation or GDPR has set a fine of €10 million for non-compliance. Some of the most popular regulatory authorities to seek information from are: 

(1) Financial Conduct Authority.
(2) Financial Reporting Council.
(3) HM Revenue and Customs and 
(4) Prudential Regulation Authority (PRA).

6. Real Estate: 

This is a serious concern for overseas companies who are not familiar with the law and norms of the land, specifically for someone coming from a country such as the USA that has completely different real estate laws.

The ideal recommendation would be to research lease, rent, and owning of the property followed by contacting real estate brokers for a better insight. For example, real estate prices in the UK are 19% more than in the USA on average. A real estate broker will not just present you with the available options in the area you want to establish your office but will also facilitate you with additional information related to security, liabilities, and other concerns. 

7. Trading Across Borders:

More recently, UK has experienced changes to Brexit where the UK is no longer part of the Single Market and Customs Union, which has placed higher expectations on businesses who wish to ship offshore. Every business that wants to trade out of the UK will need to apply for an EORI, or Economic Operator Registration and Identification number. This application process is quick and easy and can be done online. These Brexit changes are still being implemented so it's important to remain on top of the legislation when trading across borders.

Having expert accountants on your team can reduce the burden of in house regulatory compliance when it comes to reporting your imports and exports while operating in the UK.

8. UK Adopted Accounting Standards

The UK's government was eager to make changes in the accounting system to facilitate international businesses. In the last few years, the Financial Reporting Council (FRC) adopted a new framework that is based on International Financial Reporting Standards (IFRS). Complying with this new framework/ module of accounting standards and replacing Generally Accepting Accounting Principles (GAAP), UK has introduced:

  • FRS 102 form is a single financial reporting system instead of the complexities of GAAP. 
  • FRS 101: These are publicly available consolidated financial statements. This form facilitated overseas companies operating in the UK  to withhold information by reducing disclosure

To conclude, entry to the UK's market is highly encouraged due to the ease of the process but it is also dotted by complexities of taxation, regulations, and gaming access to local property. Lawrence Grant can help your business expand into the UK by ensuring compliance with local laws, helping you set up your operations, and making sure your business's tax liability is at a minimum.

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