Guide to Setting up a Business in the UK

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Guide to Setting up a Business in the UK

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  • GUIDE TO SETTING UP ABUSINESS IN THE UK

    ARTAIUS L IMITED

  • ARTAIUS ADVISES

    Contents

    GUIDE TO SETTING UP A BUSINESS IN THE UKArtaius offers an excellent menu of services andare flexible in the way they work with us. Theyreapproachable and easy to talk to and keep usinformed of everything they do.

    Mike McDonnell, Configure OneINTRODUCTION 01

    CHOOSE THE RIGHT TRADING ENTITY 02

    THE TAX REGIME 05

    EMPLOYMENT MATTERS AND PERSONAL TAXATION 09

    BANKING ARRANGEMENTS 12

    SEEK PROFESSIONAL ADVICE 12

    ABOUT ARTAIUS 13

    APPENDICES 14

    ARTAIUS L IMITED

  • 01 ARTAIUS ADVISES ARTAIUS ADVISES 02

    You may want to test the marketor use the UK as a steppingstone to trade in Europe. The UKitself offers a home market ofapproximately 61 million and theEuropean Unions (EU) populationis in the region of 380 million.Establishing your organisation inthe UK will be significantly easierthan elsewhere in Europe.

    Depending on the location andtype of business, there areattractive grants and incentives toencourage foreign companies toset up in the UK. Artaius can helpyou take advantage of all suchbenefits for overseas businessesand individuals coming to the UK.

    The UK is multi-cultural andwelcomes outsiders. Other bonusesare that it lies in the central timezone between the USA and theEast, and has good communicationlinks to the rest of Europe.

    Our aim here is to give you a basicunderstanding of the statutoryframework of UK businesses, thetax situation, direct and indirect,and knowledge of employmentissues, to enable you to formulatea strategic plan to establish asuccessful UK organisation.

    An outsource specialist such asArtaius is a one stop shop forincoming investors to the UK.We have the specialists to ensurethat the administration and allthe back-office tasks are well setup and run smoothly, allowingyour management team toconcentrate on running andexpanding your business.

    Some aspects of setting up in theUK may seem daunting, but wecan simplify the process for you.This guide should serve as a goodstarting point. But it cannot replacea face to face meeting with us,where we will be only too happyto discuss your plans and adviseon your specific situation, on a noobligation basis.

    Melanie Troiano FCCAClient Relationship DirectorArtaius Limited

    Telephone: +44 (0)1438 758 100Email: advice@artaius.com

    INTRODUCTION CHOOSE THE RIGHT TRADING ENTITYIt is important to choose the right trading entity... it has implications for thetax you pay and the requirements for filing accounts.

    Forming a company in the UK isstraightforward, but it is important to selectthe right entity through which to do business;it has implications for the tax situation. (Thisis considered in more detail on page 5 wherewe deal with the UK tax regime).

    There are regulations regarding the use ofbusiness names which cannot be the same as,or too similar to, an existing companys name.

    Setting up a business presence in the UKimmediately brings accounting and filingrequirements as well as the obligation toregister for taxes. This section highlights themain issues overseas companies shouldconsider before deciding upon the type ofbusiness unit they set up.

    Types of Trading Entity

    The four different types of company and theirrelative advantages and disadvantages are:

    Private Company Limited by Shares (Ltd):

    A limited company is a separate legal entity,even if it has a parent company. Membershipis created by the issue of share capital.The company may be stand alone (withshares owned by individuals) or it may bea subsidiary with shares owned by theparent company.

    Subject to any cross-guarantees given thecompanys liabilities are limited to theamount of its assets and issued share capital.Thus, if the UK company is wholly owned byan overseas parent, that parent would

    not be liable for any unpaid debts of its UKsubsidiary. Liability is limited to the amountthe members have agreed to contribute to thecompanys assets if it is wound up.

    The minimum requirement to register a limitedcompany is one shareholder, owning oneshare with any nominal value, and one director.However, there may be as many directors andshareholders as required, none of whom haveto be resident in the UK.

    Continues overleaf...

    This guide is intended to assist overseas entrepreneurs who wish toset up a business in the UK. There are many reasons why the UK is anideal location in which to trade.

    ARTAIUS L IMITED

  • 03 ARTAIUS ADVISES

    There is no requirement to trade in the UK, butthe company must have a registered office; thisdoes not need to be its trading address. Thereis, in fact, no obligation for a trading addressat all or UK resident officers or shareholders.A company is either registered in NorthernIreland, Scotland, or England and Wales andthe registered office must be situated in therelevant jurisdiction area.

    This type of company can be formed easily andinexpensively within 24 hours.

    A company needs to prepare and fileannually a copy of its accounts with TheRegistrar of Companies at Companies House,prepared in accordance with UK company law.Once filed, these accounts are available onpublic record.

    Accounts need to be filed within nine months ofthe companys financial year-end. A companycan choose its year-end; it is common tochoose one that coincides with that of theparent company.

    A statutory audit may also be required ifthe size of the worldwide group, of which theUK company is a part, exceeds certainthresholds. Currently this means:

    1) If gross revenues exceed 6.5 millionor

    2) If gross assets exceed 3.26 million.

    If an audit is required, the cost of maintainingthe company will be higher than a UKestablishment, but a company does providethe protection of limited liability.

    Public Limited Company (PLC)

    A PLC operates in the same way as a limitedcompany, has similar requirements and is easyto set up. However, there must be a minimuminvestment in share capital of 50,000. Only12,500 needs to be paid up in cash, but theunpaid balance of the issued share capital canbe called upon to be provided by the currentshareholders at anytime, if funds are requiredby the company.

    PLC status does carry additionalresponsibilities and compliance requirements.This means all groups, regardless of size,which include a PLC as one of the companies,have to be audited and must prepareconsolidated accounts annually.

    UK Establishment

    A UK establishment is effectively an extensionof the overseas company operating in theUK and is not a separate legal entity. Anycontractual arrangements or liabilities enteredinto by the UK establishment are binding onthe overseas company. The UK establishmentis subject to UK law and UK taxes. A UKestablishment must have a trading address inthe UK and present evidence that it is tradingfrom that address.

    A certain amount of documentationis required to set up a UK establishment.Artaius can assist in producing this. Settingup a UK establishment can take up to threeweeks, less if all the requisite information isavailable. A UK establishment can ceaseoperating quickly.

    Although a UK establishment and acompany both provide a UK presence, alimited company is more permanent andindependent, and third parties often favourdealing with limited companies.

    While the accounts of the UK establishmentdo not need to be filed at Companies House,the accounts of the overseas companymust be filed annually, in English. Thus,if your business is sensitive to the amountof information that is in the public domain,then a UK establishment may not be thebest choice.

    Limited Liability Partnership (LLP)

    In 2000 a new form of corporation, a LimitedLiability Partnership (LLP) was introduced. Thiscombines the benefits of the limited liability of aprivate company limited by shares with the taxtransparency of a partnership.

    An annual return must be prepared andaccounts filed with Companies House each year.

    LLPs are popular with professional groups suchas lawyers or accountants, joint ventures and inthe financial services industry.

    Advice from Artaius

    Many overseas companies wanting to set upin the UK find the private limited company themost attractive type of trading operation. Noconsents are required, no local shareholders ordirectors and no minimum capital rules apply.

    All administrative tasks can easily beoutsourced and indeed Artaius offers expertisein these functions.

    Artaius specialists willexamine every caseindividually, taking intoaccount all the factors ofthe situation, to suggest thebest trading operation tosuit your needs.

    Time was of the essence inthe early stages and Artaius

    made everything fall intoplace very quickly.

    Janelle OConnell, Calleija Jewellers

  • 05 ARTAIUS ADVISES ARTAIUS ADVISES 06

    We were looking forhelp and understandingand Artaius havedelivered and been veryconsistent, from salesto delivery.

    THE TAX REGIMEArtaius specialists will ensure not only that you comply with UK tax requirements,but also that your business has the most efficient tax structure.

    Whilst the accounting period reference dateis quite flexible in the UK and can be chosenwhen the company is formed, the tax returnis due within 12 months of the end of theaccounting period; it can be changed laterin certain circumstances. This enables a UKsubsidiary to have the same accounting periodas its overseas parent.

    Corporation tax returns have to be preparedeach year and the tax is payable within ninemonths of the companys accounting year-end.

    Professional accountants normally prepare thecorporation tax return and calculate the tax

    payable for submission online to HMRC onbehalf of their client.

    One of the partners at Artaius can handle allyour tax matters or deal with your accountantson your behalf.

    2. Employment Tax - PAYE

    Every business organisation needs to beregistered for Pay As You Earn (PAYE). This isthe system that HMRC uses to collect IncomeTax and National Insurance Contributions (NI)from employees as a deduction from theirgross pay as they earn it.

    The PAYE collected in the payroll process ispayable monthly to HMRC within certain timeconstraints; late payments are liable to sufferinterest and penalties.

    The tax deducted from salaries is income tax.Income tax rates vary depending upon personalcircumstances and specific personal allowancesalter the threshold for paying income tax. Thecurrent rates are shown in Appendix 1a.

    NI contributions are also deducted fromemployees earnings. The company paysan additional fixed percentage of pay as itsNI contribution. (These rates are shown inAppendix 1b).

    The company must produce an annual returnshowing the total tax and NI contributions paidby the employee and employer in a full year.

    Payroll processing is a complex and laborioustask and the incorrect calculation of the variousdeductions can incur penalties for a company.It is strongly recommended to outsource thistask to experts.

    3. Value Added Tax - VAT

    In common with other European Union (EU)states, the UK imposes Value Added Tax (VAT)on most business to business and businessto consumer transactions. Currently, this salestax is chargeable by businesses if they aremaking annual taxable supplies exceeding73,000. Some services and products are

    zero-rated or exempt. A zero-rated sale isclassed as taxable (VAT being charged at arate of 0%) but exempt supplies are not taxableand ignored as far as the VAT registrationthreshold is concerned.

    If the VAT threshold is exceeded, orexpected to be exceeded in the near future,the business must register itself for VAT andmust account for VAT on its supplies ofgoods and services.

    When a business is registered for VAT it mustcharge VAT at the prevailing rate on all its salesof goods and services in the UK.

    At the end of each quarter, the businessmust submit a VAT return showing the totalVAT it has charged to its customers as wellas the VAT paid to its suppliers. The netamount is either paid to HMRC or claimedback from them.

    A business may register for VAT on a voluntarybasis before it is required to do so, providedthat it can adequately demonstrate its intentionto trade, or that it is already trading below thethreshold of 73,000 per year.

    Continues overleaf...

    Once your business is formed the next step isto register for various taxes.

    1. Corporation Tax2. Employment Tax/Pay As You Earn (PAYE)3. Value Added Tax (VAT)

    1. Corporation Tax

    A company is regarded as tax resident in theUK if it is incorporated in the UK or if its centralcontrol and management is exercised in theUK. Registration is straightforward by meansof Form CT41G issued by Her MajestysRevenue and Customs (HMRC). Theinformation required comprises:

    Names of directorsName of parent company (if there is one)The trading activityThe period-end date for the firstaccounts of the company.

    Tax rates

    The current Corporation Tax rates are shownin the table below.

    Corporation Tax payment and return

    Companies pay corporation Tax on theirprofits and can carry forward trading lossesagainst future profits of the same trade, for anindefinite period.Financial Year 2011/2012

    Profits exceeding 1,500,000(standard rate)

    26%

    Profits under 300,000(small companies rate)

    20%

    Effective marginal rate on profitsbetween 300,000 and 1,500,000

    27.5%

    Eric Richardson, Skura Corporation

  • 07 ARTAIUS ADVISES

    Overseas businesses setting up in the UKneed to be aware of several importantVAT - related issues:

    i) Goods and services supplied outside the EU

    If a UK business sells goods to customersoutside the EU, and can demonstrate thatthe goods have left the EU, such exports arezero-rated for VAT. However, if goods areimported into the UK, VAT will need to bepaid at the point of entry. This VAT can usuallybe reclaimed by businesses that areregistered for VAT in the UK.

    The rules concerning the supply of services tocustomers outside the EU are more complicated.As a general rule, sales of services to a businesscustomer are outside the scope of UK VAT, butUK VAT is due on many services sold to a non-business customer who is based or residentoutside the EU.

    ii) Supply of goods and services within the EU

    Rules exist to create a level playing fieldacross the EU and to remove anycompetitive advantage that may be gainedby purchasing goods or services from anotherEU member state where the prevailing rate ofVAT is lower.

    A UK business, registered for VAT, does nothave to charge VAT on the supply of goodsor most services to businesses in other EUcountries as long as it is satisfied that thecustomer is registered for VAT in his own

    country or, in the case of services, is in business.Such supplies are zero-rated in thecase of goods, and outside the scope ofVAT in relation to services. However, thepurchaser must account for the notionalVAT that would have been due if they hadpurchased the goods or services from asupplier in the same country. This is knownas the reverse charge mechanism for servicesor acquisition tax in the case of goods.

    VAT Returns

    Most businesses complete quarterly VATreturns. These have to be submitted to HMRCwithin one month of the end of each quartertogether with a remittance for the VAT payableon the return. An extra seve...