Trading with the UK has changed significantly since Brexit came into force, an increasing number of overseas businesses are opening offices in the UK. If you are considering establishing your business in the UK to make trade easier, here is an outline of some of the benefits, tax law considerations, and how to start the process.
Setting up branch v subsidiary?
Having a presence in the UK is good for trade, providing a springboard for operations and an extra layer of trust with your trading partners, reassured by your commitment to the market.
If you have a physical presence conducting business for you, you must formally notify Companies House.
There are two ways in which you can establish your presence:
- as a subsidiary company
- as a UK branch.
They each have pros and cons, so what is best for you will depend on your circumstances and what you are trying to achieve.
Open a UK branch
A UK branch is an extension of your parent company. This means it’s not a separate legal entity and is subject to the laws of the parent company’s jurisdiction. The branch structure is easier to set up, easier to wind up and can be converted into a subsidiary at a later date.
Tax wise, a branch is subject to UK corporation tax for any profit of the overseas parent company which is attributable to the branch. Your parent company may be able to offset startup losses against its home-based profits. A downside of the branch approach is that because it’s part of the same legal entity as your parent company, the parent company is fully responsible for debt and liability.
Also, you may find the way you file financial statements burdensome. The whole parent company’s consolidated financial statements must be filed in the UK in English at Companies House.
A UK subsidiary
A subsidiary in the form of a limited company is the more popular approach. The subsidiary is still owned by the parent company but is a separate legal entity. It comes with the benefits of limited liability. It might be perceived as a more permanent arrangement and instil a higher level of trust in stakeholders like trading partners or key employees.
A subsidiary is only required to file its own financial statements at Companies House, not those of the parent company. If turnover is under £10.5 million, the balance sheet is under £5.1m and there are less than 51 employees, abridged accounts are permitted. A UK subsidiary is purely subject to UK corporation tax and cannot offset losses against future profit anywhere other than in the UK.
How to register your UK business
To register and open a UK branch, the first step you need to take is complete a government form OS IN01 and return it to Companies House within one month of opening for business. There’s currently a £20 registration fee.
As you would expect, the form is extensive, including:
- name
- address
- what the business does
- details of key people, such as directors
- the company constitution
- other company information, such as accounting requirements.
If any of these details change in the future, you need to inform Companies House within 14 days. A subsidiary, on the other hand, involves setting up a limited company with Companies House.
What next?
If you would like help identifying which is the best approach for you, or assistance with the application and ongoing tax compliance, contact us.
