Establishing a business in the United Kingdom

İf you are an overseas business holder and looking to start a business in UK , one of the first things you need to do is choose a business structure that’s right for you.The legal structure you choose will affect the way you run the business and the tax you pay.

The legal structures for setting up a commercial business entity in the UK are:

Incorporated entities
Non-incorporated entities

1 ) Limited Company which comes in 3 common types:

  • Private limited company
  • Public limited company
  • Limited Liability Partnership

*Almost always when somebody describes to a Limited company, they are referring to a Private Limited Company (Ltd)

2 ) UK establishment

  1. Partnership
  2. Limited Partnership
  3. Sole trader

Explanation

Private Limited Company

The Private Limited Company is the most common legal form used by the vast majority of businesses A Private Limited Company requires at least one director but can be set up with as little as £1 of ordinary share capital. private Limited companies may not quote shares in a stock Exchange. The company itself has to be registered with Companies House.

Limited companies are legal entities in their own right i.e. they are not people. Directors are not liable for the losses of a company unless the company has traded whilst technically insolvent, or unless there have been financial irregularities. A Private Limited Company is run by a board of directors, and is owned by its shareholders. Should the company become insolvent, any shareholder is only liable to the extent that there is any unpaid share capital or share premium in respect to the amount which they have agreed to pay for the shares.

Public Limited Company

A Public Limited Company offers the same protections to shareholders and directors as a Private Limited Company.

The most common reason for establishing a public limited company is either to raise capital by offering the company’s shares on a stock market or to increase the prestige of the company. There is no requirement for a public limited company’s shares to be admitted to trading on any stock market, although there are additional reporting requirements.

To form a public limited company it is a requirement to have at least 2 directors, a company secretary and a minimum of £50,000 nominal share capital, of which a minimum of a quarter must be paid up.

All limited companies are required to file annual accounts and statutory records with Companies House, which can be accessed by the public.

Limited Liability Partnership (LLP)

A Limited Liability Partnership is the most popular incorporated business structure amongst professions that operated as partnerships -such as law firms, accountancy practices and other professional services firms.

With a Limited Liability Partnership all of the partners (normally referred to as the members) have limited liability, meaning they are not personally responsible for the LLP’s liabilities beyond what they either invest or guarantee to the LLP and their personal assets outside of the limited liability partnership are protected.

  • You must have a minimum of 2 members which can be individuals or businesses to incorporate an LLP.
  • An articles of association does not require for LLPs but we recommend having A Partnership Agreement to set out how the LLP will be run.
  • There is no share capital in LLPs.
  • Limited Liability Partnerships are not liable for corporation tax ,however LLP members must pay National Insurance and Income Tax on any profits they make.
UK establishment

Overseas companies wishing to expand their business activities into new overseas countries will consider to forming of abranch or representative Office instead of incorporating a new Company .

UK establishment is defined in the Overseas Companies Regulations 2009 to refer to a place of business or branch of an overseas company in the UK.

Overseas companies can define their presence in the UK as either a branch or a place of business but both are treated in the same way in terms of registration and filing requirements, as both are considered to be a ‘UK establishment’.

An establishment is not a separate legal entity from the overseas parent and therefore does not have limited liability in its own right.

Traditional Partnership

A Traditional partnership is not, in contrast to a limited company, a separate legal entity from the partners. Any debts and obligations are jointly and severally the responsibility of the partners and personal assets are also at risk.

Limited Partnership

A Limited Partnership must have at least one General Partner and any number of Limited Partners.

General partners are jointly and severally liable for all the partnership’s debts, whereas the limited partners risk is limited to the amount initially invested in the business. Limited Partners cannot be involved in the management of the partnership Business.

Limited partnerships do not pay tax on their profits, which is described as being tax transparent. Instead the partners pay their own tax on their share of profits, making them ideal for passive non-resident investors.

They are commonly used in fund structures. The partnership structures are not available for not-for-profit organisations.

Sole trader

A sole trader is the simplest form of structure for an individual starting a business. Like a Partnership a sole trader is liable for all the debts of a business.

A sole trader needs to register with HM Revenue & Customs when the business activity starts and to file annual tax returns but there is no requirement to file accounts at Companies House and very little statutory regulation.

Taxation in UK

Value Added Tax – VAT-Sales Tax rate

The standard rate of VAT is 20% with reduced rate of 5 percent applies to some goods and services, eg children’s car seats and home energy.

Rate % of VAT What the rate applies to
Standard 20% Most goods and services
Reduced rate 5% Some goods and services, eg children’s car seats and home energy
Zero rate 0% Zero-rated goods and services, eg most food and children’s clothes

VAT Registration

VAT registration is required if your turnover for the past year has exceeded the £85,000.However you can voluntary register for VAT in the UK. An advantage of voluntary VAT registering is that the company can avoid any late VAT registration penalties if the company exceeds the VAT registration threshold in the future without realising. Therefore it is beneficial to voluntarily VAT register in order to avoid any ongoing concern about exceeding the VAT registration threshold.

Corporation Tax

Corporate tax rate in UK stands at 19%. This type of tax is a tax collected from companies

Small profits rate – For companies with profits up to £300,000 19%
Main rate – For companies with profits above £300,000 19%